The Impact of Capital Buffers on Future Loan Growth, Interest Income and Tier 1 Capital Ratios

2016 ◽  
Author(s):  
Jyotirmoy Podder ◽  
Tariq H. Haque
Keyword(s):  
Interest Income ◽  
Tier 1 ◽  
Capital Ratios ◽  
Loan Growth ◽  
The Impact ◽  
Tier 1 Capital

scholarly journals Are Banks’ Below Par Own Debt Repurchases a Cause for Prudential Concern?

2018 ◽  
Vol 35 (3) ◽  
pp. 501-529
Author(s):  
Martien Lubberink ◽  
Annelies Renders
Keyword(s):  
Fair Value ◽  
Alternative Methods ◽  
Basel Iii ◽  
Regulatory Capital ◽  
Liability Management ◽  
Tier 1 ◽  
Capital Ratios ◽  
European Banks ◽  
Using Data ◽  
Tier 1 Capital

In the lead-up to the implementation of Basel III, European banks repurchased debt securities that traded below par. Banks engaged in these Liability Management Exercises (LMEs) to realize a fair value gain that prudential rules exclude from regulatory capital calculations. The LMEs enabled banks to augment Core Tier 1 capital, given that alternative methods to increase capital ratios were not feasible in practice. Using data of 720 European LMEs conducted between April 2009 and December 2013, we show that poorly capitalized banks repurchased securities and lost about €9.1bn in premiums to compensate their holders. Banks also repurchased the most loss-absorbing securities, for which they paid the highest premiums. These premiums increase with leverage and in times of stress. Hence debt repurchases are a cause for prudential concern.

scholarly journals The Impact of Capital Structure on Economic Capital and Risk Adjusted Performance

2008 ◽  
Vol 38 (01) ◽  
pp. 341-380 ◽  
Author(s):  
Bruce T. Porteous ◽  
Pradip Tapadar
Keyword(s):  
Capital Structure ◽  
Asset Allocation ◽  
Financial Services ◽  
Stochastic Modelling ◽  
Economic Capital ◽  
Tier 2 ◽  
Risky Assets ◽  
Tier 1 ◽  
The Impact ◽  
Tier 1 Capital

The impact that capital structure and capital asset allocation have on financial services firm economic capital and risk adjusted performance is considered. A stochastic modelling approach is used in conjunction with banking and insurance examples. It is demonstrated that gearing up Tier 1 capital with Tier 2 capital can be in the interests of bank Tier 1 capital providers, but may not always be so for insurance Tier 1 capital providers. It is also shown that, by allocating a bank or insurance firm’s Tier 1 and Tier 2 capital to higher yielding, more risky assets, risk adjusted performance can be enhanced. These results are particularly pertinent with the advent of the new Basel 2 and Solvency 2 risk based capital initiatives, for banks and insurers respectively.

scholarly journals Do Financial Sector Structure and Development Matter for the Effect of Bank Capital on Lending in Large EU Banks?

2015 ◽  
Vol 1 (3) ◽  
pp. 167-180
Author(s):  
Małgorzata Olszak ◽  
Mateusz Pipień ◽  
Sylwia Roszkowska
Keyword(s):  
Important Determinant ◽  
Financial Sector ◽  
Bank Capital ◽  
Sector Structure ◽  
Developed Economies ◽  
Capital Ratios ◽  
Loan Growth ◽  
The Impact ◽  
The Eu

The paper aims at finding out what is the impact of bank capital ratios on loansupply in the EU and what factors explain the potential diversity of this impact.Applying the Blundell and Bond (1998) two step GMM estimator, we find that in thefull sample of large banks the role of capital ratio on loan growth in contractionsis relatively weak. However, if we take into account the differences in financial sector structure and development between EU countries, we find that the effectof capital ratio on lending is positive and statistically significant. Therefore, ourresults suggest that capital ratios are an important determinant of lending in thelarge EU banks in those countries where financial sector is more dominated bystock markets of is better developed. Thus, our results provide support for theview that more financially developed economies are prone to greater procyclicalimpact of capital ratios on lending of banks.

scholarly journals The Impact of Capital Structure on Economic Capital and Risk Adjusted Performance

2008 ◽  
Vol 38 (1) ◽  
pp. 341-380 ◽  
Author(s):  
Bruce T. Porteous ◽  
Pradip Tapadar
Keyword(s):  
Capital Structure ◽  
Asset Allocation ◽  
Financial Services ◽  
Stochastic Modelling ◽  
Economic Capital ◽  
Tier 2 ◽  
Risky Assets ◽  
Tier 1 ◽  
The Impact ◽  
Tier 1 Capital

The impact that capital structure and capital asset allocation have on financial services firm economic capital and risk adjusted performance is considered. A stochastic modelling approach is used in conjunction with banking and insurance examples. It is demonstrated that gearing up Tier 1 capital with Tier 2 capital can be in the interests of bank Tier 1 capital providers, but may not always be so for insurance Tier 1 capital providers. It is also shown that, by allocating a bank or insurance firm’s Tier 1 and Tier 2 capital to higher yielding, more risky assets, risk adjusted performance can be enhanced. These results are particularly pertinent with the advent of the new Basel 2 and Solvency 2 risk based capital initiatives, for banks and insurers respectively.

scholarly journals Bank Liquidity and Lending Behavior: Evidence from the Vietnamese Banking System

2021 ◽  
Vol 22 (1) ◽  
pp. 240-256
Author(s):  
Van Dan Dang
Keyword(s):  
Generalized Method Of Moments ◽  
Banking System ◽  
Dynamic Panel Data ◽  
Heterogeneous Effects ◽  
Bank Managers ◽  
Capital Ratios ◽  
Precautionary Motive ◽  
Lending Behavior ◽  
Loan Growth ◽  
The Impact

The study investigates the impact of liquidity on lending behavior, in the form of loan growth, at Vietnamese commercial banks for the period of 2007–2017. Notably, we also explore heterogeneous effects with the support of the generalized method of moments (GMM) for the dynamic panel data models. The robust result confirmed by alternative techniques indicates that banks with more liquidity tend to expand lending more, implying the precautionary motive of liquidity storage to finance future investments. Further analysis documents that this effect seems to be stronger for state-owned banks and mitigated in the case of banks having higher capital ratios, while we find the inconclusive results for bank size. In addition to extending the existing literature, this study provides insightful implications for bank managers and policymakers in Vietnam and other emerging economies as well.

scholarly journals The Costs and Benefits of Bank Capital—A Review of the Literature

2020 ◽  
Vol 13 (4) ◽  
pp. 74
Author(s):  
Martin Birn ◽  
Olivier de Bandt ◽  
Simon Firestone ◽  
Matías Gutiérrez Girault ◽  
Diana Hancock ◽  
...  
Keyword(s):  
Optimal Level ◽  
Capital Requirements ◽  
Bank Capital ◽  
Net Benefit ◽  
Basel Committee ◽  
Wide Range ◽  
Tier 1 ◽  
Capital Ratios ◽  
Optimal Capital ◽  
The Impact

In 2010, the Basel Committee on Banking Supervision published an assessment of the long-term economic impact (LEI) of stronger capital and liquidity requirements. This paper considers this assessment in light of estimates from later studies of the macroeconomic benefits and costs of higher capital requirements. Consistent with the Basel Committee’s original assessment, this paper finds that the net macroeconomic benefits of capital requirements are positive over a wide range of capital levels. Under certain assumptions, the literature finds that the net benefits of higher capital requirements may have been understated in the original committee assessment. Put differently, the range of estimates for the theoretically optimal level of capital requirements—where marginal benefits equal marginal costs—is likely either similar to, or higher than was originally estimated by the Basel Committee. The above conclusion is however subject to a number of important considerations. First, estimates of optimal capital are sensitive to a number of assumptions and design choices. For example, the literature differs in judgments made about the permanence of crisis effects as well as assumptions about the efficacy of post crisis reforms, such as liquidity regulations and bank resolution regimes, in reducing the probability and costs of future banking crisis. In some cases, these judgements can offset the upward tendency in the range of optimal capital. Second, differences in (net) benefit estimates can reflect different conditioning assumptions such as starting levels of capital or default thresholds (the capital ratio at which firms are assumed to fail) when estimating the impact of capital in reducing crisis probabilities. Finally, the estimates are based on capital ratios that are measured in different units. For example, some studies provide optimal capital estimates in risk-weighted ratios, others in leverage ratios. And, across the risk-weighted ratio estimates, the definition of capital and risk-weighted assets (RWAs) can also differ (e.g., tangible common equity (TCE) or Tier 1 or common equity tier 1 (CET1) capital; Basel II RWAs vs. Basel III measures of RWAs). A full standardisation of the different estimates across studies to allow for all of these considerations is not possible on the basis of the information available and lies beyond the scope of this paper. This paper also suggests a set of issues which warrant further monitoring and research. This includes the link between capital and the cost and probability of crises, accounting for the effects of liquidity regulations, resolution regimes and counter-cyclical capital buffers, and the impact of regulation on loan quantities.

Reconsidering the Prudential Filter for the Cash Flow Hedge Reserve in View of the Purpose of Banking Regulation

2021 ◽  
Vol 54 (2) ◽  
pp. 265-299
Author(s):  
Alois Paul Knobloch ◽  
Felix Krauß
Keyword(s):  
Cash Flow ◽  
Banking Regulation ◽  
Fair Value ◽  
Cash Flows ◽  
Positive Effects ◽  
Tier 1 ◽  
Value Changes ◽  
The Impact ◽  
Future Cash Flows ◽  
Tier 1 Capital

Common Equity Tier 1 capital of credit institutions is adjusted by the prudential filter for the cash flow hedge reserve according to art. 33(1)(a) CRR. Thereby, fair value changes of hedging instruments, especially of derivatives, are neutralized by imputed fair value changes of future cash flows that are part of a cash flow hedge. However, these future cash flows are (mostly) expected to occur under market conditions and, thus, imputed fair value changes are not reflected in changes of present values derived from real transactions that exist at the time of the regulatory capital calculation. As a result, positive effects on Common Equity Tier 1 capital can be viewed critically in regard to the prudence principle of banking supervision if an initial reduction in Common Equity Tier 1 capital due to losses from hedging instruments is corrected. Furthermore, the adjustment is case specific and depends on the hedge effectiveness, which is questionable because of consistency reasons. To solve these weaknesses, we suggest to eliminate the prudential filter for the cash flow hedge reserve as a whole. This would lead to a better quality of Common Equity Tier 1 capital by improving its loss absorbency and as a side effect to a reduction in complexity enhancing supervision through regulatory authorities and market discipline. Furthermore, we demonstrate the impact that the proposed abolishment of the prudential filter for the cash flow hedge reserve would have on the Common Equity Tier 1 capital ratios of the largest European banks in 2014–2019

scholarly journals On The Contribution of Interest Expense (Income) on Total Output

2021 ◽  
Vol 4 (1) ◽  
pp. 31-56
Author(s):  
Ahmed Mehedi Nizam
Keyword(s):  
Interest Rate ◽  
Aggregate Demand ◽  
Total Output ◽  
Response Analysis ◽  
Panel Var ◽  
Intuitive Reasoning ◽  
Body Of Knowledge ◽  
Interest Income ◽  
Structural Panel ◽  
The Impact

Abstract A decrease in interest rate in traditional view of monetary policy transmission is linked to a lower cost of borrowing which eventually results into a greater spending in investment and a bigger GDP. However, a decrease in interest rate is also linked to a decrease in interest income which, in turn, affects the aggregate demand and total GDP. So far, no concerted effort has been made to investigate this positive inter-relation between interest income and GDP in the existing literature. Here in the first place we intuitively describe the inter-relation between interest income and output and then provide a micro-foundation of our intuitive reasoning in the context of a small endowment economy with finitely-lived identical households. Then we try to uncover the impact of nominal interest income on the macroeconomy using multiplier theory for a panel of some 04 (four) OECD countries. We define and calculate the corresponding multiplier values algebraically and then we empirically measure them using impulse response analysis under structural panel VAR framework. Large, consistent and positive values of the cumulative multipliers indicate a stable positive relationship between nominal interest income and output. Moreover, variance decomposition of GDP shows that a significant portion of the variance in GDP is attributed to interest income under VAR/VECM framework. Finally, we have shown how and where our analysis fits into the existing body of knowledge.

Incorporation of plasma-based next-generation sequencing to improve guideline-concordant molecular testing in patients with newly diagnosed metastatic nonsquamous non-small cell lung cancer.

2021 ◽  
Vol 39 (28_suppl) ◽  
pp. 14-14
Author(s):  
Charu Aggarwal ◽  
Melina Elpi Marmarelis ◽  
Wei-Ting Hwang ◽  
Dylan G. Scholes ◽  
Aditi Puri Singh ◽  
...  
Keyword(s):  
Clinical Practice ◽  
Practice Change ◽  
Molecular Testing ◽  
Tier 2 ◽  
Newly Diagnosed ◽  
Next Generation ◽  
First Line ◽  
Tier 1 ◽  
Tier 3 ◽  
The Impact

14 Background: Current NCCN guidelines recommend comprehensive molecular profiling for all newly diagnosed patients with metastatic non-squamous NSCLC to enable the delivery of personalized medicine. We have previously demonstrated that incorporation of plasma based next-generation gene sequencing (NGS) improves detection of clinically actionable mutations in patients with advanced NSCLC (Aggarwal et al, JAMA Oncology, 2018). To increase rates of comprehensive molecular testing at our institution, we adapted our clinical practice to include concurrent use of plasma (P) and tissue (T) based NGS upon initial diagnosis. P NGS testing was performed using a commercial 74 gene assay. We analyzed the impact of this practice change on guideline concordant molecular testing at our institution. Methods: A retrospective cohort study of patients with newly diagnosed metastatic non-squamous NSCLC following the implementation of this practice change in 12/2018 was performed. Tiers of NCCN guideline concordant testing were defined, Tier 1: complete EGFR, ALK, BRAF, ROS1, MET, RET, NTRK testing, Tier 2: included above, but with incomplete NTRK testing, Tier 3: > 2 genes tested, Tier 4: single gene testing, Tier 5: no testing. Proportion of patients with comprehensive molecular testing by modality (T NGS vs. T+P NGS) were compared using one-sided Fisher’s exact test. Results: Between 01/2019, and 12/2019, 170 patients with newly diagnosed metastatic non-Sq NSCLC were treated at our institution. Overall, 98.2% (167/170) patients underwent molecular testing, Tier 1: n = 100 (59%), Tier 2: n = 39 (23%), Tier 3/4: n = 28 (16.5%), Tier 5: n = 3 (2%). Amongst these patients, 43.1% (72/167) were tested with T NGS alone, 8% (15/167) with P NGS alone, and 47.9% (80/167) with T+P NGS. A higher proportion of patients underwent comprehensive molecular testing (Tiers 1+2) using T+P NGS: 95.7% (79/80) compared to T alone: 62.5% (45/72), p < 0.0005. Prior to the initiation of first line treatment, 72.4% (123/170) patients underwent molecular testing, Tier 1: n = 73 (59%), Tier 2: n = 27 (22%) and Tier 3/4: n = 23 (18%). Amongst these, 39% (48/123) were tested with T NGS alone, 7% (9/123) with P NGS alone and 53.6% (66/123) with T+P NGS. A higher proportion of patients underwent comprehensive molecular testing (Tiers 1+2) using T+P NGS, 100% (66/66) compared to 52% (25/48) with T NGS alone (p < 0.0005). Conclusions: Incorporation of concurrent T+P NGS testing in treatment naïve metastatic non-Sq NSCLC significantly increased the proportion of patients undergoing guideline concordant molecular testing, including prior to initiation of first-line therapy at our institution. Concurrent T+P NGS should be adopted into institutional pathways and routine clinical practice.

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