Banking
mohammad ali dehghandehnavi; meysam Amiri; Amin Khorshidsavar
Abstract
Banks play a crucial role in maintaining the financial stability within an economy. Their importance stems from the various functions and roles they perform contributing to the overall stability and growth of the financial system. On the other hand, the importance of banks for real economic growth lies ...
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Banks play a crucial role in maintaining the financial stability within an economy. Their importance stems from the various functions and roles they perform contributing to the overall stability and growth of the financial system. On the other hand, the importance of banks for real economic growth lies in their role as financial intermediaries that facilitate the efficient allocating of capital, supporting businesses and individuals, and contributing to the overall stability and development of the economy. This research has investigated the factors affecting banks' risk-taking with emphasis on monetary policy, regulatory, and macroeconomic variables in 16 banks in Iran during the years 2011 to 2023. In this study, two models are used and the estimation method is GMM. The results of the research show that there is an inverse relationship between monetary policy and risk-taking. While capital adequacy ratio (regulatory) and GDP growth rate have a positive effect on risk-taking, the relationship between inflation rate and risk-taking is inverse.
Banking
Meysam Amiri; Samira Farahani
Abstract
In recent decades, the functioning of financial markets and banks has undergone significant changes. Many institutions resembling traditional banks have emerged outside the regulatory framework of the central bank, a phenomenon known as shadow banking. Instead of engaging in the traditional activities ...
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In recent decades, the functioning of financial markets and banks has undergone significant changes. Many institutions resembling traditional banks have emerged outside the regulatory framework of the central bank, a phenomenon known as shadow banking. Instead of engaging in the traditional activities of conventional banks, shadow banking employs a more diverse set of resources and instruments, lead to changes in economic risks and influencing economic policies in various countries. The present study aimed to examine shadow banking and its relationship with traditional banking from 2011 to 2021 in Iran. It relied on the modeling of money demand functions within a system of simultaneous equations along with the Minflex Laurent flexible functional form. Moreover, the BEKK–GARCH model was used to address heteroscedasticity. The findings indicate that shadow banking has grown at an increasing rate over the past decade. According to the Morishima elasticity of substitution, conventional banking and shadow banking alternated in replacing each other during the 2010s. Additionally, the results showed that the spillover effect of short-term deposit shocks and fixed-income funds on Islamic bonds was positively significant, while the effect of shocks from fixed-income funds on cash and short-term deposits was not significant.1.IntroductionSince the early 1960s, a new phenomenon has emerged in the banking sector and has rapidly expanded, which involves the shift of intermediation from traditional banks to non-banks outside the supervision of the central bank (Buchak et al., 2018). These institutions, known as shadow banks, have grown rapidly in both developed and emerging countries over the past decades, playing a crucial role in the development of their monetary and financial markets (Łasak, 2015). However, shadow banking has also posed several challenges. Many financial experts attribute the recent global financial crisis to the complex structure of shadow banking, supported by a global consensus on the significant role of shadow banks in the 2007–2009 financial crisis (Pozsar et al., 2013; Lysandrou & Nesvetailova, 2014). Shadow banking presents both an opportunity and a challenge. While companies and households benefit from shadow banking as an alternative financial channel, maintaining financial stability in the market has become even more complex and challenging (Allen & Gu, 2020). In the present study, the term cash includes paper money, foreign currency, coins, traveler’s checks, and short-term deposits as liabilities of bank deposits. Fixed-income funds and commercial papers are considered the liabilities of shadow banks. The study is based on the hypothesis that substitutability or complementarity between bank services and shadow banks is a critical factor in the effectiveness of monetary policies. An explanatory framework was developed to examine whether the relationship between traditional banking services and shadow banking in Iran is complementary or substitutive.2.Materials and MethodsTo model the money demand function, the study used the Minflex Laurent flexible functional form within a dual approach encompassing both conventional and shadow banking, as well as demand systems proposed by Diewert (1974). Additionally, Barnett’s (2002) approach was employed to ensure the systematicity conditions of classical models, namely monotonicity, curvature, and positivity. The BEKK–GARCH model was used to address heteroscedasticity and estimate the model. MATLAB R2018b, Eviews11, and WinRATS10 were used estimate the theoretical models of the study.3.Results and DiscussionThe Morishima elasticity of substitution between different components of money demand showed that despite fluctuations in the level of elasticity, the elasticity of all components is less than one. Furthermore, since all elasticities are positive, the components act as substitutes for each other. Among the examined elasticities, the highest average substitution occurred with Islamic securities compared to changes in fixed-income funds, while the lowest substitution occurred with fixed-income funds compared to changes in cash. In addition, investigating the response to shocks in each component of money demand revealed several points. First, the reaction of assets to demand shock fluctuations was initially positive for cash, although for Islamic securities, this effect decreased after three periods or months. The reaction of cash fluctuations to cash shock was significantly greater and increased for all assets. Second, the reaction of each asset to short-term deposit shocks was positive but small, except for the case of cash in which it was slightly negative in the first and second periods. This reaction increased during subsequent periods in the case of short-term deposits themselves. Third, concerning the fixed-income fund shock, although it was negative in the first period, it became positive in subsequent periods. The shock related to Islamic bonds and short-term deposits maintained a stable positive trend, and shocks from fixed-income funds increased for three periods but had a decreasing but positive trend thereafter. Fourth, investigating the reaction of fluctuations to shocks in Islamic securities showed that-except for cash which had a positive increasing trend-the trend for the other three assets initially increased and then decreased.4.ConclusionThe results indicate that the demand for shadow banking services has gradually increased in Iran, aligning with global economic trends and the advantages shadow banks offer over conventional banks. Although shadow banks in Iran are perceived as competitors to conventional banks, studies show that the limitations imposed by unilateral policies in Iran’s monetary market have led many shadow banking activities to be conducted by institutions related to conventional banking. In fact, utilizing shadow banking capacities has helped establish stability in Iran’s conventional banking system. This finding aligns with the results of the Financial Stability Board (2013) and the related studies (Liu & Xie, 2020; Moshirian, 2014). According to these studies, many shadow banking services by conventional banks are carried out to bypass central bank regulations. Moreover, the findings of the present study on the substitution between conventional and shadow banking are consistent with the findings of Serletis and Zhou (2019), as contrasted to Lin and Li (2017), Górnicka (2016), and Noeth and Sengupta (2011), who view conventional and shadow banking as two complementary systems.
Banking
Mohammad Javad Nourahmadi; Amir Khademalizadeh; Mohammad Bagher Shirmehenji
Abstract
Studies conducted on the relationship between central bank independence and inflation show heterogeneity in the results. Some of these studies have concluded a negative relationship, while others have concluded a positive or insignificant relationship between central bank independence and inflation. ...
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Studies conducted on the relationship between central bank independence and inflation show heterogeneity in the results. Some of these studies have concluded a negative relationship, while others have concluded a positive or insignificant relationship between central bank independence and inflation. The purpose of this study is to conduct a multilevel meta-analysis to examine the effect of central bank independence on inflation. For this purpose, all full-text articles that examined the relationship between central bank independence and inflation were reviewed. After reviewing the content and results, 58 studies were selected to enter the meta-analysis based on the meta-analysis protocol. Data from 58 selected studies included 619 regressions and 913 coefficients that were extracted and coded. In the first level of meta-analysis, the regression coefficients of each study were combined and the effect size of each study was calculated. In the second level of meta-analysis, to calculate the total effect size, the effect size of 58 studies was determined according to the weight of each study. The result of the combination and conclusion of individual studies shows that the independence of the central bank has a small negative and significant effect on inflation. The results also showed that the type of index used to calculate the degree of central bank independence affects the relationship under meta-analysis. In addition, the negative effect of central bank independence on inflation is greater in developed countries than in other countries.
Banking
Farshad Momeni; Abbas Shakeri; Javad Taherpoor; Behnam Ezati Ekhtiar
Abstract
In some economic theories emphasizing the positive relationship between financial and real sector development in economy, privatization of financial markets and institutions and increasing private sector share is the dominant approach to financial development. However, private banks performance in some ...
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In some economic theories emphasizing the positive relationship between financial and real sector development in economy, privatization of financial markets and institutions and increasing private sector share is the dominant approach to financial development. However, private banks performance in some countries have shown different results compared to the goals had been set. Lack of proper economic and institutional environment has led to adverse results of private banks. Considering mentioned issues, this study aims to assess the impact of private banking on the economic growth rate in Iran based on the seasonal data form 2003 till 2018 using Autoregressive Distributed Lag (ARDL) technique. Results of the study have shown that financial development has a positive impact on the growth rate of economy, while, as the market share of private banks has increased, it had a negative effect on the economic growth. The main cause of this negative relationship is undesirable institutional environment which private banks are working in. Therefore, preparing suitable institutional framework is a condition to gain the private banks’ advantages. Central bank constant supervision alongside the enforcement authority prohibiting private banks from managing economic firms and the presence in the alternative markets are the main preconditions.