تاثیر اطلاعیه ها سیاست های پولی در قیمت سهام از بانک های بزرگ اروپا در بحران مالی
|کد مقاله||سال انتشار||مقاله انگلیسی||ترجمه فارسی||تعداد کلمات|
|28121||2014||40 صفحه PDF||سفارش دهید||9210 کلمه|
Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Journal of Banking & Finance, Available online 11 July 2014
Since 2007, the European Central Bank responded decisively to the challenges posed by the global financial crisis, reducing key policy interest rates to unprecedented low levels and intervening with non-standard policy measures (i.e., monetary easing and liquidity provision). This paper aims to assess the impact of ECB monetary policy announcements on the stock price of large European banks. As a first step, an event study is conducted in order to measure cumulated abnormal returns (CARs) around the announcements over June 2007 - June 2013; the second step is a regression analysis aimed at identifying the determinants of CARs. Results show that banks were more sensitive to non-conventional measures than to interest rate decisions, and that the same type of intervention may have a different impact depending on the stage of the crisis. In addition, banks with weaker balance sheets and operating with high-risk were more sensitive to monetary policy interventions.
As outlined by Pennathur et al. (2014), the magnitude and the causes of the recent global financial crisis have been largely described and debated, while less attention has been paid to the impact of governmental interventions on the stockholder returns of financial services firms. In particular, how banks stock returns respond to monetary policy not only reflects its impact on bank performance, but is also a barometer for the effectiveness of monetary policy in regulating the economy (Yin et al., 2010). Since the financial crisis erupted in summer 2007, monetary policy interventions have played a central role in restoring the stability of the financial and the banking systems (Fiordelisi et al., 2014). The European Central Bank responded decisively to the crisis by reducing key policy interest rates to unprecedented low levels (ECB, 2010). In addition, in order to overcome the malfunctioning of the interbank market, and hence keep the transmission mechanism through the interest rate channel fully operational, it intervened with a number of non-standard policy measures, such as monetary easing and liquidity provision. Non-standard measures aimed at supporting funding conditions for banks in order to enhance lending to the private sector and contain contagion in financial markets (ECB, 2011). ECB non-conventional measures have been pivotal also in response to the subsequent Euro sovereign debt crisis. Their introduction has contributed to significant changes in bank’s funding patterns: “constraints and higher costs in interbank market funding, as well as in funding through debt securities, have led banks to increase their recourse to central banking funding substantially with respect to the pre-crisis period” ( ECB, 2012, p. 25). In simple words, the ECB substituted the interbank market and allowed banks to replace intermediate-maturity wholesale market borrowing with longer term refinancing operations, becoming “the money market intermediary of last – and sometimes first - resort” ( Cœuré, 2013, p. 2). The increase in dependency on the ECB liquidity has been particularly significant for banks domiciled in countries under financial assistance and/or experiencing sovereign tensions ( BIS, 2013). Surprisingly, while there are several studies dealing with the effect of monetary policy interventions on bank stock returns (e.g., Booth and Officer, 1985, Born and Moser, 1990, Madura and Schnusenberg, 2000, Yin et al., 2010, Yin and Yang, 2013 and Kim et al., 2013), there are no empirical analyses including the financial crisis period and focusing on the Euro zone. Consequently, while there is some empirical evidence about the impact of interest rate decisions on bank equity returns, there are no findings for non-conventional measures. The relevance of this point appears even higher if we consider that financial intermediaries - and large banks in particular - have been at the center of the financial crisis giving renewed impetus to studies on the interconnection between monetary policy and financial stability (Adrian and Shin, 2008). Nowadays, banks are no longer a mere part of the monetary transmission channel, but have become the main subjects of many monetary policy interventions, especially non-conventional ones. One notable exception is the paper of Fiordelisi et al. (2014), investigating the impact of monetary policy interventions on the interbank market, on equity indices, and on the stock price of globally systemically important banks (G-SIBs) between June 2007 and June 2012. Differently from other existing studies, the paper of Fiordelisi et al. (2014) considers both traditional and non-conventional measures. Nevertheless, it is not focused on the Euro zone, and it merely measures G-SIBs abnormal returns around monetary policy announcement dates, without identifying their main determinants with a second-stage regression analysis. Further investigation on the Euro zone appears as particularly relevant, since it has been interested by a severe sovereign debt crisis following the financial turmoil triggered by subprime mortgages. In addition, past studies based on the U.S. experience (e.g., Madura and Schnusenberg, 2000 and Yin and Yang, 2013) suggest that the effect of monetary policy interventions varies significantly across banks, depending on their specific characteristics. More in detail, U.S. empirical findings reveal that banks perceived as less safe by investors are more sensitive to monetary policy decisions. For the Euro zone, the determinants of the heterogeneous response of banks to monetary policy have never been investigated. The existence of a significant association between banks’ market prices and indicators of asset value and risk exposure is a signal of market discipline (Flannery and Nikolova, 2004). For the U.S. banking industry, we have different pre-crisis studies finding an inverse relationship between the soundness of banks and their sensitivity to monetary policy shocks, and hence providing evidence in favor of market discipline, while we have no empirical analyses considering the financial crisis period and focusing on the Euro zone. Market discipline presents some important peculiarities in the banking sector and may have been strongly influenced by the most recent events. On the one hand, the banking activity is particularly opaque with respect to other businesses (Morgan, 2002); on the other hand, it is extremely relevant from a systemic point of view, so that it is subject to a strict regulation and supervision in all developed countries. The academic literature outlines that the type of information acquired by supervisors and market participants is different and, to some extent, complementary (e.g., Berger et al., 2000). However, despite the strengthening of market discipline as the third pillar of Basel 2, market information was not able to provide significant warning against the crisis (Flannery, 2012), confirming the opacity of the banking business. Moreover, accommodative policy interventions adopted during the crisis may have reduced the incentive of depositors and investors to monitor banks (Cubillas et al., 2012). Consequently, it is particularly interesting to test whether bank-specific characteristics influence market response to the ECB monetary policy interventions, with special attention to the financial crisis period, when both traditional and non-conventional measures were announced, and when decisive policy interventions supporting the banking industry (i.e., the ECB becoming a “lender of first resort”) may have weakened market discipline. This paper adds to the existing literature by studying the reaction to monetary policy changes for a sample of large European banks over the period June 2007-June 2013. We answer the following research questions: What is the impact of both conventional and non-conventional monetary policy announcements on the stock price of banks? What are the main determinants of banks’ response to monetary policy interventions? Is market discipline in place during a financial crisis period? Our paper contributes to the previous literature in several ways. First, we assess which type of monetary policy intervention has been more effective in restoring investors’ trust in the Euro zone banking system (i.e., interest rates decisions vs. non-conventional measures). To this aim, consistently with Jawadi et al. (2010) and Fiordelisi et al. (2014), we adopt a short run perspective and consider each announced intervention as effective on the basis of the accuracy and rapidity of the stock market reaction in the direction expected by policy makers. Consistently with this approach, we run an event study analysis in order to estimate cumulated abnormal returns (CARs) for banks’ stock prices around announcement days. Second, we assess the reaction of large European banks to monetary policy interventions in other relevant currency areas: the U.S., the U.K., Japan, and Switzerland. This allows to estimate potential spillover effects and to understand which area is more influential with its monetary policy on European banks. Finally, we measure the heterogeneous response of banks and try to investigate the main determinants of this variety. This aim requires a second stage analysis, in which CARs are regressed on a set of bank-specific variables and controls. The main objective of this second stage analysis is to test the base hypothesis that market discipline is in place also during a financial crisis period and that banks perceived as less safe by investors are more sensitive to monetary policy decisions. The remainder of the paper is organized as follows: Section 2 reviews the existing literature and develops our main hypotheses; Section 3 describes the investigated sample, the methodology and the variables used in our empirical research design. Section 4 discusses our main results, and Section 5 presents conclusions, limitations and directions for future research.
نتیجه گیری انگلیسی
As far as we are aware, this is the first paper investigating the reaction of large European banks to both conventional and non-conventional monetary policy announcements and trying to assess the origin of the heterogeneity in banks’ response. The methodology applied consisted of two steps: the first step was an event study analysis to measure cumulated abnormal returns around the announcement date, and the second step was a regression model aimed at identifying the determinants of different responses by several banks. Our main finding from the event study analysis, consistently with Fiordelisi et al. (2014), is that banks were more sensitive to non-conventional measures than to interest rate decisions. This is an indication of the relevance of non-standard interventions in a crisis period, when the traditional transmission channels may be seriously compromised. The strongest reaction, with a negative sign, has been registered around the announcement of the end/reduction of monetary easing programs and liquidity drains. Another interesting result is that the same type of intervention may have a different impact depending on the stage of the financial crisis. For example, a negative market reaction during the global crisis period, and a positive one during the debt crisis period succeeded liquidity provision. It is possible that investors, in the deepest moment of the crisis, interpreted these measures as a signal of the crisis’ severity. After some months, when many banks started to recover from the most problematic situations, investors may have gained more trust in the authority’s interventions. Finally, estimating potential spillover effects, we find that large European banks did not answer exclusively to ECB decisions, but also reacted to monetary policy announcements in other relevant currency areas. In particular, we find that, consistently with Kim et al. (2013), European banks had a positive reaction to the expansionary policy of the U.S. Federal Reserve. Our main results from the second-stage regression analysis highlight that banks with weaker balance sheets and operating with high-risk are more sensitive to monetary policy interventions, confirming that market discipline was in place also during a financial crisis period. The model dealing with expansionary measures reveals that banks with a high TIER1 ratio and a large proportion of customer deposits in short-term funding have a smaller reaction to expansionary measures with respect to their less liquid and capitalized competitors. Liquidity seems to play a more important role with respect to capitalization; this is not surprising, for at least two reasons: 1) during the financial crisis period, the level of capitalization was already strictly regulated by Basel 2, while there were no specific liquidity requirements (later introduced with Basel 3); the recourse to wholesale funding was one of the primary channel of contagion among banks, unveiling its dark side over the financial crisis period (Huang and Ratnovski, 2008). In addition, there is evidence that institutions operating in countries where the banking system is perceived as riskier benefit more from expansionary measures and have a worse response to restrictive interventions. It seems that systemic risk at the country level is one of the most important variables in determining the heterogeneity of banks’ response to monetary policy announcements, significant in both the expansionary and the restrictive models, showing that investors are very attentive to the location of the bank in a more or less healthy banking system. The relevance of systemic risk at the country level is absolutely consistent with a sovereign debt crisis scenario, in which the soundness of banks is strictly linked to public finance equilibria (Correa et al., 2014 and De Bruyckere et al., 2013). The role of the individual level of risk, measured by the risk weighted asset ratio, appears to be less important. In this regard, it is important to remember that the risk weighted asset ratio is a regulatory measure of bank risk; the low sensitivity of market reaction may also be a signal that investors do not perceive this measure as able to effectively capture bank risk. We acknowledge some limitations in our analysis that suggest some interesting directions for future research. First, we adopt an event study methodology that has the advantages of simplicity and parsimony, and also of working with a limited number of observations. The main limitation of this approach is due to the particular time period analyzed (June 2007 - June 2013), which was characterized by an unprecedented frequency of policy interventions. Using an event study methodology, we have to deal with the problem of overlapping events and set some selection criteria to overcome this problem. Even though we apply these criteria, it is not possible to exclude the presence of some confounding effects. In addition, a further limitation of the study is that we cover only monetary policy decisions and do not consider the effect of other policy interventions (e.g., fiscal policy, financial sector policies and rescue programs). Despite these limitations, the study provides empirical evidence of the higher dependency on monetary policy decisions of banks with a low level of liquidity and capitalization, located in countries where investors perceive a higher systemic risk. This provides evidence in favor of the monitoring component of market discipline, i.e., the ability of investors to monitor banks, also during a financial crisis period. At the same time, our findings raise some concerns for the weakest European banking systems regarding their ability to face the future unavoidable phasing out.