Monetary policy in steering the EONIA and POLONIA rates in the Eurosystem and Poland: a comparative analysis

Fiszeder, Piotr; Pietryka, Ilona

doi:10.1007/s00181-017-1285-7

Cited by 5 publications

(4 citation statements)

References 26 publications

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“…Linzert and Schmidt (2011) then examined the spread between EONIA and the ECB's policy rate, while Beirne (2012) focused specifically on the EONIA spread before and during the financial crisis of 2007 and the role of liquidity and credit risk. Picault (2017) examined the ECB's forward guidance with the EONIA swap curve, while Fiszeder and Pietryka (2018) analyzed the monetary policy in steering the EONIA and POLONIA rates in the Eurosystem and Poland. To the best of our knowledge, no article to date discusses the defects related to EONIA, its reform and the actions to transition away from this benchmark.…”

Section: Literature Review and Novelty Of This Articlementioning

confidence: 99%

Untitled

2021

International Journal of Business, Economics and Management

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Section: Literature Review and Novelty Of This Articlementioning

confidence: 99%

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2021

International Journal of Business, Economics and Management

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Section: Literature Review and Novelty Of This Articlementioning

confidence: 99%

The EURIBOR and EONIA Reform: Achieving Regulatory Compliance While Protecting Financial Stability

Priem

Rie

2020

SSRN Journal

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Based on an extensive review of the academic and legal literature combined with a screening of news articles and policy papers, this article is the first to describe in great detail the events leading up to the EURIBOR reform and the efforts to make EURIBOR compliant with the European Benchmark Regulation. It documents the development of the hybrid EURIBOR methodology to ensure the benchmark to be anchored to transactions as much as possible thereby reducing manipulative behavior. The article further explains the actions undertaken by the administration and the EU RFR Working Group to transition from EONIA towards €STER and the reasoning behind the choice to recalibrate EONIA into €STER plus a spread. Although EURIBOR is considered BMR-compliant since 2 July 2019 and EONIA can continue to be used until 3 January 2022, this article explains why market participants should not be disincentivized to already take actions to provide for fallback rates to EURIBOR in their legal documentation, and to move away from EONIA. This study addresses various fallback methodologies. Contribution/Originality:This study is the first to provide a holistic overview of the reforms of the EURIBOR and the EONIA, as well as the on-going work to transition away from EONIA towards the Euro short-term rate (€STER). The study documents the efforts made by the administrator, the panel banks as well as by the FSMA to reform EURIBOR and to keep it operational, at least in the medium term. It explains the choice of the EU RFR Working Group and the administrator to recalibrate EONIA into €ster + a spread of 8.5 basis points. INTRODUCTIONSince the late 1960s, interbank offered rates (IBORs) have played a critical role in financial markets (see Hou and Skeie ( 2014)). Initially used in the syndicated loan market, IBORs are nowadays considered as interest rate benchmarks 1 that intend to represent the unsecured funding cost for financially sound banks in the interbank 1 In this article, a benchmark is defined as in article 3 of Regulation (EU) 2016/1011 of the European Parliament and of the Council of 8 June 2016 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds and amending Directives 2008/48/EC and 2014/17/EU and Regulation (EU) No 596/2014 ("BMR"). That is, it is an index by reference to which the amount payable under a financial instrument or a financial contract, or the value of a financial instrument, is determined, or an index that is used to measure the performance of an investment fund to track the return of such index or of defining the asset allocation of a portfolio or of computing the performance fees. An index is any figure that is a) published or made available to the public

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“…The constant markup, μ, is appropriated by numerous elements affecting bank price-setting at the individual level, including demand side, competition, risk premia, and bank characteristics such as size, capitalisation, and liquidity (Freixas & Rochet 2008). Study of the influencing factors forms the determinant strand of the literature on monetary policy transmission, such as Fiszeder and Pietryka (2017) and Naraidoo and Raputsoane (2015).…”

Section: Theoretical Marginal Cost Pricing Modelmentioning

confidence: 99%

International funding cost and heterogeneous mortgage interest-rate pass-through: a bank-level analysis

2018

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This study examines the transmission of the cost-of-funds rates, domestically and internationally, to owner-occupied housing interest rates at the bank level for the period 2002(7)-2015(12) in Australia. Three main issues, cross-sectional dependence, parameter heterogeneity, and asymmetry, have been considered using the linear and nonlinear commonfactor Augmented Mean Group estimators. Significant unobservable coefficients in all estimates ascertain that unobserved common factors arising from both national and global shocks have a significant influence on mortgage rate transmission. The results of sizable heterogeneity and asymmetry, found in all estimates while controlling for cross-sectional correlations, highlight the substantial effect of the foreign-funds rate on long-run mortgage price-setting. We find a closer connection between mortgage interest rates and international funding cost; we have also confirmed a declining transmission of the policy rate after the 2008 global financial crisis. Keywords Asymmetry, heterogeneity, cross-sectional dependence, interest rate pass-through, bank mortgages, AMG models JEL Classifications G21, E43, E52, E58 of funds reflects the whole range of diverse liabilities (Fabbro & Hack 2011). Recent global extreme shocks have induced a higher level of credit risk, liquidity risk, and competition, making the cost of market funding more expensive (ECB 2013). These significant changes in world financial markets violate the underlying assumption of an alignment between policy rates and retail interest rates (Naraidoo & Raputsoane 2015). This study examines heterogeneity and asymmetry in the transmission of the cost-of-funds rates, domestically and internationally, to home-loan interest rates, controlling for crosssection dependence. Our country selection has been made owing to the importance of Australian housing and housing finance markets from the perspectives of an effective monetary policy and wealth effects on consumption (Jansen 2013; Robstad 2018). Australia is one of the top five world largest mortgage markets, just standing behind Denmark, Norway, and Netherlands, whose ratios of total mortgage credit to annual economy output (GDP) are greater than 100% (IMF 2017). Globally, Australia possesses the highest ratio of housing loans to total bank loans at 64%, a ratio that has continuously increased since the GFC (IMF 2017). Its mortgage market is highly oligopolistic: the dominance of four major banks constitutes over 85% of total market share (presented in Fig. B1, Appendix B). Only Australia, of these five, raises considerable mortgage funds from wholesale sources; the others source their funds mainly from domestic deposits. A significant portion, around 35%, of Australia's mortgage funding is sourced from world financial markets (Ralston & Davis 2011; Wilkins et al. 2016). This heavy reliance on foreign borrowings also poses a serious practical question for policy makers and banking regulators: housing finance markets with these characteristics are highly associated with ho...

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Monetary policy in steering the EONIA and POLONIA rates in the Eurosystem and Poland: a comparative analysis

Cited by 5 publications

References 26 publications

Untitled

Untitled

The EURIBOR and EONIA Reform: Achieving Regulatory Compliance While Protecting Financial Stability

International funding cost and heterogeneous mortgage interest-rate pass-through: a bank-level analysis

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