|
|
|
| How Do Foreign Exchange Transactions Affect Banks Risk-taking? A Bank Balance Sheet Perspective |
| LIU Mengru, SHEN Ruomeng
|
PBC School of Finance, Tsinghua University;
DRC of Mengtougou District, Beijing |
|
|
|
Abstract In recent year, China's foreign exchange (FX) market has undergone a change: the current account surplus has narrowed, while the volatility of capital accounts has been intensifying. One consequence of this is that FX transactions between banks and customers and between the central bank and commercial banks affect the amount of currency and base money, respectively. We observe that the channels used by the central bank to input base money have also changed: the proportion of funds outstanding for FX transactions continues to decline, while the use of monetary policy tools to input base currency continues to rise. These structural changes will have an impact on banks' balance sheets, with far-reaching implications for bank loan behavior and the macro-economy. Thus, we explore whether the changes in FX transactions are related to banks' loan behavior.
We start from the financial supply side by adopting a local equilibrium analysis framework and using a combination of theoretical and empirical analyses. We first construct a three-phase model based on bank balance sheets and introduce liquidity administration cost. The model includes two banks, one large and one small. When FX flows in, both banks obtain deposits and base money via FX transactions. The large bank is more competitive than the small bank in obtaining deposits, and thus liquidity is distributed between the two banks in an unbalanced way. In the interbank market, the two banks borrow from each other to achieve a balance sheet equilibrium. The structural distribution of deposits results in a difference in loan behaviors between the two banks. By theoretical deduction, we find that (1) the risk-taking level of banks increases with net FX inflow, and that large banks are more sensitive to FX changes than small banks; (2) the greater the uncertainty caused by liquidity shocks, the weaker the relationship between risk-taking level and FX transactions; and (3) the more unbalanced the distribution of deposits, the greater the difference in the risk-taking level between the two banks.
Based on the above theoretical analysis, we conduct empirical tests using data on FX transaction reports from SAFE and the quarterly financial data of 10 banks, and macroeconomic data from 2011 to 2018. We select the proportion of risk-weighted assets and conditional value at risk (CoVaR) as dependent variables. To alleviate the endogeneity problems of FX transactions and bank risk-taking levels, we (1) qualitatively analyze the correlations between FX loans and FX transactions, to exclude the pro-cyclical effect of bank loan behavior and FX transactions; (2) introduce liabilities to the central bank as an instrumental variable for FX transactions; and (3) use CoVaR and ΔCoVaR as dependent variables in robustness testing. The results verify our theoretical deductions and show good robustness.
We draw the following conclusions and policy suggestions. (1) There is a significant correlation between FX transactions and the risk-taking level of banks. Therefore, it is recommended that relevant departments take timely measures to hedge the FX inflow gap caused by sluggish trade and thereby prevent the pro-cyclical loan behavior of banks from causing a severe contraction of social credit and aggravating economic fluctuations. (2) The structure of the deposit market plays a key role in encouraging banks to improve their risk-taking level, and too concentrated a deposit share will hinder the optimal allocation of loan resources. To effectively incentivize large banks to provide high-quality financial services for SMEs, the concentration of deposits in the market should be somewhat limited, and more liquidity support should be given to banks that actively serve the real economy than to those that do not. (3) Liquidity expectations have a significant impact on bank loan behavior. As the world is undergoing increasing umcertainty, FX transactions fluctuate more significantly; thus, multiple policy tools must be employed to ensure that adequate levels of liquidity are maintained and that to support the management of bank liquidity expectations.
We make the following contributions. First, we incorporate international financial factors into the study of banks' loan behavior, which represents an innovation in financial intermediary theory. Second, we establish the theoretical model that examines how FX transactions affect the risk-taking level of banks through money creation at the micro-level, and further explore the mechanism by which FX affects bank credit. Third, we use the data from FX transaction reports to conduct empirical study on the relationship between FX and the risk-taking level of banks.
|
|
Received: 01 August 2021
Published: 01 June 2022
|
|
|
|
|
| [1] |
孔令闻,2020,《名义的“实际”与实际的“名义”》,《比较》第6期,第50～60页。
|
| [2] |
李健、王丽娟和黄奕桦, 2020,《中小银行发展现状、方向及对策建议》,《清华金融评论》第3期,第73～76页。
|
| [3] |
刘孟儒和沈若萌,2019,《银行股价是否反映了影子银行的潜在风险?——基于中国上市银行的实证研究》,《投资研究》第6期,第47～57页。
|
| [4] |
伍戈和陆简,2016,《全球避险情绪与资本流动——“二元悖论”成因探析》,《金融研究》第11期,第1～14页。
|
| [5] |
徐明东和陈学彬,2012,《货币环境、资本充足率与商业银行风险承担》,《金融研究》第7期,第50～62页。
|
| [6] |
易纲和汤弦,2001,《汇率制度“角点解假设”的一个理论基础》,《金融研究》第8期,第5～17页。
|
| [7] |
张明,2007,《流动性过剩的测量、根源和风险涵义》,《世界经济》第11期,第44～55页。
|
| [8] |
张晓慧,2017,《 货币政策回顾与展望》,《中国金融》第3期,第12～15页。
|
| [9] |
张晓明和李泽广,2017,《系统风险外溢、市场约束机制与银行股票回报率——基于CoVaR和时变条件β指标的研究》,《金融研究》第12期,第143～157页。
|
| [10] |
张雪兰和何德旭,2012,《货币政策立场与银行风险承担——基于中国银行业的实证研究(2000—2010)》,《经济研究》第5期,第31～44页。
|
| [11] |
Acharya, V. V., Pedersen, L. H. , Philippon, T. , et al. , 2017, “Measuring Systemic Risk”, The Review of Financial Studies, 1, 2～47.
|
| [12] |
Adrian, T. and Brunnermeier, M. K. , 2016, “CoVaR”, The American Economic Review, 7, 1705~1741.
|
| [13] |
Altunbas, Y. ,Gambacorta, L. and Marques-ibanez, D. , 2010, “Bank Risk and Monetary Policy”. Journal of Financial Stability, 3, 121～129.
|
| [14] |
Arellano, M and Bond, S. , 1991, “Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations”, The Review of Economic Studies, 2, 277～297.
|
| [15] |
Blundell, R. and Bond, S., 1998, “Initial Conditions and Moment Restrictions in Dynamic Panel Data Models”, Journal of Econometrics, 1, 115～143.
|
| [16] |
Bruno, V. and Shin, H. S., 2015, “Capital flows and the risk～taking channel of monetary policy”, Journal of Monetary Economics, 71,119～132.
|
| [17] |
Calvo, G. A., Leiderman, L. and Reinhart, C. M., 1993, “Capital Inflows and Real Exchange Rate Appreciation in Latin America: the Role of External Factors”, IMF Staff Papers, 1, 108～151.
|
| [18] |
Calvo, G. A., Leiderman, L. and Reinhart, C. M., 1996, “Inflows of Capital to Developing Countries in the 1990s”, Journal of Economic Perspectives, 2, 123～139.
|
| [19] |
Cetorelli, N and Goldberg, L. S., 2012, “Globalization and Monetary Transmission”, The Journal of Finance, 5,1811～1843.
|
| [20] |
Chang, C., Liu, Z and Spiegel, M. M., 2015, “Capital Controls and Optimal Chinese Monetary Policy”, Journal of Monetary Economics, 74: 1～15.
|
| [21] |
Fleming, J. M, 1962,“Domestic Financial Policies Under Fixed and Under Floating Exchange Rates”,IMF Staff Papers, 3, 369～380.
|
| [22] |
Hachem, K. and Song. Z. 2021, “Liquidity Rules and Credit Booms”, Journal of Political Economy, 10, 2721～2765.
|
| [23] |
Ivashina, V., Scharfstein, D. S. and Stein, J. C., 2015, “Dollar Funding and the Lending Behavior of Global Banks”, The Quarterly Journal of Economics, 3, 1241～1281.
|
| [24] |
Krugman, P., 1999,“International Finance and Financial Crises”, Springer Netherlands, 31～55.
|
| [25] |
Mundell, R. A., 1960, “The Monetary Dynamics of International Adjustment Under Fixed and Flexible Exchange Rates”, The Quarterly Journal of Economics, 2, 227～257.
|
| [26] |
Obstfeld, M. , 2015, “Trilemmas and Trade-offs: Living with Financial Globalization”. BIS Working Paper, 1～66.
|
| [27] |
Phillips, A. W. , 1958, “The Relation Between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861～1957”, Economica, 100, 283～299.
|
| [28] |
Rey, H., 2015, “Dilemma not Trilemma: The Global Financial Cycle and Monetary Policy Dependency”, NBER Working Paper, No. W21162, 16～84.
|
| [29] |
Reynard, S., 2007, “Maintaining Low Inflation: Money, Interest Rates, and Policy Stance”, Journal of Monetary Economics, 5, 1441～1471.
|
| [30] |
Yu, Z. and Zhao, X., 2012. “The Nexus of Persistent Trade Surplus and High GDP Growth: Theory and Evidence”, Working Paper.
|
|
|
|
