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Essays in Financial Intermediation.

Chen, Jiakai.

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Essays in Financial Intermediation.

Record Type:	Electronic resources : Monograph/item
Title/Author:	Essays in Financial Intermediation./
Author:	Chen, Jiakai.
Description:	115 p.
Notes:	Source: Dissertation Abstracts International, Volume: 77-01(E), Section: A.
Contained By:	Dissertation Abstracts International77-01A(E).
Subject:	Finance. -
Online resource:	http://pqdd.sinica.edu.tw/twdaoapp/servlet/advanced?query=3720423
ISBN:	9781339014142

Essays in Financial Intermediation.
Chen, Jiakai.

Essays in Financial Intermediation. - 115 p.

Source: Dissertation Abstracts International, Volume: 77-01(E), Section: A.

Thesis (Ph.D.)--University of California, Berkeley, 2015.

This dissertation consists of two chapters that concern financial intermediation. Many shadow banks rely heavily on bank-sponsored private credit and liquidity support instead of government guarantees. Bank capital regulation cannot be effective without explicitly considering these facilities. In the first chapter of the dissertation, I use a continuous time model with maturity mismatch and bank moral hazard to study the impact of credit and liquidity guarantees on bank capital structure. I focus on a particular type of shadow banking called asset-backed commercial paper (ABCP). When banks provide credit guarantees to ABCP conduits, assuming that the validity of the guarantees is ensured by rating agencies, the commercial paper becomes risk free and is always priced at par. Rolling over the commercial paper is thus costless, so that frequently rolling over the short term ABCP to fund long term assets---a maturity mismatch---has no impact on bank value. Regulators can eliminate a bank's moral hazard by imposing a simple capital ratio requirement. However, the capital ratio requirement is no longer valid if banks use liquidity guarantees in their ABCP conduit funding because the funding maturity becomes important. Moreover, a liquidity guarantee becomes as costly as a credit guarantee when the maturity shortens. Using Moody's ABCP conduit data, I confirm that shorter ABCP maturity causes the bank's return to be more sensitive to the conduit credit loss. Thus, when banks have significant exposure to a liquidity guarantee, the search for a single appropriate risk weight is futile. More sophisticated tests, such as model-based tests are not only necessary but also have to be carried out under stressed scenarios.

ISBN: 9781339014142Subjects--Topical Terms:

542899
Finance.

Essays in Financial Intermediation.
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100 1 $a Chen, Jiakai. $3 3182599
245 1 0 $a Essays in Financial Intermediation.
300 $a 115 p.
500 $a Source: Dissertation Abstracts International, Volume: 77-01(E), Section: A.
500 $a Advisers: Nancy E. Wallace; Christine A. Parlour.
502 $a Thesis (Ph.D.)--University of California, Berkeley, 2015.
520 $a This dissertation consists of two chapters that concern financial intermediation. Many shadow banks rely heavily on bank-sponsored private credit and liquidity support instead of government guarantees. Bank capital regulation cannot be effective without explicitly considering these facilities. In the first chapter of the dissertation, I use a continuous time model with maturity mismatch and bank moral hazard to study the impact of credit and liquidity guarantees on bank capital structure. I focus on a particular type of shadow banking called asset-backed commercial paper (ABCP). When banks provide credit guarantees to ABCP conduits, assuming that the validity of the guarantees is ensured by rating agencies, the commercial paper becomes risk free and is always priced at par. Rolling over the commercial paper is thus costless, so that frequently rolling over the short term ABCP to fund long term assets---a maturity mismatch---has no impact on bank value. Regulators can eliminate a bank's moral hazard by imposing a simple capital ratio requirement. However, the capital ratio requirement is no longer valid if banks use liquidity guarantees in their ABCP conduit funding because the funding maturity becomes important. Moreover, a liquidity guarantee becomes as costly as a credit guarantee when the maturity shortens. Using Moody's ABCP conduit data, I confirm that shorter ABCP maturity causes the bank's return to be more sensitive to the conduit credit loss. Thus, when banks have significant exposure to a liquidity guarantee, the search for a single appropriate risk weight is futile. More sophisticated tests, such as model-based tests are not only necessary but also have to be carried out under stressed scenarios.
520 $a The second chapter studies the current London Interbank Offered Rate (LIBOR). Recent investigation reveals banks might have manipulated the London Interbank Offer Rate (LIBOR). With banks concern about derivative position, net interest income and signaling effect, the equilibrium reporting strategy is a monotonic non-linear function of borrowing cost. Current trimming mechanism cannot block tacit collusion: when banks benefit from lower LIBOR, tacit collusion leads to downward biased LIBOR quotes. Signaling effect causes further depressed LIBOR. Equilibrium submissions do cluster together, as people have observed from the data. Comparative statics suggest LIBOR bias spikes during the crisis, due to more dispersed borrowing costs and consumers' less confidence in banks. I propose a direct and ex ante budget balanced LIBOR fixing mechanism. Finally, by calibrating the model to the ratio of dispersion among banks' LIBOR submissions to their CDS spreads, I come up with an initial estimation, which matches practitioner's opinions back in 2008, about LIBOR bias during the recent crisis.
590 $a School code: 0028.
650 4 $a Finance. $3 542899
650 4 $a Banking. $2 bicssc $3 1557594
650 4 $a Economic theory. $3 1556984
650 4 $a Management. $3 516664
650 4 $a Commerce-Business. $3 3168423
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690 $a 0770
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710 2 $a University of California, Berkeley. $b Business Administration, Ph.D. Program. $3 1672455
773 0 $t Dissertation Abstracts International $g 77-01A(E).
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856 4 0 $u http://pqdd.sinica.edu.tw/twdaoapp/servlet/advanced?query=3720423