Swiss National Bank

About: Swiss National Bank is a other organization based out in Bern, Switzerland. It is known for research contribution in the topics: Monetary policy & Inflation. The organization has 180 authors who have published 693 publications receiving 16947 citations. The organization is also known as: SNB.

Capital requirements and bank behaviour: Empirical evidence for Switzerland

Abstract: In recent years, regulators have increased their focus on the capital adequacy of banking institutions to enhance the stability of the financial system The purpose of the present paper is to shed some light on whether and how Swiss Banks react to constraints placed by the regulator on their capital Building on previous work by Shrieves and Dahl (cf Shrieves, RE, Dahl, D, 1992 The relationship between risk and capital in commercial banks Journal of Banking and Finance 16, 439–457), we use a simultaneous equations model to analyse adjustments in capital and risk at Swiss banks, when those approach the minimum regulatory capital level Our results indicate that regulatory pressure induce banks to increase their capital, but does not affect the level of risk

Pitfalls in Tests for Changes in Correlations

Abstract: Correlations are crucial for pricing and hedging derivatives whose payoff depends on more than one asset. Typically, correlations computed separately for ordinary and stressful market conditions differ considerably, a pattern widely termed "correlation breakdown." As a result, risk managers worry that their hedges will be useless when they are most needed, namely during "stressful" market situations. We show that such worries may not be justified since "correlation breakdowns" can easily be generated by data whose distribution is stationary and, in particular, whose correlation coefficient is constant. We make this point analytically, by way of several numerical examples, and via an empirical illustration. But, risk managers should not necessarily relax. Although "correlation breakdown" can be an artifact of poor data analysis, other evidence suggests that correlations do in fact change over time, though not in a way that is correlated with "stressful" market conditions.

Bank Integration and State Business Cycles

Abstract: We investigate how integration of bank ownership across states has affected economic volatility within states. In theory, bank integration could cause higher or lower volatility, depending on whether credit supply or credit demand shocks predominate. In fact, year-to-year fluctuations in a state’s economic growth fall as its banks become more integrated (via holding companies) with banks in other states. As the bank linkages between any pair of states increase, fluctuations in those two states tend to converge. We conclude that interstate banking has made state business cycles smaller, but more alike. I. INTRODUCTION The United States banking system was once anything but united. Until 1978, every state in the union barred banks from other states, so instead of one national banking system, we had more like 50 little banking systems, one per state. 1 Once states opened their borders to out-of-state banks, bank holding companies marched in and bought up (or merged with) banks all over the country. In 1975, just 10 percent of the bank assets in the typical state were owned by a multistate bank holding company. By 1994 this interstate bank asset ratio had risen to 60 percent (Figure I). Our paper investigates how the advent of interstate banking integration in the United States has affected economic volatility within states. With the United States’ balkanized banking system, the fate of a state and its banks were closely tied; as went the state, so went the banks. The farm price deflation in the early 1980s bankrupted many farmers and many farm banks. Falling oil prices in the mid-1980s wiped out a lot of Texans and a lot of Texas banks. Shocks to commodity prices probably caused these contractions, but frictions in the banking sector may have aggravated them. By allowing a freer flow of bank capital and lending among states, we maintain that interstate banking will reduce the drag that banking frictions can have on economic contractions.

Safe Haven Currencies

Abstract: We study high-frequency exchange rates over the period 1993-2008. Based on the recent literature on volatility and liquidity risk premia, we use a factor model to capture linear and non-linear linkages between currencies, stock and bond markets as well as proxies for market volatility and liquidity. We document that the Swiss franc and Japanese yen appreciate against the US dollar when US stock prices decrease and US bond prices and FX volatility increase. These safe haven properties materialise over different time granularities (from a few hours to several days) and non-linearly with the volatility factor and during crises. The latter effects were particularly discernible for the yen during the recent financial crisis.

Why ‘Basel II’ may need a leverage ratio restriction

Abstract: We analyze regulatory capital requirements where the amount of required capital depends on the level of risk reported by the banks. It is shown that if the supervisors have a limited ability to identify or to sanction dishonest banks, an additional, risk-independent leverage ratio restriction may be necessary to induce truthful risk reporting. The leverage ratio helps to offset the banks’ potential capital savings of understating their risks by (i) reducing banks’ put option value of limited liability ex ante, and by (ii) increasing the banks’ net worth, which in turn enhances the supervisors’ ability to sanction banks ex post.