ریسک پذیری بانک ها، نوآوری مالی و ریسک در اقتصاد کلان

This paper shows how financial innovation in combination with the fall of macroeconomic risk can explain the strong growth of the primary and secondary credit markets in the U.S. economy. We document empirically the fall in macroeconomic risk, the expansion of the prime and secondary credit market and we provide evidence that changes in macroeconomic risk are closely related to the evolution of the prime market. In the theoretical part of the paper we study in a simple portfolio optimization framework the effect of financial innovation and macroeconomic risk on banks’ risk taking. The results of the model show that financial innovation increases bank appetite for risky investment both in the prime and secondary markets and that this effect is stronger in environments with low aggregate macroeconomic risk. In addition the banking system becomes less stable because of the portfolio risk of each individual bank increases.

The global financial and economic crisis of 2007 turned the attention to many issues that the economists had not paid special attention before it. One of these is the big credit expansion that characterized the U.S. financial market the last 20 years (Fig. 1). How can such a credit boom be justified? How is it related to the crisis? In Section 2 I present a literature review on the different reasons that the existing literature provides as potential motives for the increase in the aggregate credit volume. This paper adds to the literature by offering a complementary explanation for the credit boom. The rationale of this study is that the credit boom could have been created as a combination of macroeconomic and financial effects that changed banks’ perception about total risk and which led to a big increase in the total supply of credit in the financial system. More specifically, the last 20 years, the financial system was characterized by a strong innovation in the secondary markets which gave birth to new financial products that the financial intermediaries could use to hedge their idiosyncratic risk. The improved risk diversification ultimately led to credit expansion because they were facing less risk. However an interesting observation arises from the study of the evolution of both prime and the secondary markets for risk and the history of financial innovation. Even though many of these new financial products were available from the 1970s, it was almost two decades later, in the 1990s that both the prime and the secondary markets for risk expanded substantially. In the meantime, in the mid-1980s, the macroeconomy was characterized by a big drop in macroeconomic risk which marked the start of the period known as the Great Moderation. According to Wilson (1998) the systematic risk of a loan determines most of the part of all risk related to a loan and only a small number of macroeconomic factors are sufficient to explain it. Hence I believe that the decrease in aggregate risk played an important role in the credit expansion not only through the direct decrease of the total risk that banks were facing but also through its effect on the use and development of new financial products in the secondary markets. In environments with lower macroeconomic risk, the weight of idiosyncratic risk is higher and therefore the role of financial innovation on portfolio decisions is more important. Therefore the purpose of this paper is to understand how the fall of macroeconomic risk in combination with financial innovation has contributed to the credit boom. It is worth clarifying that an increase in aggregate credit does not necessarily means that bank's increase risk taking. However many studies after the last crisis have pointed out that the credit boom, preceding the crisis, contribute to the vulnerability of the financial system and that is why the consequences of this crisis where so harsh. Moreover Reinhart and Rogoff (2009) show that credit booms are some of the best indicators of financial crisis throughout the history of financial markets. Therefore this paper contributes to the literature by showing how credit booms can reduce financial stability. My main investigation contains two parts. In the first part, I present the empirical motivation for my study by providing stylized facts on my variables of interest. I characterize the evolution of the prime and secondary market for credit and I identify the decline in macroeconomic volatility by estimating the standard deviation of the real GDP growth rate. Consistent with the literature, the estimation produces evidence of a substantial downward shift of the aggregate volatility after the mid-1980s. Finally, I also show graphically the correlation of the macroeconomic risk with the prime market for risk. The empirical results show that changes in macroeconomic conditions are closely related to the evolution of the prime market for risk. In the second part, I put together these different elements and I show their interconnection in a simple portfolio optimization model. The theoretical part of my study explores the portfolio optimization problem of a bank with constant absolute risk aversion (CARA) preferences, under two different scenarios; (i) Autarky, i.e. without a secondary markets and (ii) Financial Innovation, i.e. with a secondary markets. The banking system is segmented and the banks are identical except of the fact that they face different idiosyncratic return risk. Therefore the total risk that the bank faces has both a systematic/macro component and an idiosyncratic/regional-specific component.1 In the “financial innovation” scenario banks can use credit derivatives in order to hedge their idiosyncratic risk. By using the credit derivatives, the banking sector becomes more homogeneous, more integrated, given that the regional differences between the different banks decrease. I solve the model and compute the optimal portfolio choices of the bank under the two different scenarios. The CARA-Normal specification of the model permits the generation of closed-form expressions for the demand of risky assets and for the demand of credit derivatives. Pursuing a comparative statics analysis I show that the use of the credit derivatives induces banks to invest more in risky assets and in credit derivatives. The portfolio variance of the banks increases because even though credit derivatives help to hedge the idiosyncratic risk, they induce the banks to acquire more risky assets that embody also unhedgeable aggregate risk. Therefore the total variance increases. The results also highlight the interesting nonlinear effects that arise between financial innovation and macroeconomic risk. The strength of the effect of the financial innovation on the banking sector is stronger in environments with low aggregate macroeconomic risk. The reason is that when aggregate risk decreases, the importance of the idiosyncratic risk on the bank's portfolio choices is bigger. As a result the effect of financial innovation is more powerful. In addition I also extend the model in general equilibrium and I study the effect of financial innovation and aggregate risk on prices. Consistent with the literature, the results show that the decrease in aggregate risk and the increase in the degree of financial innovation decrease the equity premium. Finally, I also consider the role of regulations. VaR constrained banks have a more prudent behavior towards risk compared to unregulated ones. A tightening of the constraint improves financial stability but in the cost of lower banks’ welfare.The rest of this paper is organized as follows. Section 2 reviews the literature and Section 3 presents the empirical motivation. Section 4 presents the model and discusses the results. Section 5 concludes.

From the beginning of the 1990s until 2006, the U.S. financial market were characterized by a substantial expansion of banks investment on risky loans and a rapid development of the secondary market for risk. In this paper I studied, how the financial innovation in the banking system in combination with changes in aggregate risk observed in the mid-1980s, have contributed to banks risk taking. The first part of the paper presents how the aggregate risk and the prime and secondary market for credit have changed over time. It also examines empirically the correlation of the macroeconomic risk with the prime market for risk. The empirical results show that changes in macroeconomic conditions are closely related to the evolution of the prime market for risk. In the second part of the paper I analyze banks’ optimal behavior in a simple portfolio optimization model. Bankers are modeled as risk averse traders who choose their optimal portfolio by investing in risky and safe assets and the returns of the risky assets depend both on idiosyncratic and on aggregate risk. I compute the optimal portfolio choices in two different scenarios; (i) without a secondary market for risk, in Autarky and (ii) with a secondary market for risk, in “financial innovation”. In the second scenario banks have access to secondary markets and they can acquire credit derivatives in order to hedge their idiosyncratic risk. The results of the model show that the decline in macro risk and the increase of financial integration increases bank appetite for risky investment, credit derivatives acquisition and the portfolio variance. As a consequence the banking system becomes less stable. The model also highlights the fact that the strength of financial integration effect on the banking sector is stronger in environments with low aggregate macroeconomic risk. In addition the extension of my model in general equilibrium demonstrates that financial innovation and the decline in macro risk lead to a decrease in the equity premium. Finally, I also consider the role of regulations. VaR constrained banks have a more prudent behavior towards risk compared to unregulated ones. A tightening of the constraint improves financial stability but in the cost of lower banks’ welfare. The analysis in this paper is an initial, preliminary attempt to study the effect of financial and macroeconomic changes on banks risk taking. However much more needs to be done. For example, the assumptions of CARA utility and normally distributed returns are very handy for obtaining closed form solutions and pursue comparative statics but this works against the accuracy of the quantitative results. Therefore in order to perform a more careful quantitative evaluation, the basic model needs to be extended to a more general framework. Broer and Kero (2011) makes a step further in this direction and analyzes the quantitative impact of the Great Moderation on asset prices in a calibrated general equilibrium asset pricing model. In addition this framework constrains us from studying any size-heterogeneity between the banks because initial wealth, W0, does not directly affect banks risk taking decisions. However in reality it is well known that the derivatives market is dominated by the largest banks and therefore size-heterogeneity should be accounted for banks portfolio motives. Frame and White (2004) stress out that there is very little empirical work on financial innovation. So it will be interesting to empirically test and measure the effect of financial innovation on the macroeconomy.