Agent-based modeling for benchmarking banking regulation regimes: Application for the CBDC

COVID-19 pandemic challenges the sustainability of the modern financial system. International central bankers claim that banks are solid. They have accumulated significant capital buffers. Those buffers should be further more augmented by 2027 in line with Basel III reforms. However, disregarding such a consecutive rise in the banking capital adequacy requirements, the US financial authorities undertook an unprecedented step. First time in the country history they lowered the reserve requirement to zero at the end of March 2020. Friedrich von Hayek demonstrated the fragility of the modern fractional reserve banking systems. Together with Ludwig von Mises (von Mises, 1978) he was thus able to predict the Great Depression of 1929 and explain its mechanics much in advance. Thus, we wish to utilize the agent-based modeling technique to extend von Hayek’s rationale to the previously unstudied interaction of capital adequacy and reserve requirement regulation. We find that the full reserve requirement regime even without capital adequacy regulation provides more stable financial environment than the existing one. Rise in capital adequacy adds to modern banking sustainability, but it still preserves the system remarkably fragile compared to the full reserve requirement. We also prove that capital adequacy regulation is redundant when the latter environment is in place. We discuss our findings application to the potential Central Bank Digital Currencies regulation.

Komparasi Determinan Pembiayaan Pada Bank Mandiri Dan Bank Syariah Mandiri

The purpose of this research is to show the differences in financing between Bank Mandiri and Bank Syariah Mandiri; the effect of the inflation rate on financing; the influence of the BI-7 day repo rate on financing; the influence of the number of third party funds on financing; the effect of the statutory reserve requirement on financing. This research uses a quantitative approach with associative and comparative types of research. The sampling technique used was the purposive sampling method. The test uses a hypothesis test and an independent sample test to compare the financial performance of the two banks. The results showed that the inflation rate, BI-7 day repo rate, and the minimum reserve requirement had no effect on financing at Bank Mandiri and Bank Syariah Mandiri. While third-party funds partially have a positive and significant effect on financing at Bank Mandiri and Bank Syariah Mandiri. There is a significant difference between financing between Bank Mandiri and Bank Syariah Mandiri. This research can provide input for Islamic banking, especially Bank Mandiri and Bank Syariah Mandiri, in determining profit-sharing financing policies.

Covid-19 Pandemic: The Study for Reserve Requirement of Indonesia

The Covid-19 pandemic has had an impact on the Indonesian economy. The purpose of this study was to analyze the causality and balanced relationship in the long term between RR, IR and INF variables during the Covid-19 pandemic. With the Granger Causality and Johansen Cointegration test methods, the results showed that there is a long-term balance between RR, IR and INF. RR and IR are one-way causality relationships, IR and INF are one-way causality relationships. There is no causality relationship between IR and RR and vice versa during the Covid-19 pandemic. The RR policy affects the determination of IR and IR affecting Indonesia's INF during the Covid-19 pandemic. To reduce the inflation rate during the pandemic, Bank Indonesia needs to implement RR policy through the determination of interest rates.

Determinants of Deposit Money Banks Lending Behaviour to Private Sector of The Economy in Nigeria (1986-2017)

The study examined those factors that determine the deposit money banks lending behavior to private sector of the economy in Nigeria using annual time series data spanning from 1986 to 2017. Secondary data were sourced majorly from CBN Statistical Bulletin(2017). In measuring the variables, determinants of deposit money bank lendingbehaviour to private sector were subjected to bank specific factors, regulation factors, financial deepening and macroeconomic factors. The bank specific factors were proxied by volume of deposit (VD) and lending rate (LDR), regulation factor was proxied by reserve requirement (RSR), financial deepening was proxied by ratio of money supply to GDP (M2G)while macroeconomic variables was proxied by inflation (INF). The estimation techniques used for the study were Augmented Dickey Fuller test, pair wise granger causality test and auto regressive distributed lag (ARDL). It was found that, the variables in the series were integrated of difference order l(0) and l(1) and there was significant relationship between bank lending behaviours and the identified determinants. In addition, it was revealed that, the variables move in a long run, however, among the variables of interest, volume of deposit and M2G determine bank lending behaviour in the short and long run while RSR, INF and LDR retard lending to private sector. The study also found that, causality runs from volume of deposit to private sector credit. Hence, the study concluded that, there is significant relationship between bank lending behaviour private sectorand its determinants. It was recommended that, bank lending rate should be brought down or flexible to meet up the categories of borrowers, since there is common knowledge that high interest rate discourages borrowers and influences banks to select bad loan offer which may affect the bank returns in the long run. Secondly, the reserve requirement dictated by CBN on deposit money banks should be reduced so as to enable banks to be more liquid for the private sector to access funds for their productive purposes and lastly, inflation should be made below 2 digit, as inflation above a digit may be unfriendly to economy activities thereby affecting the private sector output which is germane to the economic growth.

Central Banks

This chapter develops further the role of a central bank and its interplay with commercial banks. Together, the two ensure the provision of liquidity to the economy, such that the real sectors are shielded from flows of funds originating from household and investors. We also disaggregate the banking system into two banks to represent deposit flows between banks and their impact on the central bank’s balance sheet, and to distinguish between what we call “relative” and “absolute” central bank intermediation. We then integrate deposit money creation by commercial banks into our system of financial accounts, and revisit some old debates, such as the limits of bank money creation and the role of related parameters that the central bank can set (not only the reserve requirement ratio, but also the collateral framework). Finally, we explain the concepts of “plain money” and “full reserve banking” within the financial accounts, and also discuss in this framework the recent proposals regarding central bank digital currency (CBDC).

Granger Causality Test of Net Interest Margin and Liquidity

The study aims to compute causality Granger test on Net Interest Margin (NIM) and liquidity Bank Listed in Indonesia Stock Exchange for the period 2014-2018. Variable of liquidity uses proxies Legal Reserve Requirement (LRR) and Loan to Deposit Ratio (LDR). The statistics tool is E-Views 8th with Granger Causality test. The Data research is financial statement Bank in IDX. We provide finding in the relationship among NIM, LRR and liquidity ratio Bank. We found result that there is Granger causality NIM and LRR, NIM and Loan to Deposit Ratio (liquidity) and Reserve Requirement and LDR. The study is beneficial for management bank to make policy in net interest margin and liquidity, for future research to develop empirical literature in net interest margin, Legal Reserve Requirement and Loan to Deposit Ratio.

FACTORS WHICH INFLUENCE LIQUID ASSETS IN SHARIA BANKS: A CASE STUDY OF PT BANK SYARIAH MANDIRI 2016-2017

Banks manage liquidity carefully because of differences in fund tenor collected and channeled. Meanwhile, at the same time, it must fulfill transaction needs, reserve requirement, current liabilities, and be cautious in facing sudden liquidity needs. Therefore, bankshold a sufficient amount of liquid assets. Liquidity management tends to be a trade-off. On one side, insufficient liquid assets can cause banks to be unable to carry out transactions with its customers or fulfill its maturity obligations. On another side, high liquid assets can result in a lost opportunity, because the liquid assets do not provide a return. The purpose of this research is to analyze what factors influence the level of banks liquid assets. This research was conducted using a dual regression model to analyze the variables studied, with a case study of PT Bank Syariah Mandiri from 2016-2017.The dependent variable was the level of liquid assets. Meanwhile, the independent variables were the amount of third party funds, financing growth, financial market access between banks, current liabilities, and previous month profit. The research results reveal that two variables are statistically significant towards bank liquid assets, which are third-party funds and previous month profit. Third-party funds and previous month profit have a positive and significat influence towards liquid assets. Meanwhile, the other variables do not significantly determined liquid assets.