National Institute of Economic and Social Research - logit
https://www.niesr.ac.uk/tags/logit
enThe Bank Capital-Competition-Risk Nexus - A Global Perspective
https://www.niesr.ac.uk/publications/bank-capital-competition-risk-nexus-global-perspective
<div class="field field-name-field-summary field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even"><p>The Global Financial Crisis (GFC) highlighted the importance of a number of unresolved empirical issues in the field of financial stability. First, there is the sign of the relationship between bank competition and financial stability. Second, there is the relation of capital adequacy of banks to risk. Third, the introduction of a leverage ratio in Basel III following the crisis leaves open the question of its effectiveness relative to the risk adjusted capital ratio (RAR). Fourth, there is the issue of the relative stability of advanced versus emerging market financial systems, and whether similar factors lead to risk, which may have implications for appropriate regulation. Finally, there is the nature of the relation between bank competition and bank capital. In this context, we address these five issues via estimates for the relation between capital adequacy, bank competition and other control variables and aggregate bank risk. We undertake this for different country groups and time periods, using macro data from the World Bank’s Global Financial Development Database over 1999-2015 for up to 120 countries globally, using single equation logit and GMM estimation techniques and panel VAR. This is an overall approach that to our knowledge is new to the literature.<br />
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<p>The results cast light on each of the issues outlined above, with important implications for regulation: (1) The results for the Lerner Index largely underpin the “competition-fragility” hypothesis of a positive relation of competition to risk rather than “competition stability” (a negative relation) and show a widespread impact of competition on risk generally. (2) There is a tendency for both the leverage ratio and the RAR to be significant predictors of risk, and for crises and Z score they are supportive of the “skin in the game” hypothesis of a negative relation between capital ratios and risk, whereas for provisions and NPLs they are consistent with the “regulatory hypothesis” of a positive relation of capital adequacy to risk. (3) The leverage ratio is much more widely relevant than the RAR, underlining its importance as a regulatory tool. The relative ineffectiveness of risk adjusted measures may relate to untruthful or inaccurate assessments of bank real risk exposure. (4) There are marked differences between advanced countries and EMEs in the capital-risk-competition nexus, with for example a wider impact of competition in EMEs (although both types of country need to pay careful attention to the evolution of competition in macroprudential surveillance). Similar pattern to EMEs are apparent in many cases for the global sample pre crisis, which arguably are more consistent with normal market functioning than post crisis. (5) Competition reduces leverage ratios significantly in a Panel VAR, with impulse responses showing that more competition leads to lower leverage ratios and vice versa. This result is consistent over a range of subsamples and risk variables. In the variance decomposition, we find that competition is autonomous, while the variance of both risk and capital ratios are strongly affected by competition. The Panel VAR results give some indication of the transmission mechanism from competition to risk and financial instability.</p>
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</div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-above"><div class="field-label">Keyword tags: </div><div class="field-items"><div class="field-item even">macroprudential policy</div><div class="field-item odd">capital adequacy</div><div class="field-item even">leverage ratio</div><div class="field-item odd">bank competition</div><div class="field-item even">bank risks</div><div class="field-item odd">emerging market economies</div><div class="field-item even">logit</div><div class="field-item odd">GMM</div><div class="field-item even">Panel VAR</div></div></div>Tue, 19 Feb 2019 10:42:23 +0000Stevens, S13658 at https://www.niesr.ac.ukhttps://www.niesr.ac.uk/publications/bank-capital-competition-risk-nexus-global-perspective#commentsAnalysing the Relevance of the MIP Scoreboard's Indicators
https://www.niesr.ac.uk/publications/analysing-relevance-mip-scoreboards-indicators
<div class="field field-name-field-summary field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even"><p>The EU established an early warning system by introducing the Macroeconomic Imbalance Procedure (MIP) in the wake of the recent recession. Nevertheless, it has been found by some authors to be rather vague when launching the Excessive Imbalances Procedure. Performed analysis reflects on such views and treats the MIP indicators as a system while assessing the significance of all particular variables separately. This assessment was accomplished by applying a multivariate unbalanced logit model, utilising all 14 MIP headline indicators, using time horizons ranging from one to three years before crisis, which was represented by periods with output gap lower than negative 2 per cent. The approach was confronted with the estimates of a linear probability model to provide an idea about the robustness of the results. In the short term, activity rates, youth unemployment rates and private sector debt are the best performing indicators, complemented by current account balances in the long term.</p>
</div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-above"><div class="field-label">Keyword tags: </div><div class="field-items"><div class="field-item even">MIP scoreboard</div><div class="field-item odd">early warning systems</div><div class="field-item even">Binary response models</div><div class="field-item odd">logit</div></div></div>Wed, 01 Feb 2017 00:24:09 +0000Stevens, S12782 at https://www.niesr.ac.ukhttps://www.niesr.ac.uk/publications/analysing-relevance-mip-scoreboards-indicators#commentsEvaluating off-balance sheet exposures in banking crisis determination models
https://www.niesr.ac.uk/publications/evaluating-balance-sheet-exposures-banking-crisis-determination-models
<div class="field field-name-field-summary field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even"><p>Given the evident effect that banks' off-balance sheet activity has had on systemic vulnerability in the sub-prime crisis, we test for a consistent impact of off-balance sheet exposures on the probability of banking crises in OECD countries since 1980. Variables capturing off-balance sheet activity have been neglected in most early warning models to date, mainly due to the lack of the data. We find that the change in a proxy of off-balance sheet activity of banks derived from the share of non-interest income is significant in a parsimonious logit model also featuring bank capital adequacy, liquidity, changes in house prices and the current account balance to GDP ratio. We consider it essential that regulators take into account the results for the above proxy in regulating off-balance sheet exposures and controlling their contribution to systemic risk.</p>
</div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-above"><div class="field-label">Keyword tags: </div><div class="field-items"><div class="field-item even">banking crises</div><div class="field-item odd">logit</div><div class="field-item even">off-balance sheet activity</div></div></div>Tue, 07 Aug 2012 17:36:32 +0000Anonymous2653 at https://www.niesr.ac.ukhttps://www.niesr.ac.uk/publications/evaluating-balance-sheet-exposures-banking-crisis-determination-models#commentsThe impact of global imbalances: Does the current account balance help to predict banking crises in OECD countries?
https://www.niesr.ac.uk/publications/impact-global-imbalances-does-current-account-balance-help-predict-banking-crises-oecd
<div class="field field-name-field-summary field-type-text-long field-label-hidden"><div class="field-items"><div class="field-item even"><p>Given the magnitude of 'global imbalances' in the run-up to the subprime crisis, we test for an impact of the current account balance on the probability of banking crises in OECD countries since 1980. This variable has been neglected in most early warning models to date, despite its prominence in theory and in case studies of crises. We find that a current account variable is significant in a parsimonious logit model also featuring bank capital adequacy, liquidity and changes in house prices, thus showing the patterns immediately preceding the subprime crisis were not unprecedented. Our model, even if estimated over an earlier period such as 1980-2003, could have helped authorities to forecast the subprime crisis accurately and take appropriate regulatory measures to reduce its impact.</p>
</div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-above"><div class="field-label">Keyword tags: </div><div class="field-items"><div class="field-item even">banking crises</div><div class="field-item odd">logit</div><div class="field-item even">current account</div><div class="field-item odd">banking regulation</div></div></div>Tue, 07 Aug 2012 17:36:31 +0000Anonymous2586 at https://www.niesr.ac.ukhttps://www.niesr.ac.uk/publications/impact-global-imbalances-does-current-account-balance-help-predict-banking-crises-oecd#comments