101 results found
Allen HF, Qian Y, Tu G, et al., 2019, Entrusted loans: a close look at china's shadow banking system, Journal of Financial Economics, Vol: 133, Pages: 18-41, ISSN: 0304-405X
We perform transaction-level analyses of entrusted loans, one of the largest components of shadow banking in China. Entrusted loans involve firms with privileged access to cheap capital channeling funds to less privileged firms, and the increase when credit is tight. Nonaffiliated loans have much higher interest rates than both affiliated loans and official bank loans, and they largely flow into real estate. The pricing of entrusted loans, especially of nonaffiliated loans, incorporates fundamental and informational risks. Stock market reactions suggest that both affiliated and nonaffiliated loans are fairly compensated investments.
Allen HF, Qian M, Xie J, 2019, Understanding informal financing, Journal of Financial Intermediation, Vol: 39, Pages: 19-33, ISSN: 1042-9573
This paper offers a framework to understand informal financing based on mechanisms to deal with asymmetric information and enforcement. We find that constructive informal financing such as trade credits and family borrowing that relies on information advantages or an altruistic relationship is associated with good firm performance. Underground financing such as money lenders who use violence for enforcement is not. Constructive informal financing is prevalent in regions where access to bank loans is extensive, while its role in supporting firm growth decreases with bank loan availability. International comparisons show that China is not an outlier but rather average in using informal financing.
Allen F, Brealey R, Myers S, 2019, Principles of Corporate Finance, 13th edition, Publisher: McGraw-Hill, ISBN: 978-1260013900
Allen HF, Bartiloro L, Gu X, et al., 2018, Does economic structure determine financial structure?, Journal of International Economics, Vol: 114, Pages: 389-409, ISSN: 0022-1996
In this paper, we examine the relationship between the structure of the real economy and a country's financial system. We consider whether the development of the real economic structure can predict the direction of evolution of a country's financial structure. Using data for 108 countries, we find a significant relationship between real economic structure and financial structure. Next, we exploit shocks to the economies in India, Finland and Sweden, and South Korea and show that changes in the economic structure of a country influence the evolution of its financial system. This suggests that financial institutions and capital markets change in response to the structure of industries.
Banks are intrinsically fragile because of their role as liquidity providers. This results in under-provision of liquidity. We analyze the effect of government guarantees on the interconnection between banks' liquidity creation and likelihood of runs in a global-game model, where banks' and depositors' behavior are endogenous and affected by the amount and form of guarantee. The main insight of our analysis is that guarantees are welfare improving because they induce banks to improve liquidity provision, although that sometimes increases the likelihood of runs or creates distortions in banks' behavior.
Allen HF, Gu X, 2018, The Interplay between regulations and financial stability, Journal of Financial Services Research, Vol: 53, Pages: 233-248, ISSN: 0920-8550
The crisis demonstrated that microprudential regulation focusing on the risks taken by individual banks is not sufficient to prevent crises. This is because it ignores systemic risk. Six types of systemic risk are identified, namely: (i) panics – banking crises due to multiple equilibria; (ii) banking crises due to asset price falls; (iii) contagion; (iv) financial architecture; (v) foreign exchange mismatches in the banking system; (vi) behavioral effects from Knightian uncertainty. We focus on the first three as they are arguably the main causes of the 2007–9 crisis and consider regulatory and other policies to counteract them.
Allen HF, Goldstein I, Jagtiani J, 2018, The interplay between financial regulations, resilience, and growth, Journal of Financial Services Research, Vol: 53, Pages: 141-162, ISSN: 0920-8550
Interconnectedness has been an important source of market failures, leading to the recent financial crisis. Large financial institutions tend to have similar exposures and thus exert externalities on each other through various mechanisms. Regulators have responded by putting in place more regulations with many layers of regulatory complexity, leading to ambiguity and market manipulation. Mispricing risk in complex models and the arbitrage opportunities through the regulatory loopholes have provided incentives for certain activities to be more concentrated in the regulated entities and for other activities to leave the banking into new shadow banking areas. How can we design an effective regulatory framework that would perfectly rule out bank runs and TBTF and to do so without introducing incentives for financial firms to take excessive risk? It is important for financial regulations to be coordinated across regulatory entities and jurisdictions and for financial regulations to be forward looking, rather than aiming to address problems of the past.
Allen F, Gu X, Qian J, 2018, The People’s Bank of China: From 1948 to 2016, Sveriges Riksbank and the History of Central Banking, Publisher: Studies in Macroeconomic History, ISBN: 9781107193109
We provide a comprehensive review of the development and activities of the People’s Bank of China (PBC) over the last half century. First, the PBC has evolved from the mixture of a central bank and a commercial bank to the central bank of China, with this status legally confirmed in 1995. Although the mandates of the PBC have altered slightly over the past decades, the bank’s monetary policy has continuously met challenges in different stages of economic development. Second, in order to reach the objectives of economic growth and stable prices, the PBC does not operate in a single instrument environment, but employs a variety of policy instruments including price-based, quantity-based and administrative policy measures. Third, the PBC has been actively promoting financial reforms and playing a key role in regulation during special episodes such as the credit crunch in 2013. These have led to the rapid development of the financial system and may further contribute to economic growth and help balance the growth in different economic sectors.
Allen H, Gale D, 2018, Financial Contagion revisited, Towards a Just Society: Joseph Stiglitz and 21st Century Economics
Allen HF, Carletti E, Grinstein Y, 2018, International evidence on firm level decisions in response to the crisis: shareholders vs. other stakeholders, Journal of the Japanese and International Economies, Vol: 47, Pages: 3-16, ISSN: 0889-1583
The relationship between changes in GDP and unemployment during the 2008 financial crisis differed significantly from previous experiences and across countries. We study firm-level decisions in France, Germany, Japan, the UK, and the US. We find significant differences between the response of US and non-US firms. US firms significantly decreased their production costs relative to firms in other countries. They have also reduced debt, reduced dividend payout, and increased their cash holdings compared to firms in other countries. The differences are, in general, explained by differences in financial leverage. However, financial leverage does not explain differences between production decisions in German and U.S. firms and between Japanese and US firms. We argue that differences in firm governance between US firms and firms in Germany and Japan drive these responses. US firms are more prone to cut labor costs and reduce leverage compared to German firms and Japanese firms in order to achieve larger profits and a larger cash-cushion in the short-run.
Allen HF, Gale D, 2017, How should bank liquidity be regulated?, Achieving Financial Stability: Challenges to Prudential Regulation, Pages: 135-157, ISBN: 978-981-3223-39-4
One reason why the 2007–2009 financial crisis was so severe and had a global impact was massive illiquidity in many markets, particularly interbank markets. This combined with an extreme exposure of many financial institutions to liquidity needs meant investors ran on a variety of financial institutions, particularly in wholesale markets. Financial institutions and non-financial firms started to sell assets at fire-sale prices to raise cash, and central banks injected huge amounts of liquidity into financial systems…Read More: https://www.worldscientific.com/doi/abs/10.1142/9789813223400_0011
Allen HF, Gu XIAN, Kowalewski O, 2017, Financial Structure. Economic Growth and Development, Handbook of Finance and Development, Editors: Beck, Levine
Financial intermediaries and markets can alleviate market frictions through producinginformation and risk sharing in different ways. In practice, the structure of financialsystems can be bank-based or market-based, varying across countries. The influence offinancial structure on economic growth is dependent on the overall development of thereal economy and institutions. The association is also different during crisis periods andnon-crisis periods. Market-based systems tend to have an advantage for financiallydependent industries in good times but are a disadvantage in bad times. The recent rapidgrowth of shadow banking benefits economic growth but also poses additional risks tothe financial system and real economy.
Burn L, Faull J, Kirilenko A, et al., 2017, The changing geography of finance and regulation in Europe, Publisher: European University Institute, ISBN: 9789290845454
Allen HF, Qian J, Gu X, 2017, An overview of China's financial system, Annual Review of Financial Economics, ISSN: 1941-1375
We provide a review of China’s financial system and consider challenges it faces and further reforms in the future. The formal sectors of the financial system, which includes a fast-growing stock market and is dominated by a banking sector with large state-owned banks, have played a critical role in financing the state sectors and the investment-driven economic growth model. However, the formal sectors have not served the needs of the private sectors or households; these dynamic sectors have been financed by alternative finance sectors operating largely outside the markets and formal institutions. Going forward, financial markets need to be further developed to provide more support for the private sectors, including technology and services industries; the formal and alternative sectors should work together to improve the efficiency of resource allocation to better support the new model of consumption- and innovation-driven growth. Finally, the financial system needs to reduce the likelihood of damaging financial crises, which have included a real estate crisis, a banking crisis triggered by defaults on corporate and local government debt, and a twin crisis in the currency market and the banking sector.
Allen F, Edmans A, 2017, Editorial, REVIEW OF FINANCE, Vol: 21, Pages: 1-6, ISSN: 1572-3097
Allen HF, Goldstein I, Jagtiani J, et al., 2016, Enhancing Prudential Standards in Financial Regulations, Journal of Financial Services Research, Vol: 49, Pages: 133-149, ISSN: 1573-0735
The financial crisis has generated fundamental reforms in the financial regulatory system in the U.S. and internationally. Much of this reform was in direct response to the weaknesses revealed in the precrisis system. The new “macroprudential” approach to financial regulations focuses on risks arising in financial markets broadly, as well as the potential impact on the financial system that may arise from financial distress at systemically important financial institutions. Systemic risk is the key factor in financial stability, but our current understanding of systemic risk is rather limited. While the goal of using regulation to maintain financial stability is clear, it is not obvious how to design an effective regulatory framework that achieves the financial stability objective while also promoting financial innovations. This paper discusses academic research and expert opinions on this vital subject of financial stability and regulatory reforms. Specifically, among other issues, it discusses the impact of increasing public disclosure of supervisory information, the effectiveness of bank stress testing as a tool to enhance financial stability, whether the financial crisis was caused by too big to fail (TBTF), and whether the Dodd-Frank Wall Street Reform and Consumer Protection Act (DFA) resolution regime would be effective in achieving financial stability and ending TBTF.
Allen F, Demirguc-Kunt A, Klapper L, et al., 2016, The foundations of financial inclusion: Understanding ownership and use of formal accounts, Journal of Financial Intermediation, Vol: 27, Pages: 1-30, ISSN: 1042-9573
Financial inclusion—defined as the use of formal accounts—can bring many benefits to individuals. Yet, we know very little about the factors underpinning it. This paper explores the individual and country characteristics associated with financial inclusion and the policies that are effective among those most likely to be excluded: poor, rural, female or young individuals. Overall, we find that greater financial inclusion is associated with lower account costs, greater proximity to financial intermediaries, stronger legal rights, and more politically stable environments. However, the effectiveness of policies to promote inclusion varies depending on the characteristics of the individuals considered.
Allen HF, Brealey R, Myers S, 2016, Principles of Corporate Finance, Publisher: McGraw-Hill Higher Education
Allen F, Carletti E, Gray J, et al., 2016, Filling the Gaps in Governance The Case of Europe, ISBN: 9789290844150
The conference consisted of three panel sessions, one keynote lecture and one dinner speech. Opening the event, organizers highlighted that the agenda for this sixth annual conference showed some continuity with the previous ones.
Allen F, Carletti E, Marquez R, 2015, Deposits and bank capital structure, Journal of Financial Economics, Vol: 118, Pages: 601-619, ISSN: 0304-405X
In a model with bankruptcy costs and segmented deposit and equity markets, we endogenize the cost of equity and deposit finance for banks. Despite risk neutrality, equity capital earns a higher expected return than direct investment in risky assets. Banks hold positive capital to reduce bankruptcy costs, but there is a role for capital regulation when deposits are insured. Banks could no longer use capital when they lend to firms instead of investing directly in risky assets. This depends on whether the firms are public and compete with banks for equity capital or are private with exogenous amounts of capital.
Allen F, Jackowicz K, Kowalewski O, et al., 2015, Bank lending, crises, and changing ownership structure in Central and Eastern European countries, Journal of Corporate Finance, Vol: 42, Pages: 494-515, ISSN: 0929-1199
We examine the interactions of bank lending dynamics, ownership structures, and crisis phenomena in the banking systems of Central and Eastern European (CEE) countries. Using a panel dataset of more than 400 banks for the period from 1994–2010, we show that the impact of ownership structure on a bank’s lending activities in CEE countries was conditional upon the type of crisis, namely, whether it was a host, home, global, or simultaneous crisis. In contrast, our evidence indicates that bank-specific characteristics, such as deposit growth and profitability ratios, are significant determinants of credit growth during both normal economic times and crisis periods, regardless of the crisis type. Moreover, we provide indirect evidence of the benefits of banking sector diversification dependent upon the criterion of parent banks’ country of origin.
Allen F, Carletti E, Marquez R, 2015, Stakeholder Governance, Competition, and Firm Value*, Review of Finance, Vol: 19, Pages: 1315-1346, ISSN: 1572-3097
Allen HF, Goldstein I, Jagtiani J, et al., 2015, Enhancing Prudential Standards in Financial Regulations
Allen F, Carletti E, Goldstein I, et al., 2015, Moral Hazard and Government Guarantees in the Banking Industry, Journal of Financial Regulation, Vol: 1, Pages: 30-50, ISSN: 2053-4833
The massive use of public funds in the financial sector and the large costs for taxpayers are often used to justify the idea that public intervention should be limited. This conclusion is based on the idea that government guarantees always induce financial institutions to take excessive risk. In this article, we challenge this conventional view and argue that it relies on some specific assumptions made in the existing literature on government guarantees and on a number of modelling choices. We review the theory of government guarantees by highlighting and discussing the role that these underlying assumptions play in the assessment of the desirability and effectiveness of government guarantees and propose a new framework for thinking about them.
Acharya VV, Laffan B, 2015, The New Financial Architecture in the Eurozone, ISBN: 9789290842965
The logic, features and future shape of the new financial architecture of the Eurozone were discussed under Chatham House Rules on the occasion of a high-level conference hosted in Florence on 23 April 2015, by the European University ...
Allen HF, Carletti E, Cull R, et al., 2015, Resolving the African Financial Development Gap: Cross-Country Comparisons and a Within-Country Study of Kenya, African Successes: Modernization and Development, ISBN: 9780226315690
Allen HF, Goldstein I, Jagtiani J, et al., 2014, Enhancing Prudential Standards in Financial Regulations, Publisher: FRB of Philadelphia
Allen F, Hryckiewicz A, Kowalewski O, et al., 2014, Transmission of financial shocks in loan and deposit markets: Role of interbank borrowing and market monitoring, JOURNAL OF FINANCIAL STABILITY, Vol: 15, Pages: 112-126, ISSN: 1572-3089
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