Retracted: Risk Management in Financial Institutions

Rampini, Adriano A.; Viswanathan, S.; Vuillemey, Guillaume

doi:10.1111/jofi.12868

Cited by 44 publications

(13 citation statements)

References 67 publications

(88 reference statements)

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“…Begenau, Piazzesi, and Schneider (2015) and Begenau and Stafford (2019) find that bank balance sheets are heavily exposed to interest rates. Rampini, Viswanathan, and Vuillemey (2020) find that banks hedge more of their interest rate risk if their net worth is larger. Our paper shows that banks' balance sheet exposure is hedged by the deposit franchise.…”

Section: Related Literaturementioning

confidence: 92%

Banking on Deposits: Maturity Transformation without Interest Rate Risk

Drechsler¹,

Savov²,

Schnabl³

2021

The Journal of Finance

203

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We show that maturity transformation does not expose banks to interest rate risk-it hedges it. The reason is the deposit franchise, which allows banks to pay deposit rates that are low and insensitive to market interest rates. Hedging the deposit franchise requires banks to earn income that is also insensitive, that is, to lend long term at fixed rates. As predicted by this theory, we show that banks closely match the interest rate sensitivities of their interest income and expense, and that this insulates their equity from interest rate shocks. Our results explain why banks supply long-term credit.

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Section: Related Literaturementioning

confidence: 92%

Banking on Deposits: Maturity Transformation without Interest Rate Risk

Drechsler¹,

Savov²,

Schnabl³

2021

The Journal of Finance

203

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“…Duffie and Singleton, 2012;Bülbül et al, 2019;Psillaki et al, 2010), and financial institutions may respond to financial risk by cutting down credit supply and operating cost and such actions can affect the customers they serve (e.g. Hull, 2012;Rampini et al, 2020). Secondly, this study also contributes to the financial inclusion literature.…”

Section: Introductionmentioning

confidence: 81%

Has financial inclusion made the financial sector riskier?

Ozili¹

2021

JFRC

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Purpose This paper aims to examine whether high levels of financial inclusion is associated with greater financial risk. Design/methodology/approach The study uses regression methodology to estimate the effect of financial inclusion on financial risk. Findings The findings reveal that higher account ownership is associated with greater financial risk through high non-performing loans and high-cost inefficiency in the financial sector of developed countries, advanced countries and transition economies. Increased use of debit cards, credit cards and digital finance products reduced risk in the financial sector of advanced countries and developed countries but not for transition economies and developing countries. The findings also show that the combined use of digital finance products with increased formal account ownership improves financial sector efficiency in developing countries while the combined use of credit cards with increased formal account ownership reduces insolvency risk and improves financial sector efficiency in developing countries. Research limitations/implications The paper offers several implications for policy and financial regulation. It suggests policies that would reduce the financial risk that financial inclusion poses to the financial sector. Originality/value The recent interest in financial inclusion and the unintended consequences of policy-driven financial inclusion in some parts of the world is raising concern about the risks that financial inclusion may introduce to the formal financial sector. Little is known about the risks that financial inclusion may pose to the financial sector.

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“…two, as both promises to hedging counterparties and financiers need to be collateralized. Rampini and Viswanathan (2017) apply this logic to financial intermediaries and Rampini et al (2017) and Vuillemey (2019) provide empirical evidence on interest rate and foreign exchange risk management by financial institutions. Better capitalized institutions and institutions with higher net worth engage in relatively more hedging activity.…”

Section: Discussionmentioning

confidence: 99%

“…The third friction of our model is that traders are risk averse. Froot, Scharfstein, and Stein (1993) were the first to formalize that firms that are financially constrained are risk averse in their net worth, giving them an incentive to hedge. The same argument extends to financial institutions as demonstrated in Froot and Stein (1998).…”

Section: Discussionmentioning

confidence: 99%

The Collateral Costs of Clearing

Monnet¹,

Nellen²

2021

J of Money Credit Banking

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The Collateral Costs of ClearingWe study three generic clearing arrangements in the presence of two-sided limited commitment: simple bilateral clearing, segregated collateral clearing through a third party, and-most sophisticated-central counterparty (CCP) clearing. Clearing secures the settlement of obligations from overthe-counter forward contracts that smooth the income of risk-averse traders. Clearing requires collateral to guarantee settlement; this is costly, as it reduces income from investment. More sophisticated clearing arrangements require more collateral. As a result, the welfare gains of CCP clearing may be mostly due to segregation, while mutualization of losses could contribute little to welfare.

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Retracted: Risk Management in Financial Institutions

Cited by 44 publications

References 67 publications

Banking on Deposits: Maturity Transformation without Interest Rate Risk

Banking on Deposits: Maturity Transformation without Interest Rate Risk

Has financial inclusion made the financial sector riskier?

The Collateral Costs of Clearing

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