Section 5
A new measure of firm-level competition: an application to euro area banks
Abstract
- Abstract
This paper extends Boone (2008) by introducing a competition measure at the individual
firm level rather than for an entire market segment. - We apply this extended Boone indicator to individual bank-level competition
in the loan market in the four largest euro area countries and Austria. - Our new measure of firm-level competition enriches and complements
other competition measures and provides a promising starting point for future market
power analyses. - The only measure among non-structural measures that is based on the
concept of competition as a process of rivalry is the Boone (2008) indicator. - We introduce
a new performance measure of competition by extending the Boone indicator to the
individual firm level. - Introduction
The ability to reliably measure competition is valuable to researchers, analysts, and
policymakers, especially antitrust authorities, financial supervisors, and central banks. - One broad
category of indicators often used to measure competition are structural competition
measures, such as static concentration measures, and dynamic measures, e.g., entry and
exit rates. - Out of these measures, the only measure based on the
concept of competition as a process of rivalry is the Boone indicator. - This study introduces a new performance measure of competition by extending the
Boone indicator to the individual firm level. - It thus measures the
increase in profits in percent of one percentage point increase in efficiency, with marginal
costs as measure of efficiency. - We extend the theoretical
underpinning of the measurement of competition for the entire market of Boone (2008) by
a new measure of individual firm-level competition. - A concern of the literature is the gap
between the practical application and the theoretical framework of Boone (2008). - We introduce within the same theoretical
framework a new measure of competition on firm level, the MRP. - Our new
measure significantly augments the antitrust evaluative framework by shedding light on
whether a merger results in a less competitive market. - Our novel indicator focuses on
firms? incentives to enhance their relative efficiency, as manifested in the elasticity
between relative profits and efficiency. - However, an inefficient firm that is foreclosed could be more
competitive than the larger efficient firm that relies on its scale economies. - Our new metric of competition unveils
banks? ability to influence their profitability in the short term by cutting costs relative to
their peers. - The new MRP indicator provides the ability to assess the impact
of individual banks? competitiveness on their interest rate-setting behaviour in loan
markets. - Incorporating this information promises a more refined understanding of the impact and
timing of monetary policy rates changes on the real economy. - Section 3 introduces within the Boone
(2008) theoretical framework our new measure of individual firm-level competition,
including the interpretation of the MRP. - Section 4 provides an application of our new
ECB Working Paper Series No 29256
individual firm-level competition measure to the loan market.
- The StructureConduct-Performance paradigm (SCP) provides a traditional framework in the field of
industrial organization for analysing competition behaviour in markets. - Concentrated
markets ease the possibilities to collude implicitly or explicitly and therefore concentrated
markets result in higher prices and profits. - For example, a tougher competition
setup may lead to a reallocation of market shares, potentially forcing some firms to exit
the market. - This approach gives firms? strategic behaviour
central stage and focuses on the strategic interaction on prices and quantities, known as
conjectural variation. - Another measure from
this strand of literature is the H-statistic developed by Panzar and Rosse (1987). - The only competition measure from this performance literature where competition is the
outcome from a process of rivalry is the Boone indicator. - A continuous and monotonically increasing relationship exists between
RPD and the level of competition if firms are ranked by decreasing efficiency. - (2013) compare the Boone indicator with the price-cost margin
and conclude that the profit elasticity is a more reliable measure of competition. - The high
elasticity of profits to efficiency unequivocally indicates that the high market shares and
therefore high profits are due to high efficiency. - A firm that quickly passes changes to the input prices is seen as a price
taker with little market power. - Indicators of competition tend to measure different phenomenon and may provide
conflicting messages, as reported for European banking by Carbo et al. - Application 2: Test the ?quiet life? and related market structure hypotheses using the
MRP as competition or market structure measure. - Data
Our application to individual bank-level competition in the euro area loan market uses
balance sheet and income statement data from the Moody?s Analytics BankFocus for the
calendar years 2013-2020. - As such, most publications
on competition in the euro area includes the largest four member states. - Due to these restrictions the database was reduced to an unbalanced panel of up to 1862
banks (depending on the year) from five euro area countries. - Application 1: Measure bank competition using MRP
Looking at the distribution of the MRP for individual banks (Fig. - A similar finding for the four largest euro area countries as a group is
reported in Carbo et al. - Application 2: Test of market structure hypotheses using MRP
Our new measure of individual-bank competition can be used to test market structure
theories. - Euro area banks? market power,
lending channel and stability: the effects of negative policy rates, European Central Bank
Working Paper, 2790 (February). - A
new approach to measuring competition in the loan markets of the euro area, Applied
Economics, 43 (23), 3155?3167. - Impact of bank competition on the interest rate pass-through in the euro area, Applied
Economics, 45 (11), 1359?1380.
Central bank digital currency and monetary policy implementation
Transactional demand for central bank digital currency
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The impact of regulatory changes on rating behaviour
Abstract
- Abstract
We examine rating behaviour after the introduction of new regulations regarding Credit Rating
Agencies (CRAs) in the European securitisation market. - There is empirical evidence of rating catering in the securitisation market in the pre-GFC period (He et al.,
2012; Efing and Hau, 2015). - Competition among
CRAs could diminish ratings quality (Golan, Parlour, and Rajan, 2011) and promotes rating shopping by
issuers resulting in rating inflation (Bolton et al., 2012). - This paper investigates the impact of the post-GFC regulatory changes in the European
securitisation market. - In 2011, in addition to the creation of
European Securities and Markets Authority (ESMA), a regulatory and supervisory body for CRAs was
introduced. - We examine how rating behaviours have changed in the European securitisation market after the
introduction of these new regulations. - We utilise the existence of multiple ratings and rating agreements between
CRAs to identify the existence of rating shopping and rating catering, respectively (Griffin et al., 2013; He
et al., 2012; 2016). - We find that the regulatory changes have been effective in tackling conflicts of interest between issuers
and CRAs in the structured finance market. - Rating catering, which is a direct consequence of issuer and
CRA collusion, seems to have disappeared after the introduction of these regulations. - There is empirical evidence of rating catering in the securitisation market in
the pre-GFC period (He et al., 2012; Efing and Hau, 2015). - Competition among CRAs could diminish ratings quality (Golan, Parlour,
and Rajan, 2011) and promotes rating shopping by issuers resulting in rating inflation (Bolton et
al., 2012). - This paper investigates the impact of the post-GFC regulatory changes in the European
securitisation market. - In 2011, in addition
to the creation of European Securities and Markets Authority (ESMA), a regulatory and
supervisory body for CRAs was introduced. - We find that the regulatory changes have been effective in tackling conflicts of interest
between issuers and CRAs in the structured finance market. - Rating catering, which is a direct
consequence of issuer and CRA collusion, seems to have disappeared after the introduction of
these regulations. - Investors who previously demanded higher spreads for rating agreements for a
multiple rated tranche, did not consider the effect of rating harmony as a risk in the post-GFC
period. - Regarding rating shopping, we find that the effectiveness of the changes has been limited,
potentially for two reasons. - Additionally, we also find that rating over-reliance might still be an issue, especially
Rating catering is a broad term and it can involve rating shopping. - They re-examine the rating shopping and rating
catering phenomena in the US market by looking at the post-crisis period between 2009 and 2013. - Using 622 CDO tranches, they also observe the existence of rating shopping and the diminishing
of the rating catering. - Firstly, our main focus is the EU?s CRA Regulation and its effectiveness in reducing
rating inflation and rating over-reliance. - To the best of our knowledge, this paper is the first to
examine the effectiveness of the EU?s CRA regulatory changes on the investors? perception of
rating inflation in the European ABS market. - Hence, the coverage and quality of our dataset constitutes significant addition
to the literature and allows us to test the rating shopping and rating catering more authoritatively. - The following section reviews the literature
on securitisation concerning CRAs and conflicts of interest, and outlines the regulatory changes
introduced in the post-GFC period. - Firstly, ratings became ever more important as the Securities and
Exchange Commission (SEC) 5 began heavily relying on CRA assessments for regulatory purposes
(i.e. - the investment mandates that highlight rating agencies as the main benchmark for investment
eligibility) (SEC, 2008; Kisgen and Strahan, 2010; Bolton et al., 2012). - issuers) as one of the main explanations for the rating inflation (He et al., 2011; 2012; Bolton
et al., 2012; Efing and Hau, 2015). - Bolton et al., (2012) demonstrate that competition
promotes rating shopping by issuers, leading to rating inflation. - The last phase, CRA III, was implemented in mid-2013 and involves an additional
set of measures on reducing transparency and rating over-reliance. - As mentioned above, rating inflation can be caused by rating shopping
In order to be eligible to use the STS classification, main parties (i.e. - The higher the difference in the number of ratings for a
given ABS tranche, the greater the risk of rating shopping. - Alternatively, the impact of the new
regulations could be limited when it comes to reducing rating shopping. - This is because, firstly,
the conflict of interest between securitisation parties is not necessarily the sole cause for the
occurrence of rating shopping. - L is a set of variables (Multiple ratings, CRA reported, Rating agreement) that
we utilise interchangeably to capture the rating shopping and rating catering behaviour. - Hence, issuers are incentivised to report the highest possible rating and
ensure each additional rating matches the desired level. - All in all, our results suggest that
the new stricter regulatory measures have been effective in tackling conflicts of interest and
reducing rating inflation caused by rating catering. - Self-selection might be a concern in analysing the impact of the
new measures and investors? response with regard to the rating inflation. - This
result is in line with the earlier findings suggesting that regulatory changes have reduced investors?
suspicion of rating inflation and increased trust of CRAs. - Conclusion
Several regulatory changes were introduced in Europe following the GFC aimed at tackling
conflicts of interest between issuers and CRAs in the ABS market. - Utilising a sample of 12,469
ABS issued between 1998 and 2018 in the European market, this paper examined whether these
changes have had any impact on rating inflations caused by rating shopping and rating catering
phenomena. - We find that the
effectiveness of the changes has been more limited on rating shopping potentially for two reasons. - Tranche Credit Rating is the rating reported for a tranche at launch.
Consumer participation in the credit market during the COVID-19 pandemic and beyond
We find that credit demand is highest when
- We find that credit demand is highest when
the first lockdown ends and it drops when supportive monetary compensation schemes are implemented. - Credit is more likely to be
accepted under favourable borrowing conditions and after the approval of national recovery plans. - We also find
that demographic, economic factors, perceptions and expectations are associated with the demand for credit and
the credit grant. - First, it adds to a rapidly growing literature on household
borrowing behaviour during the COVID-19 pandemic; see, for example, Ho et al. - We provide evidence that credit applications and credit acceptances display a different pattern over
time. - Credit is more likely to be accepted under favourable borrowing conditions and after the
approval of national recovery plans. - In almost all countries
households are significantly less likely to apply and to get their credit approved than in Germany. - In line with literature, we show that
demographic and economic factors affect the probability for credit applications and credit approval. - In addition,
the paper shows that consumer perceptions and expectations matter when they decide to apply for credit. - Introduction
The participation of households in the credit market receives wide attention in the consumer finance literature
because consumer credit enters the monetary policy transmission mechanism through the so-called ?credit
channel?: changes in credit demand and supply have an effect on consumers' spending and investment, which in
turn affect economic growth. - We use microdata from the ECB?s Consumer Expectations Survey (hereinafter CES), a survey that
measures consumer expectations and behaviour in the euro area. - Its panel dimension allows for an assessment of
how consumer behaviour changes over time and how consumers respond to critical economic shocks. - This way we can gauge how credit applications and credit acceptances change under different, almost
opposite, borrowing conditions. - We also distinguish between the demand for long-term secured loans (mortgages) and for short-term
uncollateralized loans (consumer loans). - ECB Working Paper Series No 2922
3
We use probit models to estimate the probability of the consumer to apply for credit and the credit being granted.
- The rate peaks in 2020Q3 which reflects the rebound in the demand for loans when the first lockdown ended.
- In almost all countries households are significantly less likely
to apply and to get their credit approved than in Germany. - However,
when it comes to credit acceptance, we observe that the two groups of households are more similar. - Finally, we find some heterogeneity with respect to the type of credit, particularly between secured and unsecured
debt. - The demand for
consumer credit is insignificant for liquid households and decreases significantly for constrained households in
the last two quarters of our timespan. - The first consists of a recently growing literature which
explores consumer behaviour in the credit market during the COVID-19 pandemic, mostly in the United States. - Sandler and Ricks (2020) show that consumers did not use credit card debt for financial liquidity in the early stage
of the COVID-19 pandemic. - (2020) report that credit card applications and new mortgage loans
declined during the first months of the pandemic in regions with more unemployment insurance claims. - Lu and
Van der Klaauw (2021) show that there was a sharp drop in consumer credit demand, especially for credit cards. - (2022) document that there was a substantial decrease in the usage of credit cards and home equity lines
of credit by Canadian consumers. - Our paper is also consonant with studies on the association between financial and demographic factors and
consumers? participation in the credit market as well as on the demand for specific types of credit. - January 2020 ? October 2020 - The two main events are the outbreak of the COVID-19 pandemic and the
consequential lockdowns in the euro area. - 4 If the
respondent has applied for more than one type of credit, she is asked to refer to the most recent credit application. - Between 2021Q3 and 2022Q3 the acceptance
rate stays above the average values, mirroring the easing of credit standards for consumer credit and other lending
to households during this period. - Second, we can investigate the presence of nonlinearities in how liquidity and the credit type interact in explaining credit applications.
- (2023) ? who show that in the United States the local pandemic severity had a strong
negative effect on credit card spending early in the pandemic, which diminished over time. - First, we select mortgages and consumer credit as the two mostly reported categories for secured and
13
The full estimation results are reported in Table 3.
- The right-hand side panel of Figure 6 shows that the demand for consumer credit is insignificant for both liquid
and illiquid households. - It also shows that
subjective perceptions of credit access, financial concerns and expectations on interest rates matter for the demand
for credit. - In Bertola, G., Disney
R., and Grant, C. (eds) The Economics of Consumer Credit, Cambridge MA, MIT Press. - Horvath, A., Kay, B. and Wix, C. (2023) The COVID-19 shock and consumer credit: Evidence from credit card
data. - Magri, S. (2007) Italian households? debt: The participation to the debt market and the size of the loan.
ICH E2D(R1) Guideline on post-approval safety data Step 2b - Revision 1
The completed comments form should be sent to
- The completed comments form should be sent to
[email protected]
*For more information please refer to Public consultation explanatory note: Proposed E2B(R3) updates
to align with ICH E2D(R1) guideline. - 18
July 2003E2D
Approval by the Steering Committee under Step 4 and
recommendation for adoption to the three ICH
regulatory bodies. - 12
November 2003New
Codification
November
2005
E2DE2D
Revision of E2D
CodeHistory
E2D(R1) Endorsement by the Members of the ICH Assembly
under Step 2 and release for public consultation. - Date
New
Codification5 February 2024
E2D(R1)
POST-APPROVAL SAFETY DATA:
DEFINITIONS AND STANDARDS FOR MANAGEMENT AND
REPORTING OF INDIVIDUAL CASE SAFETY REPORTS
E2D(R1)
ICH Consensus Guideline
Table of Contents
1. - The ICH E2D guideline provides guidance on definitions and standards for post-
5
approval individual case safety reporting, as well as good case management practices.
- Detailed guidance on the
9
specific structure, format, standards, and data elements for transmitting Individual Case Safety
10
Reports (ICSRs) is provided in the ICH E2B guideline.
- Guidance on periodic reporting of
11
aggregated safety data is covered in the ICH E2C guideline.
- 12
This guideline provides recommendations that are harmonised to the extent possible given
13
differences in post-market safety reporting requirements among ICH regions.
- 25
2.1.2
Adverse Drug Reaction (ADR)
26
Adverse drug reactions, as defined by local and regional requirements, concern noxious and
27
unintended responses to a medicinal product.
- 66
Product labelling may include information related to ADRs for the pharmaceutical class to
67
which the medicinal product belongs.
- In some cases, ?other observations? can occur
78
without any associated AEs/ADRs, while in other cases ?other observations? can occur with
79
an associated AE/ADR.
- 84
For the purpose of reporting, requirements in some regions refer only to ADRs, whereas other
85
regions refer to AEs.
- 86
Refer to local and regional requirements for specifications and requirements on the reporting
87
of AEs or ADRs to each Regulatory Authority.
- 89
2.2
90
An ICSR is a description of an AE/ADR or other observation in an individual patient at a specific
91
point of time.
- Cases missing any of the above criteria do not qualify for reporting; due diligence
99
should be exercised to collect the missing criteria.
- 6
104
An ICSR can be a description of at least one AE/ADR, or other observation (see Section 5.1.3,
105
Other Observations), or both.
- Primary sources, often referred
112
to as ?reporters?, include healthcare professionals and consumers who provide facts about a case
113
to the MAH or regulatory authority.
- 127
2.7
128
A digital platform is the software and technology used to enable transmission of information
129
between users (see Section 4.3, Digital Platforms).
- Expedited Report
Primary Source
Healthcare Professional (HCP)
Consumer
Digital Platform
7
130
2.8
131
An organised data collection system (ODCS) is an activity that gathers data in a planned manner,
132
thereby enabling review to be performed.
- MAHs should also follow the
286
advice in Section 5.1.2, Important Safety Findings, about communicating safety findings to
13
287
regulatory authorities.
- MAHs may conduct an MRP
395
using a digital platform; in this situation the ICH E2B data element value for ?MRP? should be
396
selected.
- 564
Terms (e.g., AEs/ADRs, indication, and medical conditions) in the narrative should be accurately
565
reflected in appropriate ICH E2B data elements.
- 638
Regulatory Authorities and MAHs should consider and manage duplicates when reviewing
639
pharmacovigilance data, as duplicates negatively impact signal detection.
- 651
Duplicate detection relies on good quality data and is generally based on similarities but should
652
take into account that information in ICSRs may differ between reporters.
Mortgage borrowing limits and house prices: evidence from a policy change in Ireland
Measuring market-based core inflation expectations
Abstract
- Abstract
We build a novel term structure model for pricing synthetic euro area core inflation-linked
swaps, a hypothetical swap contract indexed to core inflation. - The model provides estimates of market-based expectations for core inflation, as
well as core inflation risk premia, at daily frequency, whereas core inflation expectations from
surveys or macroeconomic projections are typically only available monthly or quarterly. - We
find that core inflation-linked swap rates are generally less volatile than headline inflationlinked swap rates and that market participants expected core inflation to be substantially
more persistent than headline inflation following the 2022 energy price spike. - In this paper, we aim to infer market-based core inflation expectations, which are otherwise
not directly observable because no financial asset directly tied to core inflation exists. - We deem this second assumption reasonable because HICP inflation itself is a linear combination
of core as well as energy and food inflation. - The level of 2 percent and relatively low volatility of
long-term inflation expectations suggests that inflation expectations are firmly anchored at the
ECB?s 2 percent inflation target. - This assumption appears reasonably uncontroversial,
as core inflation is a sub-component of headline inflation, which the observable headline ILS
rates are tied to. - Our estimates of core ILS rates reflect both market participants? genuine core
inflation expectations and a core inflation risk premium, but our model explicitly allows for
this decomposition. - The model-implied estimates of core ILS rates appear reasonable along several dimensions:
(i) like realized core inflation is less volatile than headline inflation, the core ILS rates are less
volatile than headline ILS rates, (ii) core ILS rates comove less with oil prices than headline
ILS rates, (iii) the core inflation expectations, as reflected in core ILS rates, typically evolve
similarly as the core inflation projections by Eurosystem staff, and (iv) consistent with market
commentary at the time, core ILS rates suggest that market participants expected core inflation
to be substantially more persistent than headline inflation following the 2022 energy price spike. - To the best of our knowledge, we are the first to price core ILS rates and decompose them into
market-based expectations for and risks around the core inflation outlook. - Our approach to inferring core ILS
rates from headline ILS rates, realized headline and core inflation as well as survey expectations
for headline and core inflation is also related to Ang et al. - Relative
to their study, we separately measure core inflation expectations and risk premia, we provide
core inflation expectations at a higher-frequency, and we provide evidence on the causal effectsECB Working Paper Series No 2908
6
of monetary policy shocks on core inflation expectations and risk premia.
- Specifically, we decompose the synthetic core ILS rates
into average expected core inflation over the lifetime of the swap contract and a core inflation
risk premium that compensates investors for core inflation risk. - In
our model below, this term is constant over time and relatively small, so we will simply refer
to the core inflation risk premium as the difference between the core ILS rate and the average
expected core inflation over the lifetime of the swap contract. - 3.2
Core ILS rates
To have a joint model for headline and core ILS rates, we need one further assumption on the
dynamics of realized core inflation. - The assumption that core inflation is driven by the same set of factors as headline inflation
should be relatively uncontroversial: since headline inflation is a weighted average of core and
food and energy inflation, it should reflect any factors driving core inflation. - If there are factors
driving food and energy inflation, which do not show up in core inflation, then those factors
should still show up in headline inflation. - In step two, to be able to infer the factor
loadings of core inflation, we would regress realized core inflation onto the estimated latent
factors to identify the additional parameters in equation (12). - Before the fourth
quarter of 2016, the SPF did not ask respondents for their core inflation expectations, so we
are not able to use survey-based information about core inflation before then. - Before
2016, the fitted core inflation series is somewhat above the realized one, potentially reflecting
that the model has limited information about core inflation over this early period due to the
lack of information about core inflation from surveys. - This could have been the
case if one of the factors moved core inflation and energy and food inflation in exactly offsetting
direction, so the overall impact on headline inflation was exactly zero. - During 2021, for example, there were
ECB Working Paper Series No 2908
25
Figure 7: Decomposition of synthetic core ILS rates
2y core ILS5y core ILS
5
45
ILSpremia
exp
4
ILS
premia
exp
3
3
2
2
1
1
0
0
-1
-1
-2
2017 2018 2019 2020 2021 2022 2023-2
2017 2018 2019 2020 2021 2022 202310y core ILS
5y5y core ILS
5
45
ILSpremia
exp
4
ILS
premia
exp
3
3
2
2
1
1
0
0
-1
-1
-2
2017 2018 2019 2020 2021 2022 2023-2
2017 2018 2019 2020 2021 2022 2023Note: Synthetic core ILS rates decomposed into genuine core inflation expectations and core inflation risk
premia. - ECB Working Paper Series No 2908
26
Figure 8: Decomposition of ILS rates
2y ILS5y ILS
5
45
ILSpremia
exp
4
3
3
2
2
1
1
0
0
-1
-1
-2
20062010
2014
2018
2022
-2
2006ILS
2010
10y ILS
2018
2022
5
ILSpremia
exp
4
3
3
2
2
1
1
0
0
-1
-1
-2
20062014
exp
5y5y ILS
5
4premia
2010
2014
2018
2022
-2
2006ILS
2010
premia
2014
2018
exp
2022
Note: ILS rates decomposed into genuine core inflation expectations and core inflation risk premia.
- We find that the headline inflation risk premium
indeed does responds more strongly than the core inflation risk premium. - The key
assumption underlying our approach is that traded headline ILS rates span core inflation, whichECB Working Paper Series No 2908
35
should be reasonably uncontroversial as core inflation is a sub-component of headline inflation.
- We fit the model to euro area headline ILS rates, realized headline and core inflation, and
both headline and core inflation expectations reported in the SPF. - Decomposing our core ILS rates into genuine core inflation expectations and core
inflation risk premia shows that shorter maturities mainly reflect core inflation expectations,
while the core inflation risk premium matters relatively more for longer maturities. - Our results suggest that a monetary policy tightening surprise significantly lowers
near-term core inflation expectations, although less so than it lowers headline inflation expectations.