Financial crisis

Deposit market concentration and monetary transmission: evidence from the euro area

Retrieved on: 
Sunday, February 4, 2024

Abstract

Key Points: 
    • Abstract
      I study the transmission of monetary policy to deposit rates in the euro area with a
      focus on asymmetries and the role of banking sector concentration.
    • Moreover, the
      gap between deposit rates across euro area member states - despite being exposed to the same
      key ECB interest rates - has widened.
    • This begs the question whether deposit rates are more
      sluggish in response to both policy rate increases and cuts, and what factors might influence the
      transmission of monetary policy to deposit rates.
    • Whether banks are indeed able to adjust deposit rates asymmetrically to positive and
      negative changes in policy rates could thus well depend on how much market power they hold
      in the deposit market.
    • Arguing that market power increases in the degree of market concentration,
      I further consider whether more concentrated banking sectors set rates (more) asymmetrically.
    • The response of deposit rates in banking sectors with an average degree of concentration does
      not appear asymmetric.
    • The degree of market concentration is often pointed at, but recent evidence
      for the euro area is scarce.
    • In this paper, I provide empirical evidence on the asymmetric response of deposit rates to
      monetary policy, and relate this to the degree of concentration within a country?s banking sector.
    • Both papers
      provide empirical evidence based on US deposit markets showing that deposit rates respond
      more rigidly to upward changes in market rates than downward changes, especially so in more
      concentrated markets.
    • Recent research on euro area deposit markets,
      instead, has focused more on the transmission of negative policy rates (see e.g.
    • Whether banks are able to set deposit rates that materially differ from policy rates is affected

      ECB Working Paper Series No 2896

      4

      by market concentration: market power is assumed to increase in the degree of concentration in
      the banking sector.

    • Concentration thus appears to matter for how quickly ECB monetary policy has
      been transmitted to deposit rates across the euro area.
    • Banks thus have a motive to be
      rigid in adjusting deposit rates to a ?positive? monetary policy shock.
    • While customers are generally (and potentially rationally) inattentive, swift and substantial
      nominal deposit rate declines may trigger deposit outflows.
    • relative deposit rate = deposit rate - short term rate
      The inverse of the wedge, the relative deposit rate will allow us to see more clearly how
      the deposit rate evolves in comparison to the short-term rate.
    • This then translates to (more
      pronounced) effects on the transmission of policy to the deposit wedge, reinforcing the asymmetry discussed before.
    • More concentration would mean more rigid deposit rates (and thus an
      increase in the deposit wedge) in case of positive surprises, and more flexible deposit rates (and
      thus a decrease in the deposit wedge) in case of negative surprises (see also e.g.
    • I add an identical
      altered-linex adjustment cost for deposit rates, to capture the upward rigidity and downward
      flexibility of deposit rates as well.
    • As discussed
      previously, the deposit rate is particularly rigid in case of a positive shock, illustrating the dividend smoothing motive and bank market power.
    • Without the asymmetric adjustment cost,
      the response of the deposit rates to positive and negative changes in policy would have been
      symmetric.
    • This appears a reasonable assumption
      in general, as market concentration or market shares are slow-moving concepts.
    • 3

      Methods and data

      I study the dynamic response to an unexpected change in monetary policy on deposit rates
      in different countries in the euro area.

    • deposit rate - short-term rate), which for the sake of
      brevity I will refer to as the ?relative deposit rate?.
    • Positive IRFs for the relative deposit rate imply that
      the deposit rate has increased by more than the short-term rate, narrowing the wedge between
      the short-term rate and the deposit rate.
    • 0
      ?2

      ?2
      ?4
      ?6

      ?4
      4

      8

      12

      4

      Months

      8

      12

      Months

      Figure 9: NFC rate response - linear combination of ?0 and ?1

      Relative deposit rate at 1 month

      Relative deposit rate at 4 months

      0.0

      0
      ?1

      p.p.

    • 0
      0

      ?2
      ?1
      ?4
      4

      8

      12

      4

      8

      Months

      12

      Months

      Figure 12: NFC rate response - linear combination of ?0 and ?1

      Relative deposit rate at 1 month

      Relative deposit rate at 4 months
      2.0

      1.5

      p.p.

    • And, (2) how quickly
      households and NFCs learn about changes in monetary policy, via the deposit rate, may vary
      across the monetary union.
    • ?0 , ?1 )
      Figure A16: NFC overnight deposits, small member states

      Relative deposit rate (average)

      Relative deposit rate (interaction)

      2

      10
      5

      p.p.

    • ?0 , ?1 )
      Figure A19: NFC overnight deposits, four lags

      Relative deposit rate (average)

      Relative deposit rate (interaction)
      5

      0

      p.p.

    • ?0 , ?1 )
      Figure A28: NFC overnight deposits, small member states

      Relative deposit rate (average)

      Relative deposit rate (interaction)

      3

      5.0

      2

      2.5

      p.p.

    • ?0 , ?1 )
      Figure A31: NFC overnight deposits, four lags

      Relative deposit rate (average)

      Relative deposit rate (interaction)

      3
      2

      p.p.

Legacy Broker Models Enable Insider Trading And Market Manipulation: PayBito CEO Raj Chowdhury

Retrieved on: 
Thursday, June 8, 2023

PALO ALTO, Calif., June 8, 2023 /PRNewswire-PRWeb/ -- Exchanges drive up a notable segment of the world's economy, with brokers across the globe facilitating transactions among countless investors and traders. Tech innovations, despite their potential to transform business operations, have yet to make their presence felt across the major conventional exchange broker models. The negligence towards modern solutions is fostering financial exclusion through limited broker access and institutional favoritism, restricting non-institutional traders. PayBito CEO Raj Chowdhury explains how institutional investors control these seemingly random variables to control the entire stock market trajectory.

Key Points: 
  • The PayBito CEO explains how legacy brokerage models are misfits in modern times, contributing to insider trading and market manipulation, and proposes the cloud BaaS solution.
  • PayBito CEO Raj Chowdhury explains how institutional investors control these seemingly random variables to control the entire stock market trajectory.
  • Change is the Only Constant in the Cycle of Evolution:
    The PayBito CEO Raj Chowdhury states, "Legacy broker models have failed to keep up with the changing dynamics of the market, enabling insider trading and market manipulation.
  • It enables investors from all backgrounds to access real-time market data and AI-generated insights, reducing the risk of insider trading.

Banking System Instability May Prove Catalyst for Recession

Retrieved on: 
Friday, March 24, 2023

WASHINGTON, March 24, 2023 /PRNewswire/ -- Due to stronger-than-expected economic data, Fannie Mae's Economic and Strategic Research (ESR) Group revised upward its first quarter 2023 GDP forecast, which it finalized prior to the recent financial turmoil, and now projects a modest recession to begin in the second half of 2023, compared to the previously forecasted second quarter of 2023. While uncertainty has risen following turbulence in the banking sector, the ESR Group noted in its latest monthly commentary that bank failures often foreshadow economic downturns. As such, the ESR Group believes that the recent events may act as the catalyst that tips an already precarious economy into recession, primarily via the combination of tighter lending standards among small and midsized regional banks and weakened business and consumer confidence.

Key Points: 
  • While uncertainty has risen following turbulence in the banking sector, the ESR Group noted in its latest monthly commentary that bank failures often foreshadow economic downturns.
  • Instead, it believes the Savings & Loan Crisis from the 1980s to be a better analog, specifically regarding the significant interest rate rises that set in motion banking system stress and the resultant macroeconomic effects that contributed to a modest recession in 1991.
  • Additionally, the ESR Group posits that ongoing banking instability may affect the availability of jumbo mortgages and residential construction loans due to the high concentration of those originations stemming from small and midsized banks.
  • "These particular pre-recessionary conditions are not unusual, as bank failures often follow monetary tightening – but this may well be the catalyst for the modest recession we've been expecting since April 2022."

2 Former Directors of the United States Mint Agree That Having Gold in Your IRA Is a Hedge During an Economic Crisis

Retrieved on: 
Friday, November 4, 2022

Philip Diehl, 35th Director of the U.S. Mint (1994 2000)

Key Points: 
  • Philip Diehl, 35th Director of the U.S. Mint (1994 2000)
    Gold has maintained value to human societies, all over the world, for 4,000 years.
  • Gold has that long tradition of humanity's faith in it, as a form of insurance, not only of their wealth, but their physical and family's fiscal wellbeing.
  • If you look at the 2008 financial crisis, when the values of all kinds of assets decreased, gold fell in sympathy.
  • Even now, gold is playing its traditional role, and it is holding its value compared to every other asset class.

Eurasia Group Welcomes Dominic Barton as Strategic Counselor

Retrieved on: 
Wednesday, October 26, 2022

NEW YORK, Oct. 26, 2022 /PRNewswire-PRWeb/ -- Eurasia Group is pleased to announce that Dominic Barton, former global managing director of McKinsey and Canadian Ambassador to China, is joining the firm as a Strategic Counselor. The appointment leverages Barton's unique insight into global markets and his extensive business and diplomatic acumen in Asia to build upon Eurasia Group's offerings.

Key Points: 
  • Dominic Barton, former global managing director of McKinsey and Canadian ambassador to China, is joining the firm as a strategic counselor.
  • NEW YORK, Oct. 26, 2022 /PRNewswire-PRWeb/ -- Eurasia Group is pleased to announce that Dominic Barton, former global managing director of McKinsey and Canadian Ambassador to China, is joining the firm as a Strategic Counselor.
  • As Strategic Counselor, Barton will provide advice on the firm's strategic direction, engage with key clients, and contribute to analytic work, particularly on China and Asia broadly.
  • With best-in-class advisory and consulting offerings, and GZERO Media, the Eurasia Group umbrella provides the marketplace with a complete political risk solution.

Lionel Gelber Prize value increases to $50,000

Retrieved on: 
Thursday, October 6, 2022

TORONTO, Oct. 6, 2022 /PRNewswire/ - The prize value of one of Canada's top literary awards will increase to $50,000 for the winning entry, the Lionel Gelber Prize board announced today.

Key Points: 
  • TORONTO, Oct. 6, 2022 /PRNewswire/ - The prize value of one of Canada's top literary awards will increase to $50,000 for the winning entry, the Lionel Gelber Prize board announced today.
  • "For more than thirty years, the Lionel Gelber Prize has highlighted some of the most important issues and authors writing in international affairs," said Judith Gelber, Chair of the Lionel Gelber Prize board.
  • The prize was founded in 1989 by former Canadian diplomat Lionel Gelber, with the aim of deepening public debate on significant international issues.
  • The Lionel Gelber Prize is awarded annually to the top English-language book on international affairs.

Lionel Gelber Prize value increases to $50,000

Retrieved on: 
Thursday, October 6, 2022

TORONTO, Oct. 6, 2022 /PRNewswire/ -- The prize value of one of Canada's top literary awards will increase to $50,000 for the winning entry, the Lionel Gelber Prize board announced today.

Key Points: 
  • TORONTO, Oct. 6, 2022 /PRNewswire/ -- The prize value of one of Canada's top literary awards will increase to $50,000 for the winning entry, the Lionel Gelber Prize board announced today.
  • "For more than thirty years, the Lionel Gelber Prize has highlighted some of the most important issues and authors writing in international affairs," said Judith Gelber, Chair of the Lionel Gelber Prize board.
  • The prize was founded in 1989 by former Canadian diplomat Lionel Gelber, with the aim of deepening public debate on significant international issues.
  • The Lionel Gelber Prize is awarded annually to the top English-language book on international affairs.

Operation HOPE Announces Eric Kaplan to Senior Leadership Team Financial Literacy for All

Retrieved on: 
Tuesday, September 27, 2022

ATLANTA, Sept. 27, 2022 /PRNewswire/ -- Operation HOPE , Inc., the nation's largest non-profit dedicated to financial empowerment for underserved communities, today announced that Eric Kaplan will be joining its Senior Leadership team as EVP, President of Financial Literacy for All (FL4A).

Key Points: 
  • ATLANTA, Sept. 27, 2022 /PRNewswire/ -- Operation HOPE , Inc., the nation's largest non-profit dedicated to financial empowerment for underserved communities, today announced that Eric Kaplan will be joining its Senior Leadership team as EVP, President of Financial Literacy for All (FL4A).
  • "Eric is joining a team of leaders and change makers who are committed to the mission of Financial Literacy for All.
  • "We are excited to have Eric join the Operation HOPE team and look forward to building together."
  • Financial Literacy for All is a national initiative to support embedding financial literacy into American culture.