G21 - Banks; Depository Institutions; Micro Finance Institutions; MortgagesReturn

We contribute to literature on banks´ strategies to increasing capital requirements in the period of 2017-2021. We analyze a sample of 85 European banks and differentiate between subgroups according to bank's size, capitalization and riskiness. We examine their responses to higher capital requirements following the issuance of finalized Basel III reforms and increased regulatory and supervisory scrutiny after the COVID-19 outbreak. We found evidence that banks´ adjustments in the direction of higher capital ratio were more pronounced and faster in the COVID-19 period, and that they depended on banks´ specific characteristics and positions. Identified variances between banks and periods resulted mainly from different treatment of risk on banks' books. In particular, higher capitalization and lower risk profile enabled banks to take on the risk regardless of period, while banks with increased risk rather limited their balance sheets to manage their capital ratios.

This research introduces a novel pairs trading strategy based on copulas for cointegrated pairs of cryptocurrencies. To identify the most suitable pairs, the study employs linear and non-linear cointegration tests along with a correlation coefficient measure and fits different copula families to generate trading signals formulated from a reference asset for analyzing the mispricing index. The strategy's performance is then evaluated by conducting back-testing for various triggers of opening positions, assessing its returns and risks. The findings indicate that the proposed method outperforms buy-and-hold trading strategies in terms of both profitability and risk-adjusted returns.

Non-Maturing Deposit (NMD) pass-through rate represents a key parameter needed in the process of interest rate management of the banking book (IRRBB). NMD interest rates for retail and corporate segments are usually not directly linked to the market interest rates, but depend rather on the bank’s marketing strategy, market competition, liquidity, and possibly on other factors. The ratio in which banks adjust their NMD interest rates to the changes of the interbank market interest rates is known as the NMD pass-through rate. The goal of this paper is to analyse the variability of NMD pass-through rates in the 19 Eurozone countries and identify their possible determinants. The pass-through rates are estimated using cointegration analysis based on datasets available from the ECB Statistical Data Warehouse and the results show significant variability between countries. To analyse the determinants of pass-through rates in the Eurozone, the rates are regressed on 9 aggregates of country-level banking sector including concentration, profitability, or funding. Out of the tested predictors, surprisingly only the ratio of Wholesale Funding to Liabilities proves to impact the pass-through rates significantly, with a positive sign, indicating that countries where banks rely more heavily on wholesale funding exhibit higher pass-through of the market interest rate changes to the NMD deposit rates.

The aim of this paper is to examine whether banks engage in profit smoothing using loan loss provisions under the new provisioning rules according to IFRS 9. Due to relatively loose definitions of provisioning principles and use of macroeconomic predictions under IFRS 9, there is certain managerial discretion expected allowing banks to reduce the variability of profits over time using loan loss provisions. The hypothesis that banks use loan loss provisions to smooth their profits under IFRS 9 was tested with panel regression analysis on the panel of 27 EU member countries for period 1Q2015 – 2Q2021. The evidence of profit smoothing was not confirmed neither in IFRS 9, nor in IAS 39 period, therefore, the hypothesis was rejected on 1% significance level.

In this paper, we examine the impact of the supervision as a monitoring activity and regulatory scrutiny on the performance and riskiness of the financial institutions in countries of Central, Eastern and South-Eastern Europe, whose banking sectors are characterized by foreign-bank dominated systems. For a dataset of 450 banks from 20 economies of the region, we use statistics from the World Bank-Bank Regulation and Supervisory Survey to construct the measures of the supervision activities, capital regulation stringency and supervisory power. We find that a higher intensity of supervision monitoring activities, especially by the centralized form of supervision, contributes to the decline of the bank's riskiness in case of larger banks while not affecting their economic performance. The regulatory power and stringency indicate a positive effect on the risk-adjusted performance for capital constrained banks, but moderately decrease the economic benefit for larger banks. The findings highlight the potential area of attention for regulators and policymakers and thus, contribute to the designing of effective supervision mechanism in the region.

The paper examines the impact of a low interest rate environment on banks’ credit risk measured by the non-performing loan (NPL)/total loans ratio. We analyse a unique sample of annual data on 823 banks from the Eurozone, Denmark, Japan, Sweden, and Switzerland for the 2011-2017 period, which also covers the period of zero and negative rates. We conclude that after 1 year of low interest rates, the NPL ratio increases. Our results are mostly consistent with the findings of previous research, and the majority of differences can be explained by the changes in the economic environment during the period with low interest rates.