Bank Deleveraging: Causes, Channels, and Consequences for Emerging Market and Developing Countries

Feyen, Erik; Kibuuka, Katie; Ötker-Robe, İnci

doi:10.1596/1813-9450-6086

Cited by 7 publications

(3 citation statements)

References 5 publications

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“…As Figure 2 shows, the loan-todeposit ratio declined in the years after 2007 and had a value of 105 per cent by 2017. The adverse effect on European credit provision during those years is noted by Feyen et al (2012), Giannetti and Laeven, (2012), Altavilla et al (2015) and Acharya et al (2018).…”

Section: Changing Credit Provision and The Household Demand Channelmentioning

confidence: 99%

Labour Market Fluctuations and the Housing Net Worth Channel in the EU

Cronin

McQuinn

2022

De Economist

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The credit-driven housing net worth channel has been identified as a determinant of the sharp drop in US employment between 2007 and 2009. We examine the impact of this channel on the labour market in Europe using panel data for 20 countries covering the period 1996 to 2017. This period saw substantial changes in both credit provision and labour market performance in the EU. While some of our results are similar to those found in analysis of the US labour market, there are also important differences. For the full panel, we find changes in housing net worth having a significant effect on total employment and its non-traded and traded sector components, with a larger effect in the non-traded sector. Further estimations show that these significant effects on employment pertain to the post-2007 era when credit conditions were considerably more restrictive. In contrast to the US evidence, we find significant wage responses to housing net worth shocks arising in the EU.

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Section: Changing Credit Provision and The Household Demand Channelmentioning

confidence: 99%

Labour Market Fluctuations and the Housing Net Worth Channel in the EU

Cronin

McQuinn

2022

De Economist

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“…The share of relatively volatile external debt instruments, external debt securities and local currency debt, have also increased post-GFC. This could be a cause of concern for these economies in the face of global recovery, increase in global long term rates after a sustained period of lower interest rates and easy global financing conditions (Shin 2014;Feyen et al 2012;Pena et al 2015).…”

Section: Introductionmentioning

confidence: 99%

Interlinkages between External Debt Financing, Credit Cycles and Output Fluctuations in Emerging Market Economies

Verma

Sengupta

2020

SSRN Journal

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We examine the role of external debt financing (EDF) in shaping the credit cycle and output fluctuations in nine major emerging economies. We show that sharp fluctuations in EDF flows are significantly associated with credit surge and stop episodes in emerging market economies (EMEs). However the association is asymmetric in nature -a stop episode in EDF flows is more likely to bring about a credit stop episode compared to an EDF surge episode. We extend our framework to analyze the joint spillover of EDF flows and credit cycles on business cycle fluctuations in these EMEs. We find that EDF flows and credit together have a strong association with output growth. After dividing the sample into EDF surge and stop phases, we find evidence of asymmetric spillover of credit on output growth. Credit decline during EDF stop episode leads to a larger decline in GDP growth relative to the impact of an increase in credit growth during EDF surges. Our analysis points to the vulnerability of credit cycles of EMEs to the sharp movement in EDF flows which in turn is largely synchronized with external financing conditions. The strong negative spillover of EDF stop phases on the business cycle is a cause of concern for policymakers in EMEs who seek to insulate their economies from such external shocks

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“…In 2011 and 2012, there were widespread concerns that EU banks' impaired access to wholesale funding markets, their weak profitability prospects and capital positions, and the entry into force of a new prudential regulation (i.e. Basel III) would lead to a process of deleverage, in some cases involving a reduction of their loan portfolios (Bank for InternationalSettlements, 2012;European Central Bank, 2012;Feyen et al, 2012; European Systemic Risk Board, 2013) Kalemli-Ozcan et al (2022). find that having lost access to bank funding, facing weaker demand and showing symptoms of debt overhang, many EU NFCs embarked on a process of gradual deleveraging, in part by reducing investment and in part by reducing equity pay-outs.…”

mentioning

confidence: 99%