Macroeconomics Commons^™

Dividends And Bank Capital In The Global Financial Crisis Of 2007–2009, Viral V. Acharya, Irvind Gujral, Nirupama Kulkarni, Hyun Song Shin

Journal of Financial Crises

The headline numbers appear to show that even as banks and financial intermediaries suffered large credit losses in the Global Financial Crisis of 2007–2009, they raised substantial amounts of new capital, both from private investors and from government-funded capital injections. However, on closer inspection, the composition of bank capital shifted radically from one based on common equity to that based on debt-like hybrid claims such as preferred equity and subordinated debt. The erosion of common equity was exacerbated by large-scale payments of dividends, in spite of widely anticipated credit losses. Dividend payments represent a transfer from creditors (and potentially taxpayers) …

The Effect Of A Financial Crisis On Household Finances: A Case Study Of Iceland’S Financial Crisis, Axel Hall, Andri S. Scheving, Gylfi Zoega

Journal of Financial Crises

Iceland experienced a financial crisis in 2008–2009 when its banking system collapsed, the currency lost half its value, most businesses became technically insolvent, house prices fell, and household debt increased due to indexation to foreign currencies or the price level. This paper tells the story of the crisis and maps the losses to households using a dataset from tax returns that includes all taxpayers in the country and contains the value of housing, mortgage debt, disposable income, and net worth. For relative losses in net worth, the results show that families with children, especially those with parents aged between 24 …

The Portuguese Guarantee Scheme (Portugal Gfc), Julia A. Arnous

Journal of Financial Crises

By October 2008, Portuguese banks’ access to liquidity was severely restricted due to strains in international wholesale markets. On October 12-13, 2008, the Portuguese government notified the European Commission of a guarantee scheme intended to promote solvent credit institutions’ access to liquidity as part of the European policy response to the acute financial crisis aiming to achieve and maintain financial stability. Under the scheme, the Portuguese government guaranteed financing agreements and banks’ issuance of non-subordinated short- and medium-term debt. To obtain a guarantee under the Scheme, banks paid a fee based on the maturity of the debt and a risk …

The Polish Guarantee Scheme (Poland Gfc), Manuel Leon Hoyos

Journal of Financial Crises

Faced with the global financial crisis of 2007–2009, Poland implemented a scheme of State support for financial institutions. In view of a potential global credit crunch, it aimed at improving short- and medium-term liquidity of domestic financial institutions. The scheme came into force on March 13, 2009, and was approved by the European Commission under European Union State Aid rules on September 25, 2009. The scheme enabled the Ministry of Finance, on behalf of the State Treasury, to provide support in the form of Treasury guarantees on newly issued bank debt and the exchange of Treasury bonds for less liquid …

Term Securities Lending Facility (Tslf) (U.S. Gfc), Manuel Leon Hoyos

Journal of Financial Crises

The 2007–09 financial crisis reached a critical stage in March 2008. Amid falling house prices and downgrades of mortgage-related securities, financial markets became severely disrupted. The Federal Reserve—the US central bank—became increasingly concerned about the inability of the 20 primary dealers, including the five largest US investment banks, to fund themselves in short-term funding markets, such as the repurchase agreement market, then estimated at $10 trillion. In response, the Fed created several emergency lending facilities to restore market liquidity that required the Fed to invoke Section 13(3) of the Federal Reserve Act. The Term Securities Lending Facility authorized the Federal …

2008 Financial Crisis And The Deviation From The Taylor Rule, Uzoma H. Okoye

Honors College Theses

In this paper, we derive possible causes of the 2008 financial crisis, as well as provide evidence of a possible deviation from the Taylor rule by the Federal Reserve. This research draws up mostly primary sources such as published books and speeches by John B. Taylor himself, as well as articles from academic journals related to the topic. Other prior research tends to take a side on the argument as to whether the Federal Reserve deviated or not. This paper serves as a descriptive analysis of different sides of the argument to come up with suggestions regarding the Fed’s actions.

Essays On Inequality And Macroeconomic Stability, Thomas Hauner

Dissertations, Theses, and Capstone Projects

This dissertation consists of three chapters. . .

Chapter 1: Aggregate Wealth and Its Distribution as Determinants of Financial Crises: Panel Evidence This essay investigates the relationship between wealth inequality and financial crises across a panel of nine advanced economies over the past 100 years. While substantiation of a role for income inequality is ambiguous in the literature, evidence is presented suggesting a unique capacity for the accumulation of assets to increase the likelihood of a future financial crisis episode. Testing long-run panel data with a reduced form, two-way fixed effects model, estimates suggest that increasing wealth inequality, in an …

Essays On The Law Of One Price In Financial Markets And The Recent Financial Crisis, Igor Sorkin

Dissertations, Theses, and Capstone Projects

Essay 1: The theory of the Law of One Price (LOOP) is one of the most important theories in International Economics. I use financial markets to revisit the validity of the LOOP in the short run, and then extend the analysis into the long-run to examine whether events such as the Financial Crisis of 2007-2009 can lead to the failure of the LOOP or worsen deviations from it. Using the data on Canadian companies cross-listed on the New York Stock Exchange, I find strong support that the LOOP holds in a cross-sectional framework despite the fact that the sample includes …

Macroprudential Regulation Of Mortgage Lending, Steven L. Schwarcz

Faculty Scholarship

Much regulatory effort has been devoted to improving mortgage lending, the principal source of housing finance. To date, that effort has primarily been microprudential—intended to correct market failures in order to increase economic efficiency. In contrast, and while there is some overlap, this article focuses on a more “macroprudential” regulation of mortgage lending—intended to reduce systemic risk. Although largely underdeveloped in the literature, the macroprudential regulation of mortgage lending would have two goals: an ex ante goal of preventing systemic shocks in housing finance and the housing sector, and an ex post goal of ensuring that housing finance, the housing …

The Organization Of Banking And Supervision, Introduction And Overview, Clas Wihlborg

Business Faculty Articles and Research

"The focus of this Special Issue is on organizational reforms in the financial sector in the aftermath of the financial crisis 2007-2009 and the subsequent euro-zone crisis. In particular, the perception that many banks were too big and too complex to fail during the crisis, which led to very costly bailouts at tax-payers expense in several countries, has fueled a number of proposals to limit the size and the complexity of financial institutions, as well as proposals to reorganize public authorities responsible for supervision and crisis management."

Determinants Of Foreign Reserves In Nigeria: An Autoregressive Distributed Lag Approach, David Irefin, Baba N. Yaaba

CBN Journal of Applied Statistics (JAS)

On global scale, central banks’ holdings of foreign reserves have escalated sharply in recent years. World international reserves holdings have risen significantly from US$1.2 trillion in 1995 to nearly US$10.0 trillion in June 2011. Dominant among these reserves are concentrated in the hands of few countries. Ten major holders of foreign reserves are mostly from Asia. Oil exporting countries in Africa and the Middle East are not left out in this trend. Nigeria’s foreign reserves rose from US$5.5 billion in 1999 to US$62.40 billion in July 2008, making Nigeria the twenty-fourth largest reserves holder in the world. This pace of …

Credit Market Imperfections, Financial Crisis And The Transmission Of Monetary Policy, Brett Spencer

CMC Senior Theses

This paper uses U.S. macroeconomic data drawn from 2001 to 2010 in order to test for the operation of a credit channel of monetary transmission. Using a combination of a VAR and ADL time series frameworks, evidence is found for the impairment of the credit channel during the crisis period relative to the period which preceded it. Evidence is also found against the presence of a "credit crunch" during the crisis, and supporting evidence is found for the existence of a "credit trap." This analysis indicates a significant role for credit market imperfections in the transmission of monetary policy, and …

The Nigerian Financial Crisis: Lessons, Prospects And Way Forward, Charles N. O. Mordi

Bullion

This paper x-rays the recent banking sector crisis in Nigeria, its resolution, lessons learned and way forward. The paper is divided into six main sections. Following the introduction, section 2 highlights country experiences of banking crisis and resolution options, while section 3 gives an overview of financial crisis in Nigeria; section 4 discusses the recent financial crises in Nigeria (2000-2009), while section 5 presents the 2009 banking crises and its causes. The most recent reform measures are discussed in section 6. ln sections 7 and 8, the lessons of experience and the way forward are presented, while the concluding remarks …

Reforming The Nigerian Banking Sector: Some Emerging Issues., Biodun Adedipe

Bullion

When the ongoing reforms of banking in Nigeria commenced, there were several arguments against the seeming harshness of the measures. As the revelations increased, the argument became the manner the revelations were made. All these pointed to the capacity of humans to resist change. lt was generally accepted that things went terribly wrong and some drastic steps needed to be taken. This paper examines existing and emerging financial reforms in the Nigeria banking sector. The outcome of the greed-induced crisis was not peculiar to Nigeria, as banks failed all around the world as their capital was eroded. There are obvious …

Financial Liberalization And Banking Crises: A Cross-Country Analysis, Apanard P. Angkinand, Wanvimol Sawangngoenyuang, Clas Wihlborg

Business Faculty Articles and Research

Several studies indicate that financial liberalization contributes to the likelihood of a financial crisis. We focus on banking crises and argue that they are most likely to occur after an intermediate degree of liberalization. Using a recently updated dataset for financial reforms in 48 countries between 1973 and 2005, we find an inverted U-shaped relationship between liberalization and the likelihood of crisis. We ask whether the relationship remains when institutional characteristics of countries and dynamic effects of liberalization are considered. The empirical results indicate that the relationship between liberalization and banking crises depends strongly on the strength of capital regulation …