Bank Of Greece Sa · ATHEX:TELL

Bank Of Greece Sa — Technical Presentation (September 2022)

26 slides from Bank Of Greece Sa's technical presentation, Sep 13, 2022

  1. Slide 1: Public and Private Liquidity during Crises Times: Evidence from Greek Banks

    Public and Private Liquidity during Crises Times: Evidence from Greek Banks Antonis Kotidis*, Dimitris Malliaropulos**, Elias Papaioannou*** September 13, 2022 *: Federal Reserve Board; **: Bank of Greece and University of Piraeus; ***: London Business School and CEPR Disclaimer: The views expressed

  2. Slide 2: The policy experiment

    The policy experiment We explore the impact of a unique policy shock on the banking system and the Greek economy. The shock: ECB’s exclusion of GGBs from the set of eligible collateral in monetary policy operations (suspension of the waiver) and the switch of Greek banks to ELA financing in Februa

  3. Slide 3: Borrowing and lending in the interbank market and CB Liquidity

    Borrowing and lending in the interbank market and CB Liquidity Feb 4, 2015  Run on repos: Repo borrowing collapsed (ca -50%) in the run-up to general elections of Jan 25 due to heightened political uncertainty. Banks increased MRO in January to fill funding gap.  Unsecured lending in the IB marke

  4. Slide 4: Size of banks' aggregate balance sheet remained stable: ELA as LOLR

    Size of banks’ aggregate balance sheet remained stable: ELA as LOLR  December 2014: Interbank market is a crucial source of liquidity for Greek banks EUR 32.2 bn of interbank liabilities EUR 56 bn of Eurosystem financing  February 2015: Total liabilities are stable at pre- shock level. ELA reple

  5. Slide 5: Why may a switch from Eurosystem funding to ELA matter?

    Why may a switch from Eurosystem funding to ELA matter?  ELA came at a higher cost (155 bps) compared to MRO and LTRO (5 bps).  ELA imposed strict conditionality on banks (solvency, exit plans)  Only solvent banks were eligible for ELA  Banks had to present a detailed plan on how to achieve repa

  6. Slide 6: Questions we ask

    Questions we ask 1. Did banks cut back on lending in the unsecured interbank market in response to the ECB policy shock? Along which margins? 2. Could affected borrowers in the interbank market substitute losses one-for-one from less affected lenders? 3. If not, did ELA fulfil its role as a LOLR? 4.

  7. Slide 7: Results preview

    Results preview 1. Unsecured lending in the interbank market contracted. Banks with higher reliance on ECB financing against GGB collateral were less likely to lend in the interbank market after the suspension of the waiver. 2. ELA allowed banks (especially the most vulnerable) to fully replenish th

  8. Slide 8: Contribution to the Literature

    Contribution to the Literature  Literature on central bank interventions  LOLR interventions can have positive effects on economy: By expanding collateral eligibility requirements (Nyborg, 2017; van Bekkum, Gabarro and Irani, 2018). By increasing the maturity of CB’s loans (Carpinelli and Crosigna

  9. Slide 9: Data: We merge eight datasets

    Data: We merge eight datasets Collateral pledged with the ECB. Confidential data on the collateral class that each bank pledges with the ECB as of November 2014. Main asset classes: Greek Government Bonds (GGBs), Greek Government Guaranteed Bank Bonds (GGGBBs) and supranational bonds (=95% of total

  10. Slide 10: Measures of exposure to the shock

    Measures of exposure to the shock Lenders 𝑙 = 1, … , 𝐿. Borrowers b = 1, … , 𝐵. Lenders in the unsecured interbank market: 𝐺𝐺𝐵 𝑐𝑜𝑙𝑙𝑎𝑡𝑒𝑟𝑎𝑙 𝑝𝑙𝑒𝑑𝑔𝑒𝑑 𝑤𝑖𝑡ℎ 𝐸𝐶𝐵 𝐷𝑖𝑟𝑒𝑐𝑡 𝐸𝑥𝑝𝑜𝑠𝑢𝑟𝑒 = 𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑙𝑙𝑎𝑡𝑒𝑟𝑎𝑙 Borrowers in the unsecured interbank market: 𝐺𝐺𝐵…

  11. Slide 11: Impact of the suspension of the waiver on the interbank market

    Impact of the suspension of the waiver on the interbank market 𝑌 = 𝛽 × 𝐵𝑎𝑛𝑘 𝑠 𝐸𝑥𝑝𝑜𝑠𝑢𝑟𝑒 × 𝑃𝑜𝑠𝑡 𝑊𝑎𝑖𝑣𝑒𝑟 + 𝑎 + 𝑎 +𝜀 We use four outcomes (𝑌 ): Access: =1 if a lender l grants a new loan to borrower b on day t, and =0 otherwise. Lending: Log(unsecured lending) of lender l to…

  12. Slide 12: A bank with 1 stdev higher exposure was 4.7% less likely to lend

    A bank with 1 stdev higher exposure was 4.7% less likely to lend Table 1: Impact of the Suspension of the Waiver on Interbank Market Access log(Lending) Rate log(Maturity) 1 2 3 4 5 6 7 8 9 10 11 12 Bank's Direct Exposure * -0.116** -0.111** 2.603 0.265 0.008 0.012 -1.046 0.443 Post Waiver (0.036) (

  13. Slide 13: Conditional on lending, no effects on amount of lending

    Conditional on lending, no effects on amount of lending Table 1: Impact of the Suspension of the Waiver on Interbank Market Access log(Lending) Rate log(Maturity) 1 2 3 4 5 6 7 8 9 10 11 12 Bank's Direct Exposure * -0.116** -0.111** 2.603 0.265 0.008 0.012 -1.046 0.443 Post Waiver (0.036) (0.038) (2

  14. Slide 14: Conditional on lending, banks charged a higher interest rate

    Conditional on lending, banks charged a higher interest rate Table 1: Impact of the Suspension of the Waiver on Interbank Market Access log(Lending) Rate log(Maturity) 1 2 3 4 5 6 7 8 9 10 11 12 Bank's Direct Exposure * -0.116** -0.111** 2.603 0.265 0.008 0.012 -1.046 0.443 Post Waiver (0.036) (0.03

  15. Slide 15: No effect on loan maturities

    No effect on loan maturities Table 1: Impact of the Suspension of the Waiver on Interbank Market Access log(Lending) Rate log(Maturity) 1 2 3 4 5 6 7 8 9 10 11 12 Bank's Direct Exposure * -0.116** -0.111** 2.603 0.265 0.008 0.012 -1.046 0.443 Post Waiver (0.036) (0.038) (2.047) (1.995) (0.009) (0.00

  16. Slide 16: Could borrowers substitute losses from less affected lenders after the shock?

    Could borrowers substitute losses from less affected lenders after the shock? Indirect exposure of borrowers Table 2: Exposure to the Shock and Interbank Liquidity Crunch log(Unsecured Borrowing) All banks Greek banks 1 2 A Greek bank wit 1 stdev higher Bank's Indirect Exposure through -9.936** -4.4

  17. Slide 17: Assessing negative side effects of ELA on banks' terms of borrowing

    Assessing negative side effects of ELA on banks’ terms of borrowing Table 4: Terms of Borrowing Volume of Total Borrowing Cost of Total Borrowing Maturity of Total Borrowing 1 2 3 4 5 6 Bank's Total Exposure * 0.055 0.055 5.983 7.295 -15.984 -18.567 Post Waiver Announcement (0.061) (0.105) (7.194) (

  18. Slide 18: Lending to the real economy

    Lending to the real economy We compare lending to the same firm by banks with different exposure to the liquidity shock (cross section). log(𝐿𝑒𝑛𝑑𝑖𝑛𝑔) = 𝛽 × 𝐵𝑎𝑛𝑘𝑠 𝑇𝑜𝑡𝑎𝑙 𝐸𝑥𝑝𝑜𝑠𝑢𝑟𝑒 +𝑎 + 𝜀 log(𝐿𝑒𝑛𝑑𝑖𝑛𝑔) : log change in lending from bank b to firm f between March 2015…

  19. Slide 19: Banks with 1 stdev higher total exposure reduced their lending by 2pp

    Banks with 1 stdev higher total exposure reduced their lending by 2pp Table 5: Lending to the Real Economy Δlog(Lending) 1 2 3 Bank's Total Exposure -0.113*** -0.109* -0.159** (0.038) (0.059) (0.062) Firm with >1 Bank Relationship no yes yes Firm FE no no yes Number of Firms 5143 1575 1575 Coverage

  20. Slide 20: How did ELA conditionality affect lending to the real economy?

    How did ELA conditionality affect lending to the real economy? ELA eligibility requires: Solvency (distance from minimum CET1/Tier1/total capital ratio) Exit plans (Dependence on long-term funding, e.g., time/total deposits) We compare lending to the same firm by banks with different exposure to the

  21. Slide 21: Quantifying the role of banks' exposure to ELA conditionality on corporate lending

    Quantifying the role of banks’ exposure to ELA conditionality on corporate lending Table 6: Conditionalities of ELA Δlog(Lending) 1 2 3 4 5 6 Solvency ratios Exit plans Time Time deposits > Time deposits > Total Capital Deposits/Total 1 year/Total 1 year/Total CET1 Tier1 Ratio deposits deposits liab

  22. Slide 22: Could firms which faced a reduction in bank credit substitute credit from other less affected banks?

    Could firms which faced a reduction in bank credit substitute credit from other less affected banks? Table 7: Firm Credit Supply Reduction New Lending Relationship Δlog(Total Borrowing) 1 2 3 4 5 6 7 8 Firm's Banks' Total Exposure 0.004 -0.000 -0.007 -0.004 -0.100** -0.120** -0.134*** -0.151*** (0.0

  23. Slide 23: Could firms which faced a reduction in bank credit substitute credit from other less affected banks?

    Could firms which faced a reduction in bank credit substitute credit from other less affected banks? Table 7: Firm Credit Supply Reduction New Lending Relationship Δlog(Total Borrowing) 1 2 3 4 5 6 7 8 Firm's Banks' Total Exposure 0.004 -0.000 -0.007 -0.004 -0.100** -0.120** -0.134*** -0.151*** (0.0

  24. Slide 24: Trade effects

    Trade effects We match the loan-level data with administrative data on firm exports at the product-destination level (5-digit SITC). We collapse the monthly data into two two-month periods, before and after the suspension of waiver. To deal with seasonality in exports, the pre period corresponds to

  25. Slide 25: Trade effects: Single-lender firms reduced exports on the extensive margin

    Trade effects: Single-lender firms reduced exports on the extensive margin Table 8: Trade Effects Exit Δlog(Export Volume) Δlog(Export Value) 1 2 3 4 5 6 Firm's Banks' Total Exposure -0.036 0.125* -0.283 0.037 -0.248 -0.089 (0.048) (0.073) (0.247) (0.336) (0.173) (0.228) Firm's Banks' Total Exposure

  26. Slide 26: Concluding remarks

    Concluding remarks  There are two, not necessarily contradictory, readings of the chain linking the unexpected ECB policy shock and the LOLR intervention of the Bank of Greece to corporate lending and firm exports.  The first suggests that the Greek central bank’s liquidity provision, even at high

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