This paper explores the impact of the regulatory leverage ratio (LR) on banks' demand for reserves and thus the pricing of overnight liquidity in the euro area money markets. We use daily transaction-level money market data during the period between January 2017 - February 2023 and examine the...

Recently, there has been increasing research interest in the historical composition of central bank reserves. However, studies in this area is hindered by a lack of data, as such data spanning multiple centuries is only available for a small number of countries. This paper presents an empirical...

We study whether it is desirable for the central bank to supply reserves abundantly, i.e. beyond the level that satisfies financial institutions' aggregate liquidity needs. Using a theoretical framework, we demonstrate that abundant reserves would help fulfil the private sector's demand for safe...

When capital in the banking system becomes depleted, the degree to which financial intermediation and the macroeconomy are adversely affected is likely to depend on the financial and macroeconomic environment. However, existing studies either assume that the effects of bank capital shocks are...

Purpose: This paper examines the significant effect of off-balance sheets (OBS) on earnings management in the banking industry in Indonesia. Furthermore, this study also examines the role of market power as a moderating variable that moderates the relationship between off-balance sheet...

This CD engagement covered two distinct areas to help the National Bank of Georgia (NBG) deliver on its price stability mandate, it: 1) provided a forward-looking analysis of the NBG's balance sheet to assess its policy solvency and to help institutionalize such a process, and 2) outlined a...

This paper explores the relationship between banks and stablecoins and their issuers, focusing on the mechanical effects on banks' capital and liquidity ratios when issuing stablecoins or collecting deposits from stablecoin issuers. The analysis reveals that converting retail deposits into...

The objective of this research is to assess the effect of holding government securities on the credit channel, taking into account the heterogeneity of WAEMU banks' balance sheets. The methodology adopted to achieve this objective is VAR panel modelling, proposed by Abrigo and Love. The...

Firms’ investment behavior is intermittent, and a significant fraction of capital formation occurs during “investment spikes”. We define financial flexibility as the capacity to accommodate investment spikes, as potentially determined by (i) external financing frictions, and (ii) the state...

The systemic risk measure (SRISK) by V-Lab provides a market view of the vulnerability of financial institutions to a sudden downturn in the economy. To overcome the shortcoming that it cannot be applied to non-listed banks, SRISK characteristics of listed banks are mapped on balance sheet...

The present article proposes to draw on the recent experiences of many central banks of advanced economies and the evolution of their operational frameworks in the new context of increased domestic liquidity, when analysing the operations of central banks that engage in exchange rate management...

This Technical Assistance Report on the Seychelles discusses Stress Testing the Central Bank Balance Sheet (CBS). The CBS balance sheet is weak, due to the cost of carrying foreign exchange (FX) reserves. The conditions of CBS lending in Seychellois rupees (SCR) also contributed to weakening the...

We quantify the sovereign-bank doom loop by using the 1999 Marmara earthquake as an exogenous shock leading to an increase in Turkey's default risk. Our theoretical model illustrates that for banks with higher exposure to government securities, a higher sovereign default risk implies lower net...

This paper discusses how a Federal Reserve issued retail central bank digital currency (CBDC) could affect U.S. monetary policy implementation. Using a stylized balance sheet analysis, we analyze the effect a retail CBDC could have on the balance sheets of the Federal Reserve, commercial banks,...

We examine the reason why two opposing views coexist on the distressed banks’ lending behavior in Japan’s postbubble period: i.e., the stagnant lending in the capital crunch and forbearance lending to low-quality borrowers. To this end, we address the measurement problem of bank...

In June 2022, the Federal Reserve started reducing the size of its balance sheet, which had expanded to just under $9 trillion in response to the COVID-19 pandemic. However, whereas banks' reserves at the Federal Reserve have decreased, the investment of money market funds (MMFs) at the Federal...

The Federal Reserve’s 'balance-sheet normalization', which reduced aggregate reserves between 2017 and September 2019, increased repo rate distortions, the severity of rate spikes, and intraday payment timing stresses, culminating with a significant disruption in Treasury repo markets in...

We examine the existence of a feedback loop between the resilience of the financial sector and Greek economic activity. A sequence of structural VARs is employed using data for bank credit, liquidity, capital, asset quality and private demand in 2001-2018 in two data sets. One in monthly...

The loan impairment rules recently introduced by IFRS 9 require banks to estimate their future credit losses by using forward-looking information. We use supervisory loan-level data from Germany to investigate how banks apply their reporting discretion and adjust their lending upon the...

We investigate how managers smooth volatility in balance sheets, using the pension accounting change IAS 19R as a shock to balance sheet volatility. This shock increases pension plans’ funding transparency, which is the source of volatility, without targeting actual plan funding. We find that...

Digital money is a logical step in a process of continuous technological advancement in payment systems. In response, central banks are reviewing their conduct of monetary operations in light of the new shape of financial markets and systems. The impact of digital money will depend on the type...

When the Federal Reserve expanded its balance sheet via large-scale asset purchases (quantitative easing) in recent years, we find an increase in commercial bank deposits with a shortening of their maturity, and also an increase in outstanding bank lines of credit to corporations. However, when...

We document the existence of a quantitative relevant banks' balance-sheet transmission channel of oil price shocks by estimating a dynamic stochastic general equilibrium model with banking and oil sectors. The associated amplification mechanism implies that those shocks explain a non-negligible...

With the onset of the COVID-19 crisis, the ECB’s Governing Council modified the conditions of the TLTRO III, aiming to facilitate the flow of bank credit to the real economy. The new conditions encouraged an unprecedented level of take-up of the Eurosystem’s refinancing operations by credit...

The amplitude of leverage procyclicality is heterogeneous across banks and across countries. This paper introduces international diversification of bank balance sheet as a factor of this observed heterogeneity, with a special emphasis on currency diversification. Based on a new theoretical...

I examine the impact of the Federal Reserve's balance sheet reduction on short-term interest rates emanating from the declining supply of reserve balances. Using an exogenous shift in the supply of reserves, I estimate that by January 2019, when the Fed will have reduced its portfolio by $500...

In the aftermath of the global financial crisis, central banks started being confronted with severe challenges that led to an unprecedented policy response in terms of the size and variety of monetary policy measures. One such measure centred on central banks communicating to the public more...

The amplitude of leverage procyclicality is heterogeneous across banks and across countries. This paper introduces international diversification of bank balance sheet as a factor of this observed heterogeneity, with a special emphasis on currency diversification. Based on a new theoretical...

This paper uses a stylized simulation model to assess the potential impact of transition risk on banks' balance sheets and establishes a basis for calibrating relevant macro-prudential instruments. We show that even in the short run, a fire-sale mechanism could amplify an initially contained...

More and more established companies are getting involved in the cryptomarket and/or considering cryptocurrencies as an alternative to cash. In addition, recently, El Salvador became the first country to declare Bitcoin as a legal tender. Against this background, this paper examines how holdings...