Macroeconomic factors and micro-level bank risk
AbstractThe interplay between banks and the macroeconomy is of key importance for financial and economic stability. We analyze this link using a factor-augmented vector autoregressive model (FAVAR) which extends a standard VAR for the U.S. macroeconomy. The model includes GDP growth, inflation, the Federal Funds rate, house price inflation, and a set of factors summarizing conditions in the banking sector. We use data of more than 1,500 commercial banks from the U.S. call reports to address the following questions. How are macroeconomic shocks transmitted to bank risk and other banking variables? What are the sources of bank heterogeneity, and what explains differences in individual banks' responses to macroeconomic shocks? Our paper has two main findings: (i) Average bank risk declines, and average bank lending increases following expansionary shocks. (ii) The heterogeneity of banks is characterized by idiosyncratic shocks and the asymmetric transmission of common shocks. Risk of about 1/3 of all banks rises in response to a monetary loosening. The lending response of small, illiquid, and domestic banks is relatively large, and risk of banks with a low degree of capitalization and a high exposure to real estate loans decreases relatively strongly after expansionary monetary policy shocks. Also, lending of larger banks increases less while risk of riskier and domestic banks reacts more in response to house price shocks. --
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2010,20.
Date of creation: 2010
Date of revision:
FAVAR; bank risk; macro-finance linkages; monetary policy; microeconomic adjustment;
Other versions of this item:
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-11-27 (All new papers)
- NEP-BAN-2010-11-27 (Banking)
- NEP-CBA-2010-11-27 (Central Banking)
- NEP-MAC-2010-11-27 (Macroeconomics)
- NEP-MON-2010-11-27 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- David Martinez-Miera & Rafael Repullo, 2010.
"Does Competition Reduce the Risk of Bank Failure?,"
Review of Financial Studies,
Society for Financial Studies, vol. 23(10), pages 3638-3664, October.
- Hilde C. Bjørnland & Dag Henning Jacobsen, 2008. "The role of house prices in the monetary policy transmission mechanism in the U.S," Working Paper 2008/24, Norges Bank.
- De Graeve, F. & Kick, T. & Koetter, M., 2008. "Monetary policy and financial (in)stability: An integrated micro-macro approach," Journal of Financial Stability, Elsevier, vol. 4(3), pages 205-231, September.
- Marcella Lucchetta & Gianni De NicolÃ³, 2010.
"Systemic Risks and the Macroeconomy,"
IMF Working Papers
10/29, International Monetary Fund.
- Juan F. Rubio-Ram�rez & Daniel F. Waggoner & Tao Zha, 2010.
"Structural Vector Autoregressions: Theory of Identification and Algorithms for Inference,"
Review of Economic Studies,
Oxford University Press, vol. 77(2), pages 665-696.
- Juan F. Rubio-Ramírez & Daniel F.Waggoner & Tao Zha, 2008. "Structural vector autoregressions: theory of identification and algorithms for inference," Working Paper 2008-18, Federal Reserve Bank of Atlanta.
- Ard den Reijer, 2007. "Identifying Regional and Sectoral Dynamics of the Dutch Staffing Labour Cycle," DNB Working Papers 153, Netherlands Central Bank, Research Department.
- Jiménez, Gabriel & Ongena, Steven & Peydró-Alcalde, José Luis & Saurina, Jesús, 2007.
"Hazardous Times for Monetary Policy: What Do Twenty-Three Million Bank Loans Say About the Effects of Monetary Policy on Credit Risk?,"
CEPR Discussion Papers
6514, C.E.P.R. Discussion Papers.
- Jiminez, G. & Ongena, S. & Saurina, J., 2007. "Hazardous Times for Monetary Policy: What do Twenty-three Million Bank Loans Say about the Effects of Monetary Policy on Credit Risk?," Discussion Paper 2007-75, Tilburg University, Center for Economic Research.
- Jeffrey A. Frankel & George Saravelos, 2010. "Are Leading Indicators of Financial Crises Useful for Assessing Country Vulnerability? Evidence from the 2008-09 Global Crisis," NBER Working Papers 16047, National Bureau of Economic Research, Inc.
- Dell''Ariccia, Giovanni & Marquez, Robert, 2005.
"Lending Booms and Lending Standards,"
CEPR Discussion Papers
5095, C.E.P.R. Discussion Papers.
- Del Negro, Marco & Otrok, Christopher, 2007. "99 Luftballons: Monetary policy and the house price boom across U.S. states," Journal of Monetary Economics, Elsevier, vol. 54(7), pages 1962-1985, October.
- Eickmeier, Sandra & Ng, Tim, 2011.
"How Do Credit Supply Shocks Propagate Internationally? A GVAR approach,"
CEPR Discussion Papers
8720, C.E.P.R. Discussion Papers.
- Eickmeier, Sandra & Ng, Tim, 2011. "How do credit supply shocks propagate internationally? A GVAR approach," Discussion Paper Series 1: Economic Studies 2011,27, Deutsche Bundesbank, Research Centre.
- Prieto, Esteban & Eickmeier, Sandra & Marcellino, Massimiliano, 2013.
"Time variation in macro-financial linkages,"
13/2013, Deutsche Bundesbank, Research Centre.
- Sandra Eickmeier & Leonardo Gambacorta & Boris Hofmann, 2013.
"Understanding Global Liquidity,"
BIS Working Papers
402, Bank for International Settlements.
- Itai Agur & Maria Demertzis, 2010.
"Monetary Policy and Excessive Bank Risk Taking,"
DNB Working Papers
271, Netherlands Central Bank, Research Department.
- Itai Agur & Maria Demertzis, 2011.
""Leaning Against the Wind" and the Timing of Monetary Pollicy,"
DNB Working Papers
303, Netherlands Central Bank, Research Department.
- Itai Agur & Maria Demertzis, 2013. ""Leaning Against the Wind" and the Timing of Monetary Policy," IMF Working Papers 13/86, International Monetary Fund.
- Jean-Stéphane Mésonnier & Dalibor Stevanovic, 2012.
"Bank Leverage Shocks and the Macroeconomy: a New Look in a Data-Rich Environment,"
CIRANO Working Papers
- Mésonnier, J-S. & Stevanovic, D., 2012. "Bank leverage shocks and the macroeconomy: a new look in a data-rich environment," Working papers 394, Banque de France.
- Jean-Stéphane Mésonnier & Dalibor Stevanovic, 2013. "Bank Leverage Shocks and the Macroeconomy: a New Look in a Data-Rich Environment," Cahiers de recherche 1330, CIRPEE.
- Agur, Itai & Demertzis, Maria, 2012. "Excessive bank risk taking and monetary policy," Working Paper Series 1457, European Central Bank.
- Idier, Julien & Lamé, Gildas & Mésonnier, Jean-Stéphane, 2013.
"How useful is the marginal expected shortfall for the measurement of systemic exposure? A practical assessment,"
Working Paper Series
1546, European Central Bank.
- Idier, J. & Lamé, G. & Mésonnier, J S., 2011. "How useful is the Marginal Expected Shortfall for the measurement of systemic exposure? A practical assessment," Working papers 348, Banque de France.
- Gerd Ronning & Phlipp Bleninger, 2011. "Disclosure Risk from Interactions and Saturated Models in Remote Access," IAW Discussion Papers 73, Institut für Angewandte Wirtschaftsforschung (IAW).
- Buch, Claudia M. & Körner, Tobias & Weigert, Benjamin, 2013. "Towards deeper financial integration in Europe: What the Banking Union can contribute," Working Papers 02/2013, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.
- Ekin Ayse Ozsuca & Elif Akbostanci, 2012. "An Empirical Analysis of the Risk Taking Channel of Monetary Policy in Turkey," ERC Working Papers 1208, ERC - Economic Research Center, Middle East Technical University, revised Dec 2012.
- Franziska Bremus, 2011. "Financial Integration and Macroeconomic Stability: What Role for Large Banks?," Discussion Papers of DIW Berlin 1178, DIW Berlin, German Institute for Economic Research.
- Delis, Manthos & Karavias, Yiannis, 2013. "Optimal versus realized bank credit risk and monetary policy," MPRA Paper 49795, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).
If references are entirely missing, you can add them using this form.