Global US Dollar Funding Markets

Global US Dollar Funding MarkeTS

When US interest rates decline ( accomadating monetary policy), funding flows increase in to USA. (Money markets). Driven by increase in loans in USA.

When US interest rates increase (tightening of Monetary policy), capital Investment flows increase into USA. (Capital Markets). Driven by search for yields.

Key Terms

  • Eurodollars
  • International Money Markets
  • Funding Markets
  • Shadow Banking
  • Money Flows
  • Capital Flows
  • Round Tripping
  • International Financial System
  • FX Market
  • FX Swaps
  • FX Reserves
  • Payment Flows
  • Funding Flows
  • Eurocurrency
  • EuroEuro
  • EuroYen
  • EuroRMB
  • FX Forwards
  • Currency Swaps

International Markets for US Dollar

US dollar is currently predominant currency in global financial markets.

Its use is wide spread and deep.

  • Cross Border Loans
  • International Debt Securities
  • FX Transactions
  • Official Public FX Reserves
  • Trade Invoicing
  • SWIFT Payments

How are dollars funded by institutions involved in international credit markets?

  • Euro Dollars
  • FX Swaps and Forwards
  • Currency Swaps

Please see this new publication from BIS for details.

US DOLLAR FUNDING: AN INTERNATIONAL PERSPECTIVE

The US dollar plays a central role in the international monetary and financial system. It is the foremost funding currency, with about half of all cross-border loans and international debt securities denominated in US dollars. Around 85% of all foreign exchange transactions occur against the US dollar. It is the world’s primary reserve currency, accounting for 61% of official foreign exchange reserves. Around half of international trade is invoiced in US dollars, and around 40% of international payments are made in US dollars (Graph 1).

Image Source: US DOLLAR FUNDING: AN INTERNATIONAL PERSPECTIVE

Currencies in Global Payments

Image Source: RMB Tracker

Currencies in Trade Finance Market

Image Source: RMB Tracker

Currencies in FX Spot market

Image Source: RMB Tracker

Characteristics of Global US Dollar Funding Markets

Image Source: US DOLLAR FUNDING: AN INTERNATIONAL PERSPECTIVE

Image Source: US DOLLAR FUNDING: AN INTERNATIONAL PERSPECTIVE

Image Source: THE GLOBAL ROLE OF THE US DOLLAR AND ITS CONSEQUENCES

Image Source: THE GLOBAL ROLE OF THE US DOLLAR AND ITS CONSEQUENCES

Image Source: THE GLOBAL ROLE OF THE US DOLLAR AND ITS CONSEQUENCES

Image Source: THE GLOBAL ROLE OF THE US DOLLAR AND ITS CONSEQUENCES

Image Source: FX swaps and forwards: missing global debt?

Image Source: FX swaps and forwards: missing global debt?

Assets and Liabilities of Banks and Shadow Banks in Onshore and Offshore markets

Assets and Liabilities in Balance sheets in Onshore markets

Image Source: Offshore Dollar Creation and the Emergence of the post-2008 International Monetary System

Liabilities in Balance sheets of Financial Intermediatory in Onshore and Offshore markets

Image Source: The Future of Offshore Dollar Creation: Four Scenarios for the International Monetary System by 2040

Transactions Chains in cross border funding markets

Image Source: US DOLLAR FUNDING: AN INTERNATIONAL PERSPECTIVE

Money Inflows and RounD tripping

Several papers and articles in the references below discuss issues of US dollar inflows on US money and credit markets and monetary policy.

Round tripping involves foreign banks borrowing money from US funding markets and lending it to borrowers in the capital/credit markets.

US monetary policy also impacts capital outflows and inflows.

My Related posts

Global Liquidity and Cross Border Capital Flows

Global Flow of Funds: Statistical Data Matrix across National Boundaries

Low Interest Rates and International Capital Flows

Currency Credit Networks of International Banks

Global Financial Safety Net: Regional Reserve Pools and Currency Swap Networks of Central Banks

Balance Sheet Economics – Financial Input-Output Analysis (using Asset Liability Matrices) – Update March 2018

TARGET2 Imbalances in European Monetary Union (EMU)

Contagion in Financial (Balance sheets) Networks

Balance Sheets, Financial Interconnectedness, and Financial Stability – G20 Data Gaps Initiative

Foundations of Balance Sheet Economics

The Future of FX Markets – Update October 2019

Understanding Global OTC Foreign Exchange (FX) Market

Economics of Trade Finance

The Dollar Shortage, Again! in International Wholesale Money Markets

Repo Chains and Financial Instability

Shadow Banking

Key Sources of Research

US dollar funding: an international perspective

Report prepared by a Working Group chaired by
Sally Davies (Board of Governors of the Federal Reserve System) and Christopher Kent (Reserve Bank of Australia)

BIS June 2020

The Eurodollar Market in the United States

MAY 27, 2015

NYFED

https://libertystreeteconomics.newyorkfed.org/2015/05/the-eurodollar-market-in-the-united-states.html

The global role of the US dollar and its consequences

Bank of England Quarterly Bulletin

2017 Q4

“Down The Rabbit Hole” — The Eurodollar Market Is The Matrix Behind It All

the1millionproject

Apr 19

by Tyler Durden

https://t1mproject.medium.com/down-the-rabbit-hole-the-eurodollar-market-is-the-matrix-behind-it-all-a7a054dd4b0f

The Fed’s Quandary With Uncle ED (Eurodollar)

Feb. 28, 2015 4:45 AM ET

https://seekingalpha.com/article/2961016-the-feds-quandary-with-uncle-ed-eurodollar

US Monetary Aggregates, Income Velocity and the Euro-dollar Market

BIS 1980Warren D. McClam

Chapter 5 EURODOLLARS 

Marvin Goodfriend

Federal Reserve Bank of Richmond Richmond, Virginia
1998

The evolution of the Offshore US-Dollar System: past, present and four possible futures

Steffen Murau, Joe Rini and Armin Haas

Global Development Policy Center, Boston University, Boston; City Political Economy Research Centre (CITYPERC), City, University of London, London; Institute for Advanced Sustainability Studies (IASS), Potsdam and Institute for Advanced Sustainability Studies (IASS), Potsdam
*Corresponding author. Email: armin.haas@iass.de

(Received 30 September 2019; revised 17 March 2020; accepted 24 March 2020; first published online 6 May 2020)

https://www.cambridge.org/core/journals/journal-of-institutional-economics/article/evolution-of-the-offshore-usdollar-system-past-present-and-four-possible-futures/B36ED9082CECE54F3F5B8E8F40D15148/core-reader

Hyper-Stablecoinization: From Eurodollars to Crypto-Dollars

Pascal Hügli

July 12, 2020·

https://finance.yahoo.com/news/hyper-stablecoinization-eurodollars-crypto-dollars-120000891.html

IMPACT OF EURO-MARKETS ON THE UNITED STATES BALANCE OF PAYMENTS

*FRED H. KLOpSTOCKf

Financial globalization as positive integration: monetary technocrats and the Eurodollar market in the 1970s

https://www.researchgate.net/publication/340100333_Financial_globalization_as_positive_integration_monetary_technocrats_and_the_Eurodollar_market_in_the_1970s

https://www.tandfonline.com/doi/full/10.1080/09692290.2020.1740291

The Euromarket and the making of the transnational network of finance 1959 – 1979 (Doctoral thesis).

Kim, S. W. (2018). 

University of Cambridge

 https://doi.org/10.17863/CAM.23876

https://www.repository.cam.ac.uk/handle/1810/276574

Dollar Shortage and Eurodollars

By Prashant K. Trivedi and Krushi Parekh | Apr 14 2020 | What We Are Writing, Global Macro

https://multi-act.com/dollar-shortage-and-eurodollars/

Evolution of US-Dollar-Centric International Money Markets and Pro-Cyclicality of Basel III Liquidity Framework

Oleksandr Valchyshen 2019

Bard College

Eurodollars and the US Money Supply

page1image2272994224

The dollar and international capital flows in the COVID-19 crisis 

Giancarlo Corsetti, Emile Marin  

03 April 2020

https://voxeu.org/article/covid-19-crisis-dollar-and-capital-flows

Crypto Dollars and the Evolution of Eurodollar Banking

MAX BRONSTEIN

7 APR 2020 

https://unexpected-values.com/crypto-dollars/

The $40 Trillion Problem

Apr. 6, 2020

Lyn Alden Schwartzer

https://seekingalpha.com/article/4336136-40-trillion-problem

Euro-Dollars and United States Monetary Policy. 

Cort Burk Schlichting 1973

Louisiana State University and Agricultural & Mechanical College

Eurodollar Banking and Currency Internationalization

  • January 2013
  • In book: Investing in Asian Offshore Currency Markets (pp.199-214)

Authors:

Dong He

Robert Neil Mccauley

BIS

https://www.researchgate.net/publication/304796024_Eurodollar_Banking_and_Currency_Internationalization

The Eurodollar Market, Short-term Capital Flows and Currency Crises

Book 1979

Author: Leonard Gomes

Publisher: Macmillan Education UK

https://www.springerprofessional.de/en/the-eurodollar-market-short-term-capital-flows-and-currency-cris/10146406

The Eurodollar Market and the International Transmission of Interest Rates

Jay H. Levin

The Canadian Journal of Economics / Revue canadienne d’Economique 

Vol. 7, No. 2 (May, 1974), pp. 205-224 (20 pages) Published By: Wiley 

The Eurodollar Deposit Market: Stategies for Regulation

George H. Windecker Jr.

1993

American University International Law Review 9, no. 1 (1993): 357-384.

The circular flow of dollars in the world financial markets

Kashi NathTiwari

Available online 23 March 2002.

https://www.sciencedirect.com/science/article/abs/pii/104402839090012C

The Euro-dollar market as a source of United States bank liquidity

Steve B. Steib

Iowa State University

1972

RMB Tracker

SWIFT

https://www.swift.com/our-solutions/compliance-and-shared-services/business-intelligence/renminbi/rmb-tracker/rmb-tracker-document-centre

The Eurodollar Conundrum

FRBNY 1982

The federal funds market and the overnight Eurodollar market

Yungsook Lee

1999

Research Notes, No. 99-2, Deutsche Bank Research, Frankfurt

THE RISE AND FALL OF THE EURODOLLAR SYSTEM 

SEPTEMBER 2016

Offshore Dollar Creation and the Emergence of the post-2008 International Monetary System

Steffen Murau

The Future of Offshore Dollar Creation:
Four Scenarios for the International Monetary System by 2040

Steffen Murau, Joe Rini, Armin Haas

IASS Potsdam, in collaboration with Weatherhead Center for International Affairs, Harvard University

2017 | ‘The Political Economy of Private Credit Money Accommodation. A Study of Bank Notes, Bank Deposits and Shadow Money’, PhD thesis

7th November 2017  Private Credit Money Accommodation  by Steffen Murau

https://openaccess.city.ac.uk/id/eprint/19010/

Towards a theory of shadow money

Daniela Gabor and Jakob Vestergaard

Private Debt as Shadow Money? Conceptual Criteria, Empirical Evaluation and Implications for Financial Stability

Steffen Murau1 and Tobias Pforr2 May 2020

Grey matter in shadow banking: international organizations and expert strategies in global financial governance

Cornel Bana, Leonard Seabrookeb and Sarah Freitasa

aBoston University, Boston, MA, USA; bDepartment of Business and Politics, Copenhagen Business School, Copenhagen, Denmark

The Politics of Shadow Money: Security Structures, Money Creation and Unconventional Central Banking

Pre-print version. Print version forthcoming in: New Political Economy Joscha Wullweber

Faculty of Economics University of Witten/Herdecke

REFORMING THE SHORT-TERM FUNDING MARKETS

Morgan Ricks

Discussion Paper No. 713 05/2012

Money and (Shadow) Banking: A Thought Experiment

Review of Banking and Financial Law, Vol. 31, 2011-2012

18 Pages Posted: 7 Apr 2013

Morgan Ricks

Vanderbilt University – Law School; European Corporate Governance Institute (ECGI)

Date Written: April 1, 2012

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2245685

Privatized global money: The US-Dollar and the international monetary system — Steffen Murau interviewed by Dezernat Zukunft, Part 1

By Mathis Richtmann

FX swaps and forwards: missing global debt?

Claudio Borio Robert McCauley Patrick McGuire

claudio.borio@bis.org robert.mccauley@bis.org patrick.mcguire@bis.org

The Global Financial and Monetary System in 2030

WEFORUM

Global Liquidity Indicators

BIS

https://www.bis.org/statistics/gli.htm

The Financial Crisis and the Global Shadow Banking System

La crise financière et le Global Shadow Banking System

Maryse Farhi et Marcos Antonio Macedo Cintra

https://journals.openedition.org/regulation/7473

Rise of Debt and Market Based Finance

Rise of Debt and Market Based Finance

It is also known as Non Bank finance or Shadow Banking.

The key difference between traditional banking and shadow banking is fragmented credit chains in the shadow banking.

Traditional Banking does

  • Maturity Transformation
  • Liquidity Transformation
  • Credit Transformation

While traditional banking has backstops

  • Deposit Insurance
  • Central bank

Shadow Banks are not regulated and do not have advantage of backstops.

Hence they are susceptible to systemic risk and runs.

Questions

  • What is Market based Finance?
  • How big is the market?
  • Institutions?
  • Instruments?
  • Who are the borrowers?
  • Who are the investors?
  • What are the risks in market based finance?
  • Role of Central Banks?
  • How to minimize risks?
  • Regulations? Macro Prudential policies?
  • How are banks involved in market based finance?
  • How are they connected to each other and others?

Key Terms

  • Market based Finance MBF
  • Non Bank Credit Intermediation NCBI
  • Shadow Banking
  • Financial Stability
  • Systemic Risk
  • Liquidity Risk
  • Broker Dealers
  • Non Bank Finance NBF
  • Balance Sheet Economics
  • Market Makers
  • Capital Markets
  • Money Markets
  • Money View
  • Money Flows
  • Network Dynamics
  • Regulatory Arbitrage
  • Credit Chains
  • Fragmented Credit Chains
  • Financial Supply Chains
  • Credit Chain Length
  • Growth of Debt

Growth and Size of Market based Finance

Image Source: BANK AND NONBANK LENDING OVER THE PAST 70 YEARS

Image Source: Shining a Light on Shadow Banking

Image Source: The Shadow Banking System in the United States: Recent Developments and Economic Role

Image Source: Shining a Light on Shadow Banking

Image Source: NON-BANK FINANCE: TRENDS AND CHALLENGES

Image Source: THE GROWTH OF NON-BANK FINANCE AND NEW MONETARY POLICY TOOLS 

Image Source: SHADOW BANKING AND MARKET BASED FINANCE

Structural Dynamics of Banking and Financial System

Changes prior to Global Financial Crisis

  • Rise of Debt
  • Rise of Market Based Finance
  • Increase in capital flows both domestic and cross border

Debt dynamics is related to assets side of balance sheet of financial intemediatory.

Market based Finance is related to liabilities side of balance sheet of Financial Intermediatory.

If the chains of financial intermediation are long, then both assets and liabilities of each participant are linked.

Intermediation results in increase of capital flows. From money markets to capital markets. From deposits to loans. From liabilities to assets. There is both pull and push of money flows in the financial system. Demand for capital and supply of capital. They both are linked by banks and non bank finance. Growth of debt is linked to growth of money markets and non bank finance.

Size of Nonfinancial Business and Household Credit

Image Source: FINANCIAL STABILITY REPORT – NOVEMBER 2020

In a future post I will discuss debt in US and global financial system.

Please see my related posts for evolution of Financial System Complexity and Its dynamics.

Low Interest Rates and Banks’ Profitability – Update October 2020

Funding Sources and Liquidity for US Commercial Banks

Trends in Assets and Liabilities of Commercial Banks in the USA

Size and complexity arise together. Along with balance sheet expansion comes changes in links with counterparties (financial networks and interconnections).

Research continues in this area by several institutions and academics.

  • OECD
  • BIS
  • FED RESERVE
  • ECB
  • FSB
  • BOE
  • IMF
  • BOF
  • Others

Source: Structural developments in global financial intermediationThe rise of debt and non-bank credit intermediation

The global financial crisis of 2008 underlined the importance for policy makers in understanding the scale and types of financial intermediation in their economies. During the financial crisis, non-bank financial intermediation was of particular concern to authorities, as such forms of ‘shadow banking’, contributed to both the root causes of the crisis, the transmission of financial contagion, and the amplification of shocks.

As this report is published, the rapid spread of the novel coronavirus Covid-19 has caused a global health crisis, has brought economic activity in some sectors to a halt, and has presented the greatest challenge to the global financial system since 2008. As then, understanding financial intermediation activities is critical to mapping the faultlines in the global financial system and mounting effective policy responses.

However, the shape of financial intermediation has changed in important ways since the global financial crisis. Activities in non-bank intermediation, including market-based intermediaries like investment funds and securitised products, have grown and are increasingly interconnected with financial markets. Understanding the interplay between these elements, and the benefits and risks of each, offers a more complete understanding of how global finance can contribute to sustainable economic growth. It also helps provide the full picture needed to help policy makers prepare for and respond to shocks, including pandemics.

“Structural developments in global financial intermediation: The rise of debt and non-bank credit intermediation” shines a light on the evolution of global financial intermediation in three key ways. First, it maps the broad-based growth of financial intermediation relative to GDP in many advanced and emerging market economies, and with this growth a shift toward market-based finance. Second, it assesses the shift from equity to debt markets, and the growing imbalances in sovereign and corporate debt markets during a period of highly accommodative monetary policies. Third, it draws attention to key activities in credit intermediation that could contribute to structural vulnerabilities in the global financial system, including: a sharp rise of below-investment grade corporate debt, in particular leverage loans and collateralised loan obligations; the growth of open-ended investment funds that purchase high-yield debt and leveraged loans; and risks associated with the large stock of bank contingent convertible debt.

While these various activities have helped to satisfy investors’ reach for yield during years of market exuberance, they represent new potential faultlines of systemic risk in the event of exogenous shocks, be they from trade tensions, geopolitical risks or the current global pandemic. This report underlines the need for policy frameworks to adapt to market-based finance, and fully reflect the interaction between monetary, prudential, and regulatory tools on credit intermediation. It also underlines the need for dynamic microprudential and activities-based tools to help mitigate excessive risk taking with respect to liquidity and leverage.

By mapping the global financial system, evaluating growing imbalances and risks that could amplify shocks, and assessing the interaction between macro and regulatory tools, this report provides a practical complement to the OECD’s Policy Framework for Effective and Efficient Financial Regulations. Financial authorities should use this analysis to inform both their assessments of activities and risks, and efforts to maximise available tools to harness the benefits of market-based finance to support fair, efficient markets and sustainable economic growth.

Greg Medcraft Director, OECD Directorate for Financial and Enterprise Affairs

Image Source: UNDERSTANDING THE RISKS INHERENT IN SHADOW BANKING: A PRIMER AND PRACTICAL LESSONS LEARNED

Image Source: THE ECONOMICS OF SHADOW BANKING 

Image Source: IS SHADOW BANKING REALLY BANKING?

Table Source: SHADOW BANKING AND MARKET BASED FINANCE

Table 1. A Stylized View of Structural Characteristics of Credit-based Intermediation

Characteristic:Traditional BankingShadow BankingMarket-based Finance
Key Risk TransformationsLiquidity, maturity, leverageCredit enhancement,liquidity, maturity, leverageLess emphasis on credit enhancement and less opaque vs. shadow banking
Institutions Involved in Intermediation Single entityCan be many entities, interconnected through collateral chains and credit guaranteesSingle/few entities
Formal Ex-anteBackstopYesNo / IndirectNo
Implied Sponsor Supportn.a.Yes, can sometimes be contingent liabilitiesNo(insolvency remote)
Example of EntitiesCommercial bankSynthetic CDO, Structured Investment Vehicle (SIV), CNAV MMF, ABCP ConduitBond mutual fund, Distressed debt or PE partnership,Direct lending by pension fund
Main Form of LiabilitiesDebt and deposits,Wholesale & retail-financedDebt,Mainly wholesale financedHighly diverse –Short and long-term debt and equity,Retail & wholesale financed
Key Resulting Financial Stability Risk Systemic risk(institutional spillovers)Systemic risk(institutional spillovers)Shift in price of risk (market risk premia)

My Related Posts

Shadow Banking

Economics of Broker-Dealer Banks

Evolution of Banks Complexity

Low Interest Rates and International Capital Flows

Repo Chains and Financial Instability

Global Liquidity and Cross Border Capital Flows

The Dollar Shortage, Again! in International Wholesale Money Markets

Low Interest Rates and Banks’ Profitability – Update October 2020

Funding Sources and Liquidity for US Commercial Banks

Funding Strategies of Banks

Trends in Assets and Liabilities of Commercial Banks in the USA

Key sources of Research

The growth of non-bank finance and new monetary policy tools 

Adrien d’Avernas, Quentin Vandeweyer, Matthieu Darracq Pariès  

20 April 2020

https://voxeu.org/article/growth-non-bank-finance-and-new-monetary-policy-tools

Financial Stability Report

November 2019

Board of Governors of the Federal Reserve System

Financial Intermediaries, Financial Stability, and Monetary Policy

Tobias Adrian and Hyun Song Shin
Federal Reserve Bank of New York Staff Reports, no. 346 September 2008

US BROKER-DEALER LIQUIDITY IN THE TIME OF FINANCIAL CRISIS

https://www.shearman.com/perspectives/2020/05/us-broker-dealer-liquidity-in-the-time-of-financial-crisis

Unconventional monetary policy and funding liquidity risk

ECB

Structural developments in global financial intermediation

The rise of debt and non-bank credit intermediation

by

Robert Patalano and Caroline Roulet*

OECD

https://www.oecd-ilibrary.org/finance-and-investment/structural-developments-in-global-financial-intermediation-the-rise-of-debt-and-non-bank-credit-intermediation_daa87f13-en

Financial Stability Review, May 2020

ECB

https://www.ecb.europa.eu/pub/financial-stability/fsr/html/ecb.fsr202005~1b75555f66.en.html#toc1

Structural changes in banking after the crisis

Report prepared by a Working Group established by the Committee on the Global Financial System

The Group was chaired by Claudia Buch (Deutsche Bundesbank) and B Gerard Dages (Federal Reserve Bank of New York)

January 2018

BIS

BANK-BASED OR MARKET-BASED FINANCIAL SYSTEMS: WHICH IS BETTER?

Ross Levine

Working Paper 9138 http://www.nber.org/papers/w9138

NATIONAL BUREAU OF ECONOMIC RESEARCH

1050 Massachusetts Avenue
Cambridge, MA 02138
September 2002

Non-bank finance: trends and challenges

Financial Stability Review

Bank of France

2018

The Origins of Bank-Based and Market-Based Financial Systems: Germany, Japan, and the United States

Sigurt Vitols*

January 2001

Financial Stability Report

August 2020

Bank of England

Market-Based Finance:
Its Contributions and Emerging Issues

May 2016

Financial Conduct Authority

Bank-Based Versus Market-Based Financing: Implications for Systemic Risk

https://www.researchgate.net/publication/322088863_Bank-Based_Versus_Market-Based_Financing_Implications_for_Systemic_Risk

Off the radar: The rise of shadow banking in Europe 

Martin Hodula  

16 March 2020

https://voxeu.org/article/radar-rise-shadow-banking-europe

Global Monitoring Report on Non-Bank Financial Intermediation 2019

2020

FSB

https://www.fsb.org/2020/01/global-monitoring-report-on-non-bank-financial-intermediation-2019/

Global Monitoring Report on Non-Bank Financial Intermediation 2018

FSB 2019

https://www.fsb.org/2019/02/global-monitoring-report-on-non-bank-financial-intermediation-2018/

Global Shadow Banking Monitoring Report 2017

FSB 2018

https://www.fsb.org/2018/03/global-shadow-banking-monitoring-report-2017/

Global Shadow Banking Monitoring Report 2016

10 May 2017

FSB 2015 Report

FSB 2014 Report

https://www.fsb.org/wp-content/uploads/r_141030.pdf?page_moved=1

FSB 2013 Report

FSB 2012 Report

FSB 2011 Report

Shadow Banking: Monitoring Vulnerabilities and Strengthening Policy Tools

https://www.garp.org/#!/risk-intelligence/all/all/a1Z1W0000054xEzUAI

BANK-BASED AND MARKET-BASED FINANCIAL SYSTEMS: CROSS-COUNTRY COMPARISONS

Asli Demirguc-Kunt and Ross Levine*

June 1999

https://pdfs.semanticscholar.org/18e5/660bef2325f326bb8077bd0dd6f5225b1bf8.pdf?_ga=2.215410079.942675951.1605328042-1052966156.1604782392

Off the Radar: Exploring the Rise of Shadow Banking in the EU

Martin Hodula

https://www.cnb.cz/en/economic-research/research-publications/cnb-working-paper-series/Off-the-Radar-Exploring-the-Rise-of-Shadow-Banking-in-the-EU/

https://voxeu.org/article/radar-rise-shadow-banking-europe

Shadow Banking: Economics and Policy

Stijn Claessens, Zoltan Pozsar, Lev Ratnovski, and Manmohan Singh

IMF

2012

https://www.imf.org/en/Publications/Staff-Discussion-Notes/Issues/2016/12/31/Shadow-Banking-Economics-and-Policy-40132

Bank-Based and Market-Based Financial Systems: Cross-Country Comparisons

A. Demirguc-Kunt

Published 1999

https://www.semanticscholar.org/paper/Bank-Based-and-Market-Based-Financial-Systems%3A-Demirguc-Kunt/cd8cf558db2f8404271050ba40408a28ac4fcbc4

Market-based finance: a macroprudential view

Speech given by
Sir Jon Cunliffe, Deputy Governor Financial Stability, Member of the Monetary Policy Committee, Member of the Financial Policy Committee and Member of the Prudential Regulation Committee

BOE/BIS

Asset Management Derivatives Forum, Dana Point, California Friday 9 February 2017

Shadow Banking and Market Based Finance

Tobias Adrian, International Monetary Fund 
Helsinki

September 14, 2017

https://www.imf.org/en/News/Articles/2017/09/13/sp091417-shadow-banking-and-market-based-finance

Transforming Shadow Banking into Resilient Market-based Finance

An Overview of Progress

12 November 2015

FSB

Mapping Market-Based Finance in Ireland

Simone Cima, Neill Killeen and Vasileios Madouros1,2 

Central Bank of Ireland
December 13, 2019

BANK AND NONBANK LENDING OVER THE PAST 70 YEARS

FDIC

Financial Stability Review

November 2019

ECB

Shadow Banking

Zoltan Pozsar, Tobias Adrian, Adam Ashcraft, and Hayley Boesky

FRBNY Economic Policy Review / December 2013

https://www.newyorkfed.org/research/epr/2013/0713adri.html

Shadow Banking and Market-Based Finance

Tobias Adrian and Bradley Jones

IMF

No 18/14

Why Shadow Banking Is Bigger Than Ever

DANIELA GABOR

https://jacobinmag.com/2018/11/why-shadow-banking-is-bigger-than-ever

The Non-Bank Credit Cycle

Esti Kemp, Ren ́e van Stralen, Alexandros P. Vardoulakis, and Peter Wierts

2018-076

Fed Reserve

The role of financial markets for economic growth

Speech delivered by Dr. Willem F. Duisenberg, President of the European Central Bank, at the Economics Conference “The Single Financial Market: Two Years into EMU” organised by the Oesterreichische Nationalbank in Vienna on 31 May 2001

https://www.ecb.europa.eu/press/key/date/2001/html/sp010531.en.html

Bank deleveraging, the move from bank to market-based financing, and SME financing

Gert Wehinger

OECD

OECD Journal: Financial Market Trends Volume 2012/1
© OECD 2012

Shadow Banking: A Review of the Literature

Tobias Adrian Adam B. Ashcraft

2012 FRBNY

The Global Pandemic and Run on Shadow Banks

FRBKC

2020

https://www.kansascityfed.org/en/publications/research/eb/articles/2020/global-pandemic-run-shadow-banks

Shadow Banking: The Rise, Risks, and Rewards of Non-Bank Financial Services

Roy J. Girasa

The Macroeconomics of Shadow Banking

ALAN MOREIRA and ALEXI SAVOV∗

THE JOURNAL OF FINANCE • 2017

Is Shadow Banking Really Banking?

Bryan J. Noeth ,  Rajdeep Sengupta

Saturday, October 1, 2011

FRBSL

https://www.stlouisfed.org/publications/regional-economist/october-2011/is-shadow-banking-really-banking

Three Essays on Capital Regulations and Shadow Banking

Diny Ghuzini
Western Michigan University, diny.ghuzini@wmich.edu

CLARIFYING THE SHADOW BANKING DEBATE: APPLICATION AND POLICY IMPLICATIONS

Amias Gerety 2017

Institute of International Economic Law Georgetown University Law Center

Commercial Banking and Shadow Banking

The Accelerating Integration of Banks and Markets and its Implications for Regulation

ARNOUD W. A. BOOT AND ANJAN V. THAKOR

(prepared as revised version of Chapter 3 in The Oxford University Press Handbook, The Accelerating Integration of Banks and Markets and its Implications for Regulation, 3rd edition.)

The Shadow Banking System in the United States: Recent Developments and Economic Role

Tresor Economics

France

2013

https://www.tresor.economie.gouv.fr/Articles/ccfd4180-fddb-4333-bd16-0b91f2daa18c/files/6ae6455a-92be-43a5-a94d-91b03b38a8d8

Shadow Banking: Policy Challenges for Central Banks

Thorvald Grung Moe*

Levy Economics Institute of Bard College

May 2014

BANKS, SHADOW BANKING, AND FRAGILITY

Stephan Luck and Paul Schempp

2014 ECB

Restructuring the Banking System to Improve Safety and Soundness

Thomas M. Hoenig
Vice Chairman of the Federal Deposit Insurance Corporation

Charles S. Morris
Vice President and Economist Federal Reserve Bank of Kansas City

Original version: May 2011 Revised: December 2012

Understanding the Risks Inherent in Shadow Banking: A Primer and Practical Lessons Learned

by David Luttrell Harvey Rosenblum and Jackson Thies

FRB Dallas

Shadow Banking Concerns: The Case of Money Market Funds

Saad Alnahedh† , Sanjai Bhagat

Towards a theory of shadow money

Daniela Gabor* and Jakob Vestergaard

The Economics of Shadow Banking 

Manmohan Singh

2013

Regulating the Shadow Banking System

GARY GORTON

ANDREW METRICK

Yale University

The Rise of Shadow Banking: Evidence from Capital Regulation

Rustom M. Irani, Raymakal Iyer, Ralf R. Meisenzahl, and Jos ́e-Luis Peydr ́o

2018-039

Fed Reserve

Shadow Banking: Background and Policy Issues

Edward V. Murphy

Specialist in Financial Economics

December 31, 2013

Shining a Light on Shadow Banking

The Clearing House

https://www.theclearinghouse.org/banking-perspectives/2015/2015-q4-banking-perspectives/articles/shining-a-light-on-shadow-banking

REGULATING SHADOW BANKING*

STEVEN L. SCHWARCZ

2011

Duke Law

Money Creation and the Shadow Banking System Adi Sunderam

Harvard Business School and NBER September 2014

https://dash.harvard.edu/bitstream/handle/1/27336543/sunderam_money-creation.pdf?sequence=1

Financial Crisis Inquiry Commission Report Chapter 2

Shadow Banking

THE SHADOW BANKING CHARADE

By Melanie L. Fein*

February 15, 2013

Assessing shadow banking – non-bank financial intermediation in Europe

No 10/ July 2016

by
Laurent Grillet-Aubert Jean-Baptiste Haquin Clive Jackson
Neill Killeen
Christian Weistroffer

ESRB

Shedding Light on Shadow Banking

Timothy Lane

Bank of Canada

shadow banking and capital markets

RISKS AND OPPORTUNITIES

Group of Thirty

Shadow Banking and Market Based Finance

Tobias Adrian, International Monetary Fund 
Helsinki

September 14, 2017

https://www.imf.org/en/News/Articles/2017/09/13/sp091417-shadow-banking-and-market-based-finance

Financial Stability Report – November 2020

Federal Reserve

https://www.federalreserve.gov/publications/2020-november-financial-stability-report-purpose.htm

https://www.federalreserve.gov/publications/2019-november-financial-stability-report-purpose.htm

https://www.federalreserve.gov/publications/2018-november-financial-stability-report-purpose.htm

https://www.federalreserve.gov/publications/financial-stability-report.htm

Funding Sources and Liquidity for US Commercial Banks

Funding Sources and Liquidity for US Commercial Banks

Funding Types

  • Secured
  • Unsecured
  • Short Term
  • Long Term
  • Domestic
  • Foreign

Image Source: THE DARK SIDE OF BANK WHOLESALE FUNDING

Image Source: WHOLESALE FUNDING OF THE BIG SIX CANADIAN BANKS

Canadian Banks Funding Types

Canadian Banks Funding Instruments

MAPPING U.S. DOLLAR FUNDING FLOWS

US Dollar Funding Sources and Instruments
  • Interbank Funding Market
  • Money Market Mutual Funds Market
  • Repo Market
  • Fed Funds Market
  • Commercial Paper Market
  • Asset Backed Commercial Paper Market
  • Certificate of Deposits
  • Auction Rate Securities
  • Bilateral and Tri Party Repos
  • GSEs
  • GSE Mortgage Pools
  • Finance Companies
  • Broker Dealers
  • ABS Insurers

Major Trends prior to Global Financial Crisis of 2008

  • Decline of Banks and Growth of Mutual Funds
  • Rise of Market Based Finance (Non Bank Finance, Shadow Banking)
  • Globalization of Financial Intermediation
  • Rise of Repo Market
  • Securitization

Please see detailed discussion in this reference from which I have used most of the charts.

Economic Policy Review

Federal Reserve Bank New York

Special Issue: The Stability of Funding Models, Feb 2014

Decline of Banks and Growth of Mutual Funds

Rise of MArket based Finance

Also, known as Non Bank Finance, Shadow Banking

Globalization of Financial Intermediation

Rise of Repo Market

Securitization

How did Central Banks respended during the crisis?

Central Bank Backstops During Financial Crisis

During financial crisis, US Federal Reserve has provided emergency liquidity facilities for markets in which liquidity dried up.

  • AMLF Asset Back Comercial Papers Funding Facility
  • MMLF Money MArket Mutual Funds Funding Facility
  • CPFF Commercial Paper Funding Facility

Macro Prudential Policies and Regulations

For financial stability

Some of the important policies that aim at promoting stability are as follows:

  • deposit insurance
  • lender of last resort
  • supervision
  • capital requirements
  • reserve requirements
  • liquidity requirements
  • transparency and disclosure requirements

Key Terms

  • Market based Finance
  • Shadow Banking
  • Funding LIquidity
  • Funding Sources
  • Funding Instruments
  • Bank Liabilities
  • Interlinked Balance sheets
  • Interconnectivity
  • Balance Sheet Expansion
  • Money Flows
  • Systemic Risk
  • Financial Contagion
  • Capital Requirements
  • BASEL III
  • LCR Liquidity Coverage Ratio
  • Money Market Mutual Funds MMMF
  • Asset Backed Commercial Paper ABCP
  • Commercial Paper CP
  • Repurchase Agreements REPOs
  • Fed Funds
  • Interbank Funds
  • Exposure
  • Spillover
  • Counterparties
  • Cross Border Claims
  • Quadruple accounting

My related Posts

Funding Strategies of Banks

Shadow Banking

The Dollar Shortage, Again! in International Wholesale Money Markets

Low Interest Rates and International Capital Flows

Balance Sheets, Financial Interconnectedness, and Financial Stability – G20 Data Gaps Initiative

Contagion in Financial (Balance sheets) Networks

Economics of Money, Credit and Debt

Trends in Assets and Liabilities of Commercial Banks in the USA

Low Interest Rates and Banks’ Profitability – Update October 2020

Key Sources of Research

US dollar funding markets during the Covid-19 crisis – the money market fund turmoil

12 May 2020

BIS

Mapping U.S. Dollar Funding Flows

This interactive map shows how various institutions generally engage with one another, and the Federal Reserve’s balance sheet, in the course of borrowing and lending U.S. dollar instruments in the money markets.

https://www.newyorkfed.org/research/blog/2019_LSE_Markets_Interactive_afonso

Recent stress in money market funds has exposed potential risks for the wider financial system

Prepared by Miguel Boucinha, Laura Capotă, Katharina Cera, Emmanuel Faïk, Jean-Baptiste Galléty, Margherita Giuzio, Maciej Grodzicki, Isabel Kerner, Simon Kördel, Luis Molestina Vivar, Giulio Nicoletti, Ellen Ryan and Christian Weistroffer

Published as part of Financial Stability Review, May 2020.

https://www.ecb.europa.eu/pub/financial-stability/fsr/focus/2020/html/ecb.fsrbox202005_07~725c8a7ec8.en.html

The circular flow of dollars in the world financial markets

Kashi NathTiwari

https://www.sciencedirect.com/science/article/abs/pii/104402839090012C

The Euro-dollar market as a source of United States bank liquidity

Steve B. Steib

Iowa State University

Shadow Banking: The Money View

Zoltan Pozsar

Key Information on the Money Market Mutual Fund Liquidity Facility (MMLF)

https://www.bostonfed.org/news-and-events/news/2020/03/key-information-money-market-mutual-fund-liquidity-facility.aspx

https://www.federalreserve.gov/monetarypolicy/mmlf.htm

Managing the Liquidity Crisis

April 09, 2020

https://hbr.org/2020/04/managing-the-liquidity-crisis

Financial Stability Report

May 2020

Financial Stability Board

FED Reserve

Interbank lending market

https://en.wikipedia.org/wiki/Interbank_lending_market

Liquidity Risk and Credit in the Financial Crisis

BY PHILIP E. STRAHAN

FRBSF ECONOMIC LETTER

2012

The Money Market Mutual Fund Liquidity Facility

Marco Cipriani, Gabriele La Spada, Reed Orchinik, and Aaron Plesset

2020

https://libertystreeteconomics.newyorkfed.org/2020/05/the-money-market-mutual-fund-liquidity-facility.html

US money market funds and US dollar funding

Céline Choulet

BNP Paribas

2018

The Dark Side of Bank Wholesale Funding

Rocco Huang

Philadelphia Fed

Lev Ratnovski

Bank of England

A Macroeconomic Model of Liquidity, Wholesale Funding and Banking Regulation

Corinne Dubois* Luisa Lambertini􏰀

The Effect of Monetary Policy on Bank Wholesale Funding

Dong Beom Choi (Federal Reserve Bank of New York)

Hyun-Soo Choi (Singapore Management University)

Between deluge and drought: The future of US bank liquidity and funding

Rebalancing the balance sheet during turbulent times

Kevin Buehler Peter Noteboom Dan Williams

July 2013
McKinsey & Company

https://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/Risk/Working%20papers/48_Future%20of%20US%20funding.ashx

Can Banks Provide Liquidity in a Financial Crisis?

By Nada Mora

How important was the worldwide use of wholesale funds for the international transmission of the US subprime crisis? 

Claudio Raddatz  15 March 2010

https://voxeu.org/article/how-bank-credit-market-funding-helped-spread-global-crisis

The Role of Liquidity in the Financial System

Notes from the Vault

Larry D. Wall
November 2015

https://www.frbatlanta.org/cenfis/publications/notesfromthevault/1511

Global Banks, Dollar Funding, and Regulation

by Iñaki Aldasoro, Torsten Ehlers and Egemen Eren

Monetary and Economic Department March 2018, revised May 2019

Global Monitoring Report on
Non-Bank Financial Intermediation 2019 

19 January 2020

Bank Financing: The Disappearance of Interbank Lending

March 05, 2018

https://www.moneyandbanking.com/commentary/2018/3/4/bank-financing-the-disappearance-of-interbank-lending

Liquidity Risk and Funding Cost

Taking Market-Based Finance Out of the Shadows

Distinguishing Market-Based Finance from Shadow Banking

2018

Blackrock

Wholesale Funding of the Big Six Canadian Banks

Matthieu Truno, Andriy Stolyarov, Danny Auger and Michel Assaf, Financial Markets Department

Bank of Canada Review

Liquidity Risk after the Crisis 

By Allan M. Malz

https://www.cato.org/cato-journal/winter-2018/liquidity-risk-after-crisis

Global Shadow Banking Monitoring Report 2017

5 March 2018

The Federal Funds Market since the Financial Crisis

https://www.clevelandfed.org/en/newsroom-and-events/publications/economic-commentary/2017-economic-commentaries/ec-201707-the-federal-funds-market-since-the-financial-crisis.aspx

Funding liquidity regulation

Allan M. Malz

The Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF)

Rosalind Z. Wiggins2,
Yale Program on Financial Stability Case Study

May 9, 2017, revised: October 10, 2020

Liquidity Risk and Credit in the Financial Crisis

BY PHILIP E. STRAHAN

Economic Policy Review

February 2014 Volume 20 Number 1

Special Issue: The Stability of Funding Models

Trends in Assets and Liabilities of Commercial Banks in the USA

Trends in Assets and Liabilities of Commercial Banks in the USA

To big to fail means too interconnected to fail.
As the balance sheets of banks have expanded so has their number of counterparties on both sides of balance sheets.

The US commercial banks have have expanded their balance sheets.

On assets side, the loans portfolio has expanded.

Low Interest Rates and Banks’ Profitability – Update October 2020

On liabilities side, the deposits and borrowings have increased.

US Federal Reserve publishes H8 report on Assets and Liabilities of the US commercial banks. Detailed information on aggregate data presented in this post can be obtained from it.

https://www.federalreserve.gov/releases/h8/h8notes.htm

On liabilities side, the borrowings from wholesale money markets and shadow banking contributed to systemic risk during 2008 financial crisis. Please see my posts on this subject.

Funding Strategies of Banks

Shadow Banking

There were also capital flows in US markets from foreign banks and other markets.

Low Interest Rates and International Capital Flows

On liabilities side, because of increased borrowings from short term markets, the financial interconnections have also increased resulting in systemic risk and financial contagion.

On assets side, because of increased volumes of loan portfolios, the systemic risk and chances for financial contagion have increased.

Balance Sheets, Financial Interconnectedness, and Financial Stability – G20 Data Gaps Initiative

Contagion in Financial (Balance sheets) Networks

For analytical framework, accounting approach (Post Keynesian Economics) is one of the option.

Balance Sheet Economics – Financial Input-Output Analysis (using Asset Liability Matrices) – Update March 2018

Foundations of Balance Sheet Economics

Economics of Money, Credit and Debt

Morris Copeland and Flow of Funds accounts

Stock-Flow Consistent Modeling

Key Terms

  • Money View
  • Money Flows
  • Stocks and Flows
  • System Dynamics
  • Business Dynamics
  • Business Strategy
  • Asset Liability Management ALM
  • Balance Sheet Economics
  • Monetary Policy
  • Interest Rates
  • Credit
  • Debt
  • Money
  • Balance Sheet Expansion
  • Systemic Risk
  • Interconnectivity
  • Loan Portfolio
  • To big to fail
  • Networks
  • Funding Strategy
  • Market Liquidity
  • Funding Liquidity
  • Deposits
  • Interest Income
  • Non Interest Income
  • Borrowings
  • Wholesale Money Markets
  • Shadow Banking
  • International Capital Flows
  • Round Tripping
  • Global Liquidity
  • Eurodollar Market
  • Money Market Mutual Funds
  • Quadruple Accounting
  • Morris Copeland
  • Hyman Minsky
  • Wynn Godley
  • Perry Mehrling

Image Source: Liberty Street Economics 2017

AVERAGE NET INTEREST MARGIN OF BANKS IN THE UNITED STATES FROM 1995 TO 2019
Image Source: Statista

NET INTEREST MARGIN FOR ALL U.S. BANKS (USNIM)
Image Source: FRED

Total Assets, All Commercial Banks (TLAACBW027SBOG)
Image Source: FRED

Total Liabilities, All Commercial Banks (TLBACBW027NBOG)
Image Source: FRED

DEPOSITS, ALL COMMERCIAL BANKS (DPSACBW027SBOG)
Image Source: FRED

My Related Posts

Balance Sheet Economics – Financial Input-Output Analysis (using Asset Liability Matrices) – Update March 2018

Foundations of Balance Sheet Economics

Balance Sheets, Financial Interconnectedness, and Financial Stability – G20 Data Gaps Initiative

Funding Strategies of Banks

Economics of Money, Credit and Debt

Low Interest Rates and International Capital Flows

Low Interest Rates and Banks’ Profitability – Update October 2020

Morris Copeland and Flow of Funds accounts

Key Sources of Research

Deposits, All Commercial Banks (DPSACBW027SBOG)

https://fred.stlouisfed.org/series/DPSACBW027SBOG

Total Liabilities, All Commercial Banks (TLBACBW027NBOG)

https://fred.stlouisfed.org/series/TLBACBW027NBOG

TOTAL ASSETS, ALL COMMERCIAL BANKS (TLAACBW027SBOG)

https://fred.stlouisfed.org/series/TLAACBW027SBOG

Between deluge and drought:
The future of US bank liquidity and funding

Rebalancing the balance sheet during turbulent times

McKinsey

2013

https://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/Risk/Working%20papers/48_Future%20of%20US%20funding.ashx

Assets and Liabilities of Commercial Banks in the United States – H.8

https://www.federalreserve.gov/releases/h8/h8notes.htm

The geography of dollar funding of non-US banks1

Innovations in Payments

Innovations in Payments

 

Key Trends

  • Instant Payments
  • DLT/Block Chain Technology
  • Cross Border Payments
  • Non Bank Credit Providers
  • Non Bank Payment Providers
  • Mobile Technology
  • POS Technology
  • Digital Cashless Payments
  • Regional RTGS Systems
  • China CIPS

 

Since my last posts on the subject, several new studies have been published.  Please see the references below.

At a rapid pace changes are taking place in payments systems and technology.

Innovative use of block chain and Distributed Ledgers Technology are creating new opportunties.

Emergence of Non bank or Payment Banks is another innovation.  India has approved several payment banks. Such as PayTM.

In retail payments, fast Immediate real time payments are a reality now.

Innovations in Cross Border payments are another trend.  Services like XOOM from Paypal is an example of such an innovation.

Regional Economic Integration is taking place through adaptation of Regional RTGS systems.

 

Please see my related posts

Cross Border/Offshore Payment, Clearing, and Settlement Systems -Update October 2019

Instant, Immediate, Real Time Retail Payment Systems (IIRT-RPS)

Evolving Networks of Regional RTGS Payment and Settlement Systems

Cross Border/Offshore Payment and Settlement Systems

Large Value (Wholesale) Payment and Settlement Systems around the Globe

Structure and Evolution of EFT Payment Networks in the USA, India, and China

Next Generation of B2C Retail Payment Systems

 

 

Key Sources of Research

 

Click to access r_qt2003f.pdf

Click to access keynote_pereira_da_silva_bis.pdf

Click to access r_qt1703g.pdf

Click to access er-2019_1-payment-systems–historical-evolution-and-literature-review.pdf

Click to access sp191205.pdf

Click to access r_qt2003h.pdf

Click to access SIWP-2017-001-The-Future-of-Correspondent-Banking_FINALv2.pdf

Click to access d154.pdf

Click to access ecb.op229~4c5ec8f02a.en.pdf

Click to access other20190805a2.pdf

 

Cross Border/Offshore Payment, Clearing, and Settlement Systems -Update October 2019

Cross Border Payment, Clearing, and Settlement Systems -Update October 2019

 

There have been several new developments in Cross Border Payments Solutions landscape.

  • Interbank Cross Border Payments
  • Retail Cross Border Payments

 

Interbank Payments

  • Ripple
  • SWIFT
  • SWIFT GPI
  • JPMCoin
  • IBM Blockchain World Wire {BWW}

 

RIPPLE

From {https://digital.hbs.edu/platform-digit/submission/ripple-the-disruptor-to-the-forty-years-old-cross-border-payment-system/}

Cross-border payments today are inefficient, expensive and opaque.

The Global Interbank Financial Telecommunication Company (SWIFT) established in 1973 is still the most widely used method to send cross-border payment using the transmission of financial messages via the international SWIFTNet network.

However, the SWIFT financial messages do not hold accounts for its members nor make any form of clearing or settlement. It essentially only sends payment orders which need to be settled by the correspondent account that the institution has with each other. For this reason, each financial institution needs to have a banking relationship to exchange banking transactions.

This is why it requires 6 players linked up – payer, payer’s bank, payer’s bank’s correspondent, beneficiary bank’s correspondent, beneficiary bank, beneficiary to complete cross-border payments.

[1]

There are many obvious drawbacks of such system:

  • Cross-border payments can be expensive and sometimes even charged a percentage fees
  • Extra fees such as “lifting fees” or correspondent banking fees by intermediary banks are common
  • Bank keep the money for extra time and delay the payout “float money theft”
  • Exchange rate can have big spread

The high processing costs, lengthy settlement times and a poor customer experience prevents many new usage scenarios such as on-demand, low-value cross-border payment or mobile wallets. It is estimated that $1.6T per year for all parties in the ecosystem has spent yet unable to meet today’s cross-border payment need[2].

Ripple Labs (formerly OpenCoin) launched in 2012 with a mission to build a cross-border, interbank payment and settlement network using the concepts behind bitcoin. Ripple offers sub-second cross-border payments with automated best pricing from its network. As payments are nearly instant, it helps to remove the credit and liquidity risk from the process, lowering overall costs considerably.

 How is it done?

The core of its solution is RippleNet, a single, global network of banks that send and receive payments via Ripple’s distributed financial technology — providing real-time messaging, clearing and settlement of transactions.

RippleNet utilizes a subset of blockchain technology used in bitcoin. It uses the consensual validation of encrypted hashes to secure the messages across the Ripple network but does not hold the ledger, unlike bitcoin. Ripple names this open, neural protocol Interledger Protocol (ILP). ILP allows Ripple to connect existing bank ledgers, similarly to how banks connect their core system to the SWIFT network.

 

SWIFT GPI

From https://www.bellin.com/blog/swift-gpi-transparent-cross-border-payments/

Challenges in cross-border payments

Cross-border payments usually pass through several banks until the funds have been transferred from the payer to the account of the beneficiary. This is referred to as correspondent banking. This results in four obstacles that are virtually insurmountable for treasurers as things stand today:

1)   Time: Traditional cross-border payment orders can take several days from being released to being credited – way too long for efficient cash management.

2)   Transparency: Several correspondent banks can act as intermediaries between the bank initiating the payment and the beneficiary bank – an impenetrable banking jungle that causes treasurers sleepless nights for security and compliance reasons.

3)   Tracking: Today, treasurers neither know where a specific payment is located nor when it will be credited to the beneficiary – an incalculable business risk and a situation that often leads to time-consuming queries, trying to chase a payment.

4)   Remittance data: Remittance data is often altered somewhere along the line or information is lost. Sometimes the amount eventually credited to the account does not match the initial payment order because correspondent banks have deducted fees, resulting in a tedious reconciliation process once the money has arrived.

SWIFT global payments innovation – SWIFT gpi

In January 2017, SWIFT introduced the gpi Service that can be used to process global payments in a fast and traceable manner. The objective is for every one of the around 10,000 SWIFT Network banks to be able to offer money transfers within 24 hours with continuous end-to-end tracking and complete transparency along the entire payment chain by the end of 2020. This transparency and efficiency is made possible by using a specific gpi reference, the Unique End-to-End Transaction Reference UETR.

SWIFT GPI Instant Payment Cross Border

How the Unique End-to-End Transaction Reference (UETR) works 

You can compare the UETR to the tracking number of a parcel: The sender issues a unique, unalterable reference that shows you where the order is located at any one time. This reference ensures complete transparency as well as fully digitized and therefore speedy processing. In addition, the sender is automatically notified of any payment status changes. Conventional transfers often drop off the radar for quite some time, and you’re left wondering where your money has gone, not to mention the effort it will take you to retrace and reconcile afterwards.Conversely, gpi transfers generate an abundance of messages that keep you up to date on the status of your payment.

The same applies to the respective bank departments who can also trace corporate payments, enabling them to react to queries much faster. Some banks have integrated functionality in their online banking applications that enables corporate clients to track their gpi payments. Not a bad idea – the only downside is that most corporates use more than one bank for their international payments, which would mean checking several banking portals. This is why a bank-independent treasury management system such as tm5  is a much more elegant solution. All tracking and status information converges in one centralized hub, no matter how many banks are involved.

SWIFT gpi for Corporates (g4C) – new dynamic and transparency in treasury

In November 2018, SWIFT launched the SWIFT g4C project in order to enable corporates to directly benefit from the gpi technology. The objective was to offer corporates a solution for initiating gpi payment orders directly in their payments system. BELLIN was selected as one of the Early Adopters and was the first TMS provider with a client live on g4C. The pilot phase has been completed and the technology is fully integrated in the tm5 treasury management system and BELLIN’s SWIFT offering.

What does this mean for banks and companies?

The role of banks

Banks must be able to process certain information in order for it to be included in gpi payment orders. More than 280 financial institutions worldwide, including 49 of the TOP 50 banks, have agreed on a standardized SLA. With so many banks participating, communication is guaranteed. i.e. funds are transferred quickly from one bank to the next. By now, most banks have started processing cross-border payments as gpi payments.

The role of companies

The UETR is crucial for processing gpi payments. Companies that initiate their own payments, for example through a treasury management system integrated payment solution need to attach this reference to a payment order in line with SWIFT requirements or extend the format of a payment in the right place to include this information. The information transmitted by way of the UETR simplifies reconciliation and can be matched automatically, depending on the system.

BELLIN offers integrated SWIFT g4C technology

The BELLIN treasury management system, tm5, offers integrated SWIFT gpi technology. The system generates the unique and unalterable tracking reference UETR that is required for gpi payments. In addition, tm5 automatically processes incoming gpi status messages, enabling users to check the status of a payment at any time.

Corporates need a SWIFT BIC (Business Identifier Code) to make use of SWIFT g4C technology. They register their BIC for gpi for Corporates and connect financial institutions that offer g4C. All in all, SWIFT g4C unlocks completely new opportunities for automating treasury processes, in turn leading to efficiency gains and increased security.

How will gpi change treasury?

gpi is fast, creates transparency regarding fees and currencies and provides a wealth of information about the location of a payment and other aspects that simplify reconciliation. The SWIFT gpi initiative is clear evidence that corporate payments are moving towards real-time processing. In turn, this will change processes and the way treasurers work.

 

Retail Cross Border Payments Systems

 

Retail Payments/Transfers to India

{From ManiKarthik.com}

  • XOOM
  • Remitify
  • Remitly
  • Ria
  • Western Union
  • State Bank of India
  • Transfast
  • Transwise
  • ICICI Bank Money to India
  • WorldRemit
  • IndusInd Bank

 

Block Chain Based Cross Border Payment Systems

  • AIRFOX
  • CIRCLE PAY
  • ZCASH
  • RIPPLE
  • VEEM
  • IVY
  • GLUWA
  • STELLAR
  • ABRA

 

 

Top Cross Border Payment Companies

{https://www.ventureradar.com/keyword/Cross%20Border%20Payments}

  • Ripple
  • Seedrs
  • CurrencyFair
  • Transferwise
  • Payoneer
  • WorldRemit
  • Trustly Group
  • TransferGo
  • Raisin
  • Zooz
  • TransferMate Global Payments
  • Calastone
  • Airwallex
  • Hufsy
  • InstaReM
  • Caxton
  • Veem
  • nanoPay
  • Credorax
  • Transfast
  • wyre
  • Bitbound GmbH
  • Currency Transfer
  • Earthport PLC
  • Bitso
  • WB21
  • iSignthis
  • Currency Cloud
  • BitPay
  • MoneyTrans
  • Moni
  • Traxpay
  • Qwikwire
  • Streami Inc
  • PiP iT
  • Swych
  • HoneSend
  • Afrimarket
  • Fonmoney
  • Lala World
  • Flime
  • Smart Token Chain
  • TransferTo
  • EQ Global
  • Weeleo
  • SimbaPay
  • KUARIX
  • REMITWARE Payments
  • PingPong
  • Buckzy Payments

 

 

Please see my related posts:

Cross Border/Offshore Payment and Settlement Systems

Instant, Immediate, Real Time Retail Payment Systems (IIRT-RPS)

Evolving Networks of Regional RTGS Payment and Settlement Systems

Large Value (Wholesale) Payment and Settlement Systems around the Globe

Structure and Evolution of EFT Payment Networks in the USA, India, and China

Next Generation of B2C Retail Payment Systems

Understanding Global OTC Foreign Exchange (FX) Market

Sources of Research:

 

Ripple wants a piece of the global payment system

 

https://www.cnbc.com/2019/01/07/ripple-wants-a-piece-of-the-global-payment-system.html

How IBM Blockchain World Wire revolutionizes cross-border payments

IBM

https://www.ibm.com/downloads/cas/YW3W2JPZ

NAVIGATING A WORLD OF PAYMENT SOLUTIONS

WHAT YOU NEED TO KNOW FOR TODAY — AND TOMORROW

George H. Hoffman, CTP, CERTICM, Senior Vice President, Manager, International Advisory, PNC

Kacie V. Johnson, Assistant Vice President, International Advisor, PNC

 

Click to access navigating-payment-solutions.pdf

Siam Commercial Bank Of Thailand To Use Ripple For Cross-border Payments With Easy Pay App

Siam Commercial Bank Of Thailand To Use Ripple For Cross-border Payments With Easy Pay App

Ripple and Xendpay partner for cross-border payments

https://www.fxcompared.com/magazine/news/ripple-and-xendpay-partner-cross-border-payments

The Future Of Cross-Border Payments

FORBES

Click to access d173.pdf

 

A vision for the future of cross-border payments

McKinsey

 

https://www.mckinsey.com/~/media/McKinsey/Industries/Financial%20Services/Our%20Insights/A%20vision%20for%20the%20future%20of%20cross%20border%20payments%20final/A-vision-for-the-future-of-cross-border-payments-web-final.ashx

FASTER, CHEAPER, SAFER: 9 COMPANIES USING BLOCKCHAIN PAYMENTS

https://builtin.com/blockchain/blockchain-payments

Global Payments 2020: Transformation and Convergence

BNY Mellon

Click to access global-payments-2020-transformation-and-convergence.pdf

 

Top 10 Trends in Payments 2018 : What You Need to Know

Cap Gemini 2018

Click to access payments-trends_2018.pdf

 

 

Strategies for Improving the U.S. Payment System

Federal Reserve Next Steps in the Payments Improvement Journey

Click to access other20170906a1.pdf

 

 

SWIFT gpi: A New Era in Treasury

Fast, transparent, traceable and system-integrated cross-border payments

https://www.bellin.com/blog/swift-gpi-transparent-cross-border-payments/

 

 

The Use of RMB in International Transactions:

-Background, Development and Prospect

Click to access pdf-rmb-JinZhongxia.pdf

 

 

 

The Cross-Border Payments Landscape

 

Click to access 9308A_1-2018-9-17.pdf

 

 

Swift to test real-time cross border payments in Europe

https://www.finextra.com/newsarticle/33852/swift-to-test-real-time-cross-border-payments-in-europe

 

 

Singtel’s cross-border payments system expands to Japan

The Via cross-border payments system has expanded into Japan thanks to a partnership with Netstars.

https://www.zdnet.com/article/singtels-cross-border-payments-system-expands-to-japan/

 

 

THE FUTURE OF CORRESPONDENT BANKINGCROSS BORDER PAYMENTS

RUTH WANDHÖFER

BARBARA CASU

PUBLICATION DATE: 10 OCTOBER 2018

 

Click to access SIWP-2017-001-The-Future-of-Correspondent-Banking_FINALv2.pdf

 

 

 

How are Asian FIs meeting the challenges and opportunities of cross-border payments?

A Survey on Trends in Cross-Border Payments in Asia Pacific

Click to access TAB_DEUTSCHE_BANK_WHITE_PAPER_-_FI_CROSS_BORDER_PAYMENT.pdf

 

 

 

The Inefficiencies of Cross-Border Payments: How Current Forces Are Shaping the Future

Written by Yoon S. Park, PHD & DBA, George Washington University

VISA

 

Click to access crossborder.pdf

 

 

 

CROSS-BORDER INTERBANK PAYMENT AND SETTLEMENTS

Emerging opportunities for digital transformation

 

Click to access Cross-Border-Interbank-Payments-and-Settlements.pdf

 

 

Global Payment Systems Survey (GPSS)

December 4, 2018
World Bank

https://www.worldbank.org/en/topic/financialinclusion/brief/gpss

 

 

 

Beijing creates its own global financial architecture as a tool for strategic rivalry

Govt of Canada

https://www.canada.ca/en/security-intelligence-service/corporate/publications/china-and-the-age-of-strategic-rivalry/beijing-creates-its-own-global-financial-architecture-as-a-tool-for-strategic-rivalry.html

 

 

 

SWIFT Vs. Ripple — The Importance of Speed in Cross-Border Payments

https://cointelegraph.com/news/swift-vs-ripple-the-importance-of-speed-in-cross-border-payments

 

 

Visa looks to speed up cross-border payments with new network launch

https://www.reuters.com/article/visa-payment/visa-looks-to-speed-up-cross-border-payments-with-new-network-launch-idUSL2N23H1NO

 

 

Cross-border Payment systems: SWIFT, RippleNet or BWW?

 

Cross-border Payment systems: SWIFT, RippleNet or BWW?

 

Rise of the yuan: China-based payment settlements jump 80%

Data shows Beijing attracting countries targeted by US sanctions

https://asia.nikkei.com/Business/Markets/Rise-of-the-yuan-China-based-payment-settlements-jump-80

 

 

 

http://www.cips.com.cn/cipsen/7052/7057/index.html

https://www.treasury-management.com/article/1/355/2929/cips-chinas-hybrid-net-settlement-clearing-system.html

 

 

SWIFT’s Battle For International Payments

Forbes

https://www.forbes.com/sites/francescoppola/2019/07/16/swifts-battle-for-international-payments/#64699a4e758e

 

 

EU Cross Border Payments: An evolving concept

 

Click to access lu-eu-cross-border-payments.pdf

 

 

 

INTERNATIONAL PAYMENTS IN A DIGITAL WORLD

YET ANOTHER BANKING BUSINESS THREATENED BY DIGITALIZATION

Click to access accenture-international-payments-digital-world-international-payments-digital-world.pdf

 

 

 

SWIFT gpi Time for action

Deutche Bank

 

Click to access Deutsche_Bank_SWIFT_gpi_White_Paper_December2017.pdf

 

 

 

B2B Payments and Fintech Guide 2019

Innovations in the Way Businesses Transact

 

Click to access B2B%20Payments%20and%20Fintech%20Guide%202019%20-%20Innovations%20in%20the%20Way%20Businesses%20Transact.pdf

 

 

Paying across borders – Can distributed ledgers bring us closer together?

  • RODRIGO MEJIA-RICART
  • CAMILO TELLEZ
  • MARCO NICOLI

MARCH 26, 2019

https://blogs.worldbank.org/psd/paying-across-borders-can-distributed-ledgers-bring-us-closer-together

 

 

Reinventing Payments

In An Era of Modernization

 

Click to access reinventing-payments-in-an-era-of-modernization.pdf

 

 

 

WORLD PAYMENTSREPORT

2018

 

Click to access World-Payments-Report-2018.pdf

 

 

 

Fundamentals of Global Payment Systems and Practices

Click to access Fundamentals_of_Payment_Systems.pdf

 

 

 

Global Payments 2018

REIMAGINING THE CUSTOMER EXPERIENCE

 

BCG

Click to access BCG-Global-Payments-2018-Oct-2018_tcm9-205095.pdf

 

 

 

Cross-Border Banking in Europe: Implications for Financial Stability and Macroeconomic Policies

CEPR

 

Click to access GenevaP223.pdf

 

 

 

Cross-Border Settlement Systems: Blockchain Models Involving Central Bank Money

Xiaohang Zhao, Haici Zhang, Kevin Rutter, Clark Thompson, Clemens Wan

Click to access CrossBorder_Settlement_Central_Bank_Money_R3-1.pdf

 

Competition, Concentration, and Anti-Trust Laws in the USA

Competition, Concentration, and Anti-Trust Laws in the USA

 

Currently the US FTC has been having hearings on concentration, competition, and anti-trust laws in the USA.  Several conferences are organized starting with September 2018.  I present links to hearings details and videos of the sessions.  As of now, two hearings have already taken place.  I have given the links to the third hearing below.  Economists Joe Stiglitz and Jason Furman have given speeches and presentations during first and second hearings.

Key Sources of Research:

Hearings on Competition and Consumer Protection in the 21st Century

Hearings on Competition and Consumer Protection in the 21st Century

The Federal Trade Commission will hold a series of public hearings during the fall and winter 2018 examining whether broad-based changes in the economy, evolving business practices, new technologies, or international developments might require adjustments to competition and consumer protection law, enforcement priorities, and policy. The PDF version of this content includes footnotes and sources. All the hearings will be webcast live.

 

https://www.ftc.gov/policy/hearings-competition-consumer-protection

Click to access hearings-announcement_0.pdf

 

 

Hearings on Competition and Consumer Protection in the 21st Century: Opening Session

September 14, 2018

DAVIS POLK

 

Click to access 2018-09-14_hearings_on_competition_consumer_protection_in_21st_century.pdf

 

 

FTC Hearing #1: Competition and Consumer Protection in the 21st Century

Hearing #1 On Competition and Consumer Protection in the 21st Century, September 13-14, 2018

 

https://www.ftc.gov/news-events/events-calendar/2018/09/ftc-hearing-1-competition-consumer-protection-21st-century

Click to access agenda-hearings-georgetown_3.pdf

https://www.ftc.gov/news-events/audio-video/video/competition-consumer-protection-21st-century-welcome-session-1

https://www.ftc.gov/news-events/audio-video/video/competition-consumer-protection-21st-century-welcome-session-2

https://www.ftc.gov/news-events/audio-video/video/competition-consumer-protection-21st-century-welcome-session-3

 

 

 

 

FTC Hearing #2: Competition and Consumer Protection in the 21st Century

FTC Hearing #2: Competition and Consumer Protection in the 21st Century

 

https://www.ftc.gov/news-events/press-releases/2018/09/ftc-announces-second-session-hearings-competition-consumer

Click to access hearings-agenda-cc-sept_0.pdf

https://www.ftc.gov/news-events/audio-video/video/ftc-hearing-2-competition-consumer-protection-21st-century-state-us-0

https://www.ftc.gov/news-events/audio-video/video/ftc-hearing-2-competition-consumer-protection-21st-century-state-us

https://www.ftc.gov/news-events/audio-video/video/ftc-hearing-2-competition-consumer-protection-21st-century-monopsony

 

FTC Hearing #3: Competition and Consumer Protection in the 21st Century

FTC Hearing #3: Competition and Consumer Protection in the 21st Century - George Mason University

 

https://www.ftc.gov/news-events/events-calendar/2018/10/ftc-hearing-3-competition-consumer-protection-21st-century

 https://www.ftc.gov/system/files/documents/public_events/1413712/hearings-agenda-gmu_5.pdf

THE UNITED STATES HAS A MARKET CONCENTRATION PROBLEM

REVIEWING CONCENTRATION ESTIMATES IN ANTITRUST MARKETS, 2000-PRESENT

 

ISSUE BRIEF BY ADIL ABDELA AND MARSHALL STEINBAUM

SEPTEMBER 2018

 

Click to access ftc-2018-0074-d-0042-155544.pdf

 

Nobel Prize-winning economist Joseph Stiglitz says the US has a major monopoly problem

https://www.businessinsider.com/joseph-stiglitz-says-the-us-has-a-major-monopoly-problem-2018-9

 

 

Competition Conference 2018

What’s the Evidence for Strengthening Competition Policy?

Boston University

http://sites.bu.edu/tpri/news-and-events/competition-conference-2018/

http://sites.bu.edu/tpri/competition-conference-2018-program-and-papers/

 

Slower Productivity and Higher Inequality: Are They Related?

Jason Furman and Peter Orszag

June 2018

 

Click to access wp18-4.pdf

 

 

 

Market Power and Monetary Policy

Speech given by

Andrew G Haldane Chief Economist Bank of England

Co-authors: Tommaso Aquilante, Shiv Chowla, Nikola Dacic, Riccardo Masolo, Patrick Schneider, Martin Seneca and Srdan Tatomir.

Federal Reserve Bank of Kansas City Economic Policy Symposium Jackson Hole, Wyoming

24 August 2018

 

https://www.bankofengland.co.uk/-/media/boe/files/speech/2018/market-power-and-monetary-policy-speech-by-andy-haldane.pdf?la=en&hash=ECC7B63705847EC5E68DEFC86C56B887B9DBD0CD

Shareholder Capitalism: Rising Market Concentration, Slower Productivity Growth, Rising Inequality, Rising Profits, and Rising Equities Markets

Shareholder Capitalism: Rising Market Concentration, Slower Productivity Growth, Rising Inequality, Rising Profits, and Rising Equities Markets

 

Public traded companies are always under pressure to show earnings growth and sales revenue growth to enhance shareholder value.

 

How do they do it when markets have matured and economy has slowed?

  • Lower Costs
  • Increase Market Share
  • Find New Markets
  • Diversify
  • Create New products and servicces

 

How do then companies lower their costs?

  • Vertical Mergers and Acquisitions
  • Outsourcing (Sourcing parts and components / Intermediate Goods / Inputs from cross border)
  • Offshoring (Shifting Production cross border)
  • Vertical Integration

 

How do then companies increase their market share?

  • Horizontal Mergers and Acquisitions
  • Cross Border Markets Share (Sales in other countries)

 

In the last thirty years, this is exactly what has happened in US economy.

Macro Trends of increase in Outsourcing/Offshoring, Increase in Market Concentration, Increase in Inequality, Increase in Corporate Profits, Rising Equity Prices, Slower Productivity Growth, Lower Interest Rates, Low Labor Share, and Capital Share.

Please see my other posts expanding on these issues.

Please note that these forces are continuing and trends will remain on current trajectory.

 

Key Terms:

  • Stakeholder vs Shareholder Capitalism
  • Short Termism
  • Slow Productivity Growth
  • Rising Market Concentration
  • Rising Profits
  • Rising Equities Market
  • Rising Inequality
  • Dupont Ratio Analysis
  • Financial Planning (Micro – Firm Level)
  • Economic Planning (Macro- Aggregate Level)
  • Quarterly Capitalism

 

From SHAREHOLDER CAPITALISM: A SYSTEM IN CRISIS

Our current, highly financialised, form of shareholder capitalism is not just failing to provide new capital for investment, it is actively undermining the ability of listed companies to reinvest their own profits. The stock market has become a vehicle for extracting value from companies, not for injecting it.

No wonder that Andy Haldane, Chief Economist of the Bank of England, recently suggested that shareholder capitalism is ‘eating itself.’1 Corporate governance has become dominated by the need to maximise short-term shareholder returns. At the same time, financial markets have grown more complex, highly intermediated, and similarly shorttermist, with shares increasingly seen as paper assets to be traded rather than long term investments in sound businesses.

This kind of trading is a zero-sum game with no new wealth, let alone social value, created. For one person to win, another must lose – and increasingly, the only real winners appear to be the army of financial intermediaries who control and perpetuate the merry-goround. There is nothing natural or inevitable about the shareholder-owned corporation as it currently exists. Like all economic institutions, it is a product of political and economic choices which can and should be remade if they no longer serve our economy, society, or environment.

Here’s the impact this shareholder model is currently having:
• Economy: Shareholder capitalism is holding back productive investment. Even the Chief Executive of BlackRock, the world’s largest asset manager, has admitted that pressure to keep the share price high means corporate leaders are ‘underinvesting in innovation, skilled workforces or essential capital expenditures.’ 2
• Society: Shareholder capitalism is driving inequality. There is growing evidence that attempts to align executive pay with shareholder value are largely responsible for the ballooning of salaries at the top. The prioritisation of shareholder interests has also contributed to a dramatic decline in UK wages relative to profits, helping to explain the failure of ordinary people’s living standards to rise in line with economic growth.
• Environment: Shareholder capitalism helps to drive environmental destruction. It does this by driving risky shortterm behaviour, such as fossil fuel extraction, which ignores long-term environmental risks.

The idea that shareholder capitalism is the most efficient way to mobilise large amounts of capital is no longer tenable.

We need both to create new models of companies, and implement new ways of organising investment that are fit for building an inclusive, equal, and sustainable economy.

Companies should be explicitly accountable to a mission and a set of interests beyond shareholder returns. Equally, investment must provide long-term capital for socially and environmentally useful projects, and damaging forms of speculation must be restricted.

For most people, our economy simply is not working, and the damaging aspects of shareholder capitalism are at least in part responsible. Reforming shareholder capitalism must not be dismissed as too difficult – the crisis is too urgent for that. We can take the first steps towards a better economic model right now. It’s time to act.

 

 

A Crash Course in Dupont Financial Ratio Analysis

 

  • What happens when economic growth slows ?
  • What happens when profit margins decline ?
  • What happens when Sales growth is limited ?
  • What does lead to Mergers and Acquisitions ?
  • What is the impact of Cost of Capital ?
  • What is EVA (Economic Value Added) ?
  • What is impact of Outsourcing/Offshoring on Financial Ratios ?
  • What is impact of Mergers and Acquisitions on Financial Ratios ?
  • What is impact of Stock Buy Backs on Financial Ratios ?
  • What is impact of Dividends on Financial Ratios ?
  • ROS (Return on Sales)
  • ROE (Return on Equities)
  • ROA (Return on Assets)
  • ROIC (Return on Invested Capital)
  • EVA (Economic Value Added)
  • MVA (Market Value Added)

From The DuPont Equation, ROE, ROA, and Growth

The DuPont Equation

The DuPont equation is an expression which breaks return on equity down into three parts: profit margin, asset turnover, and leverage.

Learning Objectives

Explain why splitting the return on equity calculation into its component parts may be helpful to an analyst

Key Takeaways

Key Points

  • By splitting ROE into three parts, companies can more easily understand changes in their returns on equity over time.
  • As profit margin increases, every sale will bring more money to a company’s bottom line, resulting in a higher overall return on equity.
  • As asset turnover increases, a company will generate more sales per asset owned, resulting in a higher overall return on equity.
  • Increased financial leverage will also lead to an increase in return on equity, since using more debt financing brings on higher interest payments, which are tax deductible.

Key Terms

  • competitive advantage: something that places a company or a person above the competition

The DuPont Equation

image

DuPont Model: A flow chart representation of the DuPont Model.

The DuPont equation is an expression which breaks return on equity down into three parts. The name comes from the DuPont Corporation, which created and implemented this formula into their business operations in the 1920s. This formula is known by many other names, including DuPont analysis, DuPont identity, the DuPont model, the DuPont method, or the strategic profit model.

The DuPont Equation: In the DuPont equation, ROE is equal to profit margin multiplied by asset turnover multiplied by financial leverage.

Under DuPont analysis, return on equity is equal to the profit margin multiplied by asset turnover multiplied by financial leverage. By splitting ROE (return on equity) into three parts, companies can more easily understand changes in their ROE over time.

Components of the DuPont Equation: Profit Margin

Profit margin is a measure of profitability. It is an indicator of a company’s pricing strategies and how well the company controls costs. Profit margin is calculated by finding the net profit as a percentage of the total revenue. As one feature of the DuPont equation, if the profit margin of a company increases, every sale will bring more money to a company’s bottom line, resulting in a higher overall return on equity.

Components of the DuPont Equation: Asset Turnover

Asset turnover is a financial ratio that measures how efficiently a company uses its assets to generate sales revenue or sales income for the company. Companies with low profit margins tend to have high asset turnover, while those with high profit margins tend to have low asset turnover. Similar to profit margin, if asset turnover increases, a company will generate more sales per asset owned, once again resulting in a higher overall return on equity.

Components of the DuPont Equation: Financial Leverage

Financial leverage refers to the amount of debt that a company utilizes to finance its operations, as compared with the amount of equity that the company utilizes. As was the case with asset turnover and profit margin, Increased financial leverage will also lead to an increase in return on equity. This is because the increased use of debt as financing will cause a company to have higher interest payments, which are tax deductible. Because dividend payments are not tax deductible, maintaining a high proportion of debt in a company’s capital structure leads to a higher return on equity.

The DuPont Equation in Relation to Industries

The DuPont equation is less useful for some industries, that do not use certain concepts or for which the concepts are less meaningful. On the other hand, some industries may rely on a single factor of the DuPont equation more than others. Thus, the equation allows analysts to determine which of the factors is dominant in relation to a company’s return on equity. For example, certain types of high turnover industries, such as retail stores, may have very low profit margins on sales and relatively low financial leverage. In industries such as these, the measure of asset turnover is much more important.

High margin industries, on the other hand, such as fashion, may derive a substantial portion of their competitive advantage from selling at a higher margin. For high end fashion and other luxury brands, increasing sales without sacrificing margin may be critical. Finally, some industries, such as those in the financial sector, chiefly rely on high leverage to generate an acceptable return on equity. While a high level of leverage could be seen as too risky from some perspectives, DuPont analysis enables third parties to compare that leverage with other financial elements that can determine a company’s return on equity.

ROE and Potential Limitations

Return on equity measures the rate of return on the ownership interest of a business and is irrelevant if earnings are not reinvested or distributed.

Learning Objectives

Calculate a company’s return on equity

Key Takeaways

Key Points

  • Return on equity is an indication of how well a company uses investment funds to generate earnings growth.
  • Returns on equity between 15% and 20% are generally considered to be acceptable.
  • Return on equity is equal to net income (after preferred stock dividends but before common stock dividends) divided by total shareholder equity (excluding preferred shares ).
  • Stock prices are most strongly determined by earnings per share (EPS) as opposed to return on equity.

Key Terms

  • fundamental analysis: An analysis of a business with the goal of financial projections in terms of income statement, financial statements and health, management and competitive advantages, and competitors and markets.

Return On Equity

Return on equity (ROE) measures the rate of return on the ownership interest or shareholders’ equity of the common stock owners. It is a measure of a company’s efficiency at generating profits using the shareholders’ stake of equity in the business. In other words, return on equity is an indication of how well a company uses investment funds to generate earnings growth. It is also commonly used as a target for executive compensation, since ratios such as ROE tend to give management an incentive to perform better. Returns on equity between 15% and 20% are generally considered to be acceptable.

The Formula

Return on equity is equal to net income, after preferred stock dividends but before common stock dividends, divided by total shareholder equity and excluding preferred shares.

Return On Equity: ROE is equal to after-tax net income divided by total shareholder equity.

Expressed as a percentage, return on equity is best used to compare companies in the same industry. The decomposition of return on equity into its various factors presents various ratios useful to companies in fundamental analysis.

ROE Broken Down: This is an expression of return on equity decomposed into its various factors.

The practice of decomposing return on equity is sometimes referred to as the “DuPont System. ”

Potential Limitations of ROE

Just because a high return on equity is calculated does not mean that a company will see immediate benefits. Stock prices are most strongly determined by earnings per share (EPS) as opposed to return on equity. Earnings per share is the amount of earnings per each outstanding share of a company’s stock. EPS is equal to profit divided by the weighted average of common shares.

Earnings Per Share: EPS is equal to profit divided by the weighted average of common shares.

The true benefit of a high return on equity comes from a company’s earnings being reinvested into the business or distributed as a dividend. In fact, return on equity is presumably irrelevant if earnings are not reinvested or distributed.

Assessing Internal Growth and Sustainability

Sustainable– as opposed to internal– growth gives a company a better idea of its growth rate while keeping in line with financial policy.

Learning Objectives

Calculate a company’s internal growth and sustainability ratios

Key Takeaways

Key Points

  • The internal growth rate is a formula for calculating the maximum growth rate a firm can achieve without resorting to external financing.
  • Sustainable growth is defined as the annual percentage of increase in sales that is consistent with a defined financial policy.
  • Another measure of growth, the optimal growth rate, assesses sustainable growth from a total shareholder return creation and profitability perspective, independent of a given financial strategy.

Key Terms

  • retention: The act of retaining; something retained
  • retention ratio: retained earnings divided by net income
  • sustainable growth rate: the optimal growth from a financial perspective assuming a given strategy with clear defined financial frame conditions/ limitations

Internal Growth and Sustainability

The true benefit of a high return on equity arises when retained earnings are reinvested into the company’s operations. Such reinvestment should, in turn, lead to a high rate of growth for the company. The internal growth rate is a formula for calculating maximum growth rate that a firm can achieve without resorting to external financing. It’s essentially the growth that a firm can supply by reinvesting its earnings. This can be described as (retained earnings)/(total assets ), or conceptually as the total amount of internal capital available compared to the current size of the organization.

We find the internal growth rate by dividing net income by the amount of total assets (or finding return on assets ) and subtracting the rate of earnings retention. However, growth is not necessarily favorable. Expansion may strain managers’ capacity to monitor and handle the company’s operations. Therefore, a more commonly used measure is the sustainable growth rate.

Sustainable growth is defined as the annual percentage of increase in sales that is consistent with a defined financial policy, such as target debt to equity ratio, target dividend payout ratio, target profit margin, or target ratio of total assets to net sales.

We find the sustainable growth rate by dividing net income by shareholder equity (or finding return on equity) and subtracting the rate of earnings retention. While the internal growth rate assumes no financing, the sustainable growth rate assumes you will make some use of outside financing that will be consistent with whatever financial policy being followed. In fact, in order to achieve a higher growth rate, the company would have to invest more equity capital, increase its financial leverage, or increase the target profit margin.

Optimal Growth Rate

Another measure of growth, the optimal growth rate, assesses sustainable growth from a total shareholder return creation and profitability perspective, independent of a given financial strategy. The concept of optimal growth rate was originally studied by Martin Handschuh, Hannes Lösch, and Björn Heyden. Their study was based on assessments on the performance of more than 3,500 stock-listed companies with an initial revenue of greater than 250 million Euro globally, across industries, over a period of 12 years from 1997 to 2009.

image

Revenue Growth and Profitability: ROA, ROS and ROE tend to rise with revenue growth to a certain extent.

Due to the span of time included in the study, the authors considered their findings to be, for the most part, independent of specific economic cycles. The study found that return on assets, return on sales and return on equity do in fact rise with increasing revenue growth of between 10% to 25%, and then fall with further increasing revenue growth rates. Furthermore, the authors attributed this profitability increase to the following facts:

  1. Companies with substantial profitability have the opportunity to invest more in additional growth, and
  2. Substantial growth may be a driver for additional profitability, whether by attracting high performing young professionals, providing motivation for current employees, attracting better business partners, or simply leading to more self-confidence.

However, according to the study, growth rates beyond the “profitability maximum” rate could bring about circumstances that reduce overall profitability because of the efforts necessary to handle additional growth (i.e., integrating new staff, controlling quality, etc).

Dividend Payments and Earnings Retention

The dividend payout and retention ratios offer insight into how much of a firm’s profit is distributed to shareholders versus retained.

Learning Objectives

Calculate a company’s dividend payout and retention ratios

Key Takeaways

Key Points

  • Many corporations retain a portion of their earnings and pay the remainder as a dividend.
  • Dividends are usually paid in the form of cash, store credits, or shares in the company.
  • Cash dividends are a form of investment income and are usually taxable to the recipient in the year that they are paid.
  • Dividend payout ratio is the fraction of net income a firm pays to its stockholders in dividends.
  • Retained earnings can be expressed in the retention ratio.

Key Terms

  • stock split: To issue a higher number of new shares to replace old shares. This effectively increases the number of shares outstanding without changing the market capitalization of the company.

Dividend Payments and Earnings Retention

Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. On the other hand, retained earnings refers to the portion of net income which is retained by the corporation rather than distributed to its owners as dividends. Similarly, if the corporation takes a loss, then that loss is retained and called variously retained losses, accumulated losses or accumulated deficit. Retained earnings and losses are cumulative from year to year with losses offsetting earnings. Many corporations retain a portion of their earnings and pay the remainder as a dividend.

A dividend is allocated as a fixed amount per share. Therefore, a shareholder receives a dividend in proportion to their shareholding. Retained earnings are shown in the shareholder equity section in the company’s balance sheet –the same as its issued share capital.

Public companies usually pay dividends on a fixed schedule, but may declare a dividend at any time, sometimes called a “special dividend” to distinguish it from the fixed schedule dividends. Dividends are usually paid in the form of cash, store credits (common among retail consumers’ cooperatives), or shares in the company (either newly created shares or existing shares bought in the market). Further, many public companies offer dividend reinvestment plans, which automatically use the cash dividend to purchase additional shares for the shareholder.

Cash dividends (most common) are those paid out in currency, usually via electronic funds transfer or a printed paper check. Such dividends are a form of investment income and are usually taxable to the recipient in the year they are paid. This is the most common method of sharing corporate profits with the shareholders of the company. For each share owned, a declared amount of money is distributed. Thus, if a person owns 100 shares and the cash dividend is $0.50 per share, the holder of the stock will be paid $50. Dividends paid are not classified as an expense but rather a deduction of retained earnings. Dividends paid do not show up on an income statement but do appear on the balance sheet.

image

Example Balance Sheet: Retained earnings can be found on the balance sheet, under the owners’ (or shareholders’) equity section.

Stock dividends are those paid out in the form of additional stock shares of the issuing corporation or another corporation (such as its subsidiary corporation). They are usually issued in proportion to shares owned (for example, for every 100 shares of stock owned, a 5% stock dividend will yield five extra shares). If the payment involves the issue of new shares, it is similar to a stock split in that it increases the total number of shares while lowering the price of each share without changing the market capitalization, or total value, of the shares held.

Dividend Payout and Retention Ratios

Dividend payout ratio is the fraction of net income a firm pays to its stockholders in dividends:

The part of the earnings not paid to investors is left for investment to provide for future earnings growth. These retained earnings can be expressed in the retention ratio. Retention ratio can be found by subtracting the dividend payout ratio from one, or by dividing retained earnings by net income.

Dividend Payout Ratio: The dividend payout ratio is equal to dividend payments divided by net income for the same period.

Relationships between ROA, ROE, and Growth

Return on assets is a component of return on equity, both of which can be used to calculate a company’s rate of growth.

Learning Objectives

Discuss the different uses of the Return on Assets and Return on Assets ratios

Key Takeaways

Key Points

  • Return on equity measures the rate of return on the shareholders ‘ equity of common stockholders.
  • Return on assets shows how profitable a company’s assets are in generating revenue.
  • In other words, return on assets makes up two-thirds of the DuPont equation measuring return on equity.
  • Capital intensity is the term for the amount of fixed or real capital present in relation to other factors of production. Rising capital intensity pushes up the productivity of labor.

Key Terms

  • return on common stockholders’ equity: a fiscal year’s net income (after preferred stock dividends but before common stock dividends) divided by total equity (excluding preferred shares), expressed as a percentage
  • quantitatively: With respect to quantity rather than quality.

Return On Assets Versus Return On Equity

In review, return on equity measures the rate of return on the ownership interest (shareholders’ equity) of common stockholders. Therefore, it shows how well a company uses investment funds to generate earnings growth. Return on assets shows how profitable a company’s assets are in generating revenue. Return on assets is equal to net income divided by total assets.

Return On Assets: Return on assets is equal to net income divided by total assets.

This percentage shows what the company can do with what it has (i.e., how many dollars of earnings they derive from each dollar of assets they control). This is in contrast to return on equity, which measures a firm’s efficiency at generating profits from every unit of shareholders’ equity. Return on assets is, however, a vital component of return on equity, being an indicator of how profitable a company is before leverage is considered. In other words, return on assets makes up two-thirds of the DuPont equation measuring return on equity.

ROA, ROE, and Growth

In terms of growth rates, we use the value known as return on assets to determine a company’s internal growth rate. This is the maximum growth rate a firm can achieve without resorting to external financing. We use the value for return on equity, however, in determining a company’s sustainable growth rate, which is the maximum growth rate a firm can achieve without issuing new equity or changing its debt-to-equity ratio.

Capital Intensity and Growth

Return on assets gives us an indication of the capital intensity of the company. “Capital intensity” is the term for the amount of fixed or real capital present in relation to other factors of production, especially labor. The underlying concept here is how much output can be procured from a given input (assets!). The formula for capital intensity is below:

Capital Intensity=Total AssetsSales

The use of tools and machinery makes labor more effective, so rising capital intensity pushes up the productivity of labor. While companies that require large initial investments will generally have lower return on assets, it is possible that increased productivity will provide a higher growth rate for the company. Capital intensity can be stated quantitatively as the ratio of the total money value of capital equipment to the total potential output. However, when we adjust capital intensity for real market situations, such as the discounting of future cash flows, we find that it is not independent of the distribution of income. In other words, changes in the retention or dividend payout ratios can lead to changes in measured capital intensity.

 

 

1280px-DuPontModelEng.svg

Please see my related posts:

Rising Market Concentration and Declining Business Investments in the USA – Update June 2018

Why do Firms buyback their Shares? Causes and Consequences.

FDI vs Outsourcing: Extending Boundaries or Extending Network Chains of Firms

Trading Down: NAFTA, TPP, TATIP and Economic Globalization

On Inequality of Wealth and Income – Causes and Consequences

Rising Profits, Rising Inequality, and Rising Industry Concentration in the USA

Low Interest Rates and Business Investments : Update August 2017

Low Interest Rates and Monetary Policy Effectiveness

Low Interest Rates and Banks’ Profitability : Update July 2017

Short term Thinking in Investment Decisions of Businesses and Financial Markets

Mergers and Acquisitions – Long Term Trends and Waves

Business Investments and Low Interest Rates

The Decline in Long Term Real Interest Rates

Low Interest Rates and Banks Profitability: Update – December 2016

 

 Key Sources of Research:

 

 

 

The DuPont Equation, ROE, ROA, and Growth

https://courses.lumenlearning.com/boundless-finance/chapter/the-dupont-equation-roe-roa-and-growth/

 

 

Short-Termism in business: causes, mechanisms and consequences

EY Poland Report

 

Click to access Short-termism_raport_EY.pdf

 

 

Shareholders vs Stakeholders Capitalism

Fabian Brandt

Goethe University

Konstantinos Georgiou

University of Pennsylvania

 

https://scholarship.law.upenn.edu/cgi/viewcontent.cgi?article=1002&context=fisch_2016

 

 

Hedrick Smith Speaks to the Community about Who Stole the American Dream.

 

http://nhlabornews.com/2013/10/hedrick-smith-speaks-to-the-community-about-who-stole-the-american-dream/

 

 

Let’s Talk About “Maximizing Shareholder Value”

https://www.pragcap.com/lets-talk-about-maximizing-shareholder-value/

 

 

SHAREHOLDER CAPITALISM: A SYSTEM IN CRISIS

 

New Economics Foundation

 

Click to access NEF_SHAREHOLDER-CAPITALISM_E_latest.pdf

 

 

 

THE HISTORICAL CONTEXT OF SHAREHOLDER VALUE CAPITALISM

 

Mark S. Mizruchi and Howard Kirneldorf

 

Click to access 191bbc2b82f351633c7379deea7b9ccad0e9.pdf

 

 

Shareholder capitalism on trial

 

By Robert J. Samuelson

 

Click to access 03-19-15_WashingtonPost.pdf

 

 

 

The real business of business

McKinsey

 

https://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/Corporate%20Finance/MoF/Issue%2053/MoF53_The_real_business_of_business.ashx

 

 

 

Managers and Market Capitalism

 

Rebecca Henderson Karthik Ramanna

HBR

 

Click to access Henderson_Ramanna___Managers_and_Market_Capitalism___March_2013.pdf

 

 

The Embedded Firm: Corporate Governance, Labor, and Finance Capitalism

Peer Zumbansen

Cynthia A. Williams

 

http://digitalcommons.osgoode.yorku.ca/cgi/viewcontent.cgi?article=1056&context=clpe

 

 

 

 

Andrew G Haldane: Who owns a company?

Speech by Mr Andrew G Haldane,

Executive Director and Chief Economist of the Bank of England,

at the University of Edinburgh Corporate Finance Conference, Edinburgh,

22 May 2015.

 

Click to access r150811a.pdf

 

 

 

 

Capitalism for the Long Term

MARCH 2011
HBR

The Short Long

 

Speech by
Andrew G Haldane, Executive Director, Financial Stability, and Richard Davies

29th Societé Universitaire Europeene de Recherches Financieres Colloquium: New Paradigms in Money and Finance?

Brussels

May 2011

 

https://www.bankofengland.co.uk/-/media/boe/files/speech/2011/the-short-long-speech-by-andrew-haldane

 

 

 

 

Is short-termism wrecking the economy?

Redefining capitalism

By Eric Beinhocker and Nick Hanauer

Fast finance and slow growth

 

Andy Haldane

http://progressive-policy.net/2015/09/fast-finance-and-slow-growth/

 

Beyond Shareholder Value

The reasons and choices for corporate governance reform

Click to access BSV.pdf

 

 

AN ECONOMY FOR THE 99%

It’s time to build a human economy that benefits everyone, not just the privileged few

OXFAM

 

Click to access bp-economy-for-99-percent-160117-en.pdf

 

 

Short-Termism

By Douglas K. Chia

 

Click to access 01181_millstein_10th_anniversary_essay_2_chia_v2.pdf

 

 

 

The Future of Finance

THE LSE REPORT

 

Click to access future-of-finance-chapter-3.pdf

 

 

 

Is Short-Term Behavior Jeopardizing the Future Prosperity of Business?

 

Click to access IsShortTermBehaviorJeopardizingTheFutureProsperityOfBusiness_CEOStrategicImplications.pdf

 

 

 

 

How Effective Capital Regulation can Help Reduce the Too‐Big‐To‐Fail Problem

Anat Admati

Stanford University

 

Click to access Minn-Fed-combined.pdf

 

 

 

Business School’s Worst Idea: Why the “Maximize Shareholder Value” Theory Is Bogus

Yves Smith

http://evonomics.com/maximize-shareholder-value-theory-yves-smith/

 

 

 

When Shareholder Capitalism Came to Town

The American Prospect

http://prospect.org/article/when-shareholder-capitalism-came-town

 

 

 

Competition Conference 2018

What’s the Evidence for Strengthening Competition Policy?

Boston University

July 2018

http://sites.bu.edu/tpri/competition-conference-2018/

 

 

 

Market Concentration

Issues paper by the Secretariat
6-8 June 2018

This document was prepared by the OECD Secretariat to serve as an issues paper for the hearing on market concentration taking place at the 129th meeting of the OECD Competition Committee on 6-8 June 2018

https://one.oecd.org/document/DAF/COMP/WD(2018)46/en/pdf

 

 

 

 

Monopoly’s New Era

In today’s economy, many industries can’t be analyzed through the lens of competition.

Chazen Global Insights
May 13, 2016

 

https://www8.gsb.columbia.edu/articles/chazen-global-insights/monopoly-s-new-era

 

 

 

Market power in the U.S. economy today

Washington Center for Equitable Growth

http://equitablegrowth.org/research-analysis/market-power-in-the-u-s-economy-today/

 

 

 

Don’t Panic: A Guide to Claims of Increasing Concentration

Gregory J. Werden

Luke Froeb

 

Date Written: April 5, 2018

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3156912

 

 

 

Market concentration

OECD

http://www.oecd.org/daf/competition/market-concentration.htm

 

 

 

 

A Firm-Level Perspective on the Role of Rents in the Rise in Inequality

Jason Furman Peter Orszag1

October 16, 2015

Click to access FurmanOrszag15.pdf

 

 

 

Do the Productivity Slowdown and the Inequality Increase Have a Common Cause?

Jason Furman (joint work with Peter Orszag)

Peterson Institute for International Economics
Washington, DC
November 9, 2017

Click to access 4-1furman20171109ppt.pdf

 

 

 

Is There a Connection Between Market Concentration and the Rise in Inequality?

https://promarket.org/connection-market-concentration-rise-inequality/

 

 

 

Concentrating on the Fall of the Labor Share

David; Dorn, David; Katz, Lawrence F; Patterson, Christina; Reenen, John Van

Click to access b8d7a989cab4b76e7fe795bf4572dbcdd0bc.pdf

 

 

 

 

Business Investment Spending Slowdown

April 9, 2018

FAS Congressional Research Services

Marc Labonte

Click to access IN10882.pdf

 

 

 

 

Market Power and Inequality: The Antitrust Counterrevolution and Its Discontents

Lina Khan and Sandeep Vaheesan

Click to access HLP110.pdf

 

 

 

Five Myths about Economic Inequality in America

By Michael D. Tanner
September 7, 2016

 

Cato Institiute

https://www.cato.org/publications/policy-analysis/five-myths-about-economic-inequality-america

 

 

 

 

Is the US Public Corporation in Trouble?

Kathleen M. Kahle and René M. Stulz

https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.31.3.67

 

 

 

Declining Labor and Capital Shares

Simcha Barkai

Click to access FeijooOnBarkai17.pdf

 

 

 

Growing Productivity without Growing Wages: The Micro-Level Anatomy of the Aggregate Labor Share Decline

Kehrig, Matthias; Vincent, Nicolas

(2017)

Click to access cesifo1_wp6454.pdf

 

 

 

 

Declining Competition and Investment in the U.S.

Germán Gutiérrez† and Thomas Philippon‡

March 2017

Click to access IK_Comp_v1.pdf

 

 

 

ACCOUNTING FOR RISING CORPORATE PROFITS: INTANGIBLES OR REGULATORY
RENTS?

James Bessen

Boston University School of Law

November 9, 2016

Click to access Accounting-for-Rising-Corporate-Profits.pdf

 

 

 

 

Kaldor and Piketty’s facts: The rise of monopoly power in the United States

Gauti Eggertsson
Jacob A. Robbins
Ella Getz Wold

Feb 2018

Click to access 02052018-WP-kaldor-piketty-monopoly-power.pdf

 

 

 

 

Is There an Investment Gap in Advanced Economies? If So, Why?

Robin Döttling

German Gutierrez Gallardo

Thomas Philippon

 

Date Written: July 2017

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3002796

 

 

 

 

Antitrust in a Time of Populism

Professor Carl Shapiro

CRESSE 2017 Heraklion – Crete, Greece

2 July 2017

Click to access 2017_Key_SHAPIRO.pdf

 

 

 

The Incredible Shrinking Universe of Stocks

The Causes and Consequences of Fewer U.S. Equities

Credit Suisse

March 2917

Click to access document_1072753661.pdf

 

 

 

Declining Competition and Investment in the U.S

German Gutierrez Gallardo

Thomas Philippon

 

Date Written: December 2017

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3095586

 

 

 

 

The Fall and Rise of Market Power in Europe

John P. Weche and Achim Wambach

Click to access dp18003.pdf

Click to access 1011811367.pdf

 

 

 

 

On the Formation of Capital and Wealth: IT, Monopoly Power and Rising Inequality

Mordecai Kurz,

Stanford University

2018

Click to access e50bf8be5c75f1cca2e9e3d4afa4b8b8ac84.pdf

 

 

 

 

Appendix for \Investment-less Growth: An Empirical Investigation”

 

German Gutierrez and Thomas Philippony

March 2018

Click to access gutierrezappendixfa17bpea.pdf

 

 

 

 

WP 18-4 Slower Productivity and Higher Inequality: Are They Related?

Jason Furman and Peter Orszag

June 2018

PIIE

Click to access wp18-4.pdf

 

 

 

 

THE FUTURE OF PRODUCTIVITY

OECD

2015

 

Click to access OECD-2015-The-future-of-productivity-book.pdf

 

 

 

 

OECD Study on the Future of Productivity

Video

PIIE

 

 

 

 

 

A productivity perspective on the future of growth

By James Manyika, Jaana Remes, and Jonathan Woetzel
McKinsey
2014

https://www.mckinsey.com/featured-insights/employment-and-growth/a-productivity-perspective-on-the-future-of-growth

 

 

 

 

The future of productivity in manufacturing

Anne Green, Terence Hogarth, Erika Kispeter, David Owen

Peter Glover

February 2016

Click to access ier_2016_manufacturing_sector_productivity_report.pdf

 

 

 

 

THE PRODUCTIVITY OUTLOOK: PESSIMISTS VERSUS OPTIMISTS

August 2016

Zia Qureshi
at the Brookings Institution

Click to access productivity-outlook.pdf

 

 

 

The Slowdown in Productivity Growth: A View from International Trade

Development Issues No. 11

UN

April 2017

Click to access dsp_policy_11.pdf

 

 

 

 

Five Puzzles in the Behavior of Productivity, Investment, and Innovation

Robert J. Gordon

NBER

August 2004

http://www.nber.org/papers/w10660

 

 

 

 

AN OECD AGENDA ON ISSUES IN PRODUCTIVITY MEASUREMENT

Paul Schreyer

OECD Statistics Directorate
2016 World KLEMS Conference
Madrid, May 23-24 2016

Click to access worldklems2016_Schreyer_slides.pdf

 

 

 

THE FUTURE OF PRODUCTIVITY

Chiara Criscuolo
Directorate for Science, Technology and Innovation OECD

Understanding the Great recession: from micro to macro
Bank of England
London | 24 September 2015

Click to access CCriscuolo.pdf

 

 

 

 

 

Industry 4.0

The future of Productivity and Growth in Manufacturing Industries

BCG

Click to access media.media.72e472fb-1698-4a15-8858-344351c8902f.original.pdf

 

 

 

 

The waning of productivity growth

Raymond Van der Putten

http://economic-research.bnpparibas.com/Views/DisplayPublication.aspx?type=document&IdPdf=29178

 

 

The Impact of Robots on Productivity, Employment and Jobs

A positioning paper by the International Federation of Robotics

April 2017

Click to access IFR_The_Impact_of_Robots_on_Employment.pdf

 

 

 

 

The fall in productivity growth: causes and implications

Speech given by Silvana Tenreyro, External MPC Member, Bank of England

Peston Lecture Theatre, Queen Mary University of London

15 January 2018

https://www.bankofengland.co.uk/-/media/boe/files/speech/2018/the-fall-in-productivity-growth-causes-and-implications

 

 

 

Artificial Intelligence, Automation, and the Economy

Science and Technology Council

Executive Office of the President

December 2016

Click to access EMBARGOED%20AI%20Economy%20Report.pdf

 

 

 

 

Long-term growth and productivity projections in advanced countries

Gilbert Cette, Rémy Lecat & Carole Ly-Marin

Working Paper #617

December 2016

Bank of France

Click to access DT617.pdf

 

 

 

ARE WE APPROACHING AN ECONOMIC SINGULARITY?
INFORMATION TECHNOLOGY AND THE FUTURE OF ECONOMIC GROWTH

By
William D. Nordhaus

September 2015

Click to access d2021.pdf

 

 

 

Challenges for the Future of Chinese Economic Growth

Jane Haltmaier

Federal Reseve Bank USA

2013

Click to access ifdp1072.pdf

 

 

 

Innovation, research and the UK’s productivity crisis.

Richard Jones

SPERI Paper No. 28

Click to access SPERI-Paper-28-Innovation-research-and-the-UK-productivity-crisis.pdf

 

 

 

Think Like an Enterprise: Why Nations Need Comprehensive Productivity Strategies

BY ROBERT D. ATKINSON

MAY 2016

Click to access 2016-think-like-an-enterprise.pdf

 

 

 

Solving the productivity puzzle

By Jaana Remes, James Manyika, Jacques Bughin, Jonathan Woetzel, Jan Mischke, and Mekala Krishnan

McKinsey

Feb 2018

https://www.mckinsey.com/featured-insights/meeting-societys-expectations/solving-the-productivity-puzzle

 

 

 

Solving the productivity puzzle: the role of demand and the promise of digitization

DR. JAN MISCHKE

McKinsey Global Institute

May 2018

Click to access 20180523-MGI_Solving-the-productivity-puzzle_Bruegel.pdf

 

 

Worried about Concentration? Then Worry about Rent-Seeking

By Brink Lindsey and Steven Teles
This article appeared on ProMarket on April 18, 2017.

 

https://www.cato.org/publications/commentary/worried-about-concentration-then-worry-about-rent-seeking

 

 

 

Online platforms, distortion of markets, social impacts and freedom of expression

Oxford Centre for Competition law and policy

22 May 2017

Tim Cowen.

Click to access Tim_Cowen_Oxford_Centre_for_Competition_Law_and_Policy_speech_22May2017—updated-21.09.2017.pdf

 

 

 

What’s Behind the Increase in Inequality?

By Eileen Appelbaum*

September 2017

Click to access whats-behind-the-increase-in-inequality-2017-09.pdf

 

 

 

A NATIONAL COMPETITION POLICY: UNPACKING THE PROBLEM OF DECLINING COMPETITION AND SETTING PRIORITIES MOVING FORWARD

American Antitrust Institute

September 28, 2016

Click to access AAINatlCompPolicy.pdf

 

 

 

AI and the Economy

Jason Furman
Harvard Kennedy School
Cambridge, MA

Robert Seamans
NYU Stern School of Business
New York, NY

29 May 2018

Click to access c14099.pdf

 

 

 

The United States and Europe: Short-Run Divergence and Long-Run Challenges

Jason Furman
Chairman, Council of Economic Advisers

Remarks at Bruegel
Brussels, Belgium
May 11, 2016

Click to access The-United-States-and-Europe-Short-Run-Divergence-and-Long-Run-Challenges-Jason-Furman.pdf

 

 

 

 

Business Investment Spending Slowdown

April 9, 2018

Marc Labonte

CRS Insights

Click to access IN10882.pdf

 

 

 

 

ECONOMIC REPORT OF THE PRESIDENT

Together With
THE ANNUAL REPORT
of the
COUNCIL OF ECONOMIC ADVISERS

Feb 2016

Click to access ERP-2016.pdf

 

 

Keynote Remarks of Commissioner Terrell McSweeny

Washington Center for Equitable Growth

Making Antitrust Work for the 21st Century

Washington, DC

October 6, 2016

Click to access mcsweeny_-_keynote_remarks_at_equitable_growth_10-6-16.pdf

 

 

Wal-Mart: A Progressive Success Story

Jason Furman

November 28, 2005

Click to access walmart.pdf

 

 

“America Without Entrepreneurs: The Consequences of Dwindling Startup Activity”

Testimony before
The Committee on Small Business and Entrepreneurship
United States Senate
June 29, 2016

John W. Lettieri
Cofounder
& Senior Director for Policy and Strategy
Economic Innovation Group

Click to access 7F75741C1A2E6182E1A5D21B61D278F3.lettieri-testimony.pdf

 

 

 

 

A reading list on market power, superstar firms, and inequality

BLOG

http://www.beyondthetimes.com/2017/08/16/a-partial-reading-list-on-market-power-superstar-firms-and-inequality/

 

 

 

 

 

Productivity Growth in the Advanced Economies:The Past, the Present, and Lessons for the Futures

Jason Furman

Chairman, Council of Economic Advisers

July 2015

Click to access 20150709_productivity_advanced_economies_piie_slides.pdf

 

 

 

 

 

Forms and sources of inequality in the United States

Jason Furman

17 March 2016

VOXEU

 

https://voxeu.org/article/forms-and-sources-inequality-united-states

 

 

 

 

Business Investment in the United States: Facts, Explanations, Puzzles, and Policies

Jason Furman
Chairman, Council of Economic Advisers
Progressive Policy Ins9tute

September 30, 2015

Click to access 2015.09.30-Jason-Furman_Business-Investment-in-US-Facts-Explanations-Puzzles-Policies.pdf

 

 

 

 

Can Tax Reform Get Us to 3 Percent Growth?

Jason Furman
Harvard Kennedy School & Peterson Institute for International Economics

New York, NY
November 3, 2017

Click to access furman20171103ppt.pdf

 

 

 

 

Structural Challenges and Opportunities in the U.S. Economy

Jason Furman
Chairman, Council of Economic Advisers

London School of Economics
November 5, 2014

Click to access 20141105_1830_structuralOpportunitiesUSEconomy_tr.pdf

 

 

Is This Time Different? The Opportunities and Challenges of Artificial Intelligence

Jason Furman
Chairman, Council of Economic Advisers

Remarks at AI Now: The Social and Economic Implications of Artificial Intelligence Technologies in the Near Term
New York University
New York, NY

July 7, 2016

Click to access 20160707_cea_ai_furman.pdf

 

 

 

 

Rebalancing the U.S. Economy

Jason Furman

Click to access TIE_Sp15_Furman.pdf

 

 

 

 

Should Policymakers Care Whether Inequality Is Helpful or Harmful For Growth?

Jason Furman

Harvard Kennedy School & Peterson Institute for International Economics
Rethinking Macroeconomic Conference, October 11-12 2017

Preliminary Draft: October 5, 2017

Click to access furman20171012paper.pdf

 

 

 

 

 

A Political Economy of Oligarchy: Winner-take-all ideology, superstar norms, and the rise of the 1%

Yochai Benkler

September, 2017

Click to access Political%20economy%20of%20oligarchy%2001.pdf

 

 

 

 

Can Trump Overcome Secular Stagnation?
Part One: The Demand Side *

James K. Galbraith

Click to access can_trump_overcome_secular_stagnation.pdf

 

 

 

 

The macroeconomic effects of the 2017 tax reform

Robert J. Barro, Harvard University
Jason Furman, Harvard University

March 2018

Click to access 4_barrofurman.pdf

 

 

 

 

A FUTURE THAT WORKS: AUTOMATION, EMPLOYMENT, AND PRODUCTIVITY

McKinsey Global Institute

January 2017

https://www.mckinsey.com/~/media/mckinsey/featured%20insights/Digital%20Disruption/Harnessing%20automation%20for%20a%20future%20that%20works/A-future-that-works-Executive-summary-MGI-January-2017.ashx

 

 

 

A MISSING LINK: THE ROLE OF ANTITRUST LAW IN RECTIFYING EMPLOYER POWER IN OUR HIGH-PROFIT, LOW-WAGE ECONOMY

ISSUE BRIEF BY MARSHALL STEINBAUM

APRIL 2018

Click to access Monopsony-issue-brief.pdf

 

 

 

Inclusive Growth

For once, some good news

by jason furman

Click to access 16-29-MR64.pdf

 

 

 

 

The Outlook for the U.S. Economy and the Policies of the New President

Jason Furman
Senior Fellow, PIIE
Peterson Institute for International Economics |

SNS/SHOF Finance Panel

Stockholm

June 12, 2017

Click to access furman20170612ppt.pdf

 

 

 

 

The Role of Economists in Economic Policymaking

Jason Furman
Senior Fellow, Peterson Institute for International Economics

Arnold C. Harberger Distinguished Lecture on Economic Development
UCLA Burkle Center for International Relations
Los Angeles, CA

April 27, 2017

Click to access furman20170427.pdf

 

 

 

 

Market Concentration – Note by the United States

Hearing on Market Concentration
7 June 2018

OECD

Click to access market_concentration_united_states.pdf

http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=DAF/COMP/WD(2018)59&docLanguage=En

 

 

 

 

The fringe economic theory that might get traction in the 2016 campaign

 

https://www.washingtonpost.com/news/wonk/wp/2015/03/02/the-fringe-economic-theory-that-might-get-traction-in-the-2016-campaign/?noredirect=on&utm_term=.77c5e3479485

 

 

 

ACHIEVING INCLUSIVE GROWTH IN THE FACE OF DIGITAL TRANSFORMATION AND THE FUTURE OF WORK

OECD

Click to access achieving_inclusive_growth_in_the_face_of_digital_transformation_and_the_future_of_work_oecd_0.pdf

Credit Chains and Production Networks

Credit Chains and Production Networks

There are three kind of flows in a Supply Chain

  • Goods
  • Information
  • Financial

 

Credit Terms in a Supplier Buyer contracts determine payment delays which accumulate in current accounts of a Firm.

  • Account Receivables
  • Account Payables

 

Credit Relations

  • Bank to Bank
  • Bank to Firm
  • Firm to Firm

Dyad of Credit Relations

  • Supplier – Buyer

 

Triad of Credit Relations

  • Supplier – Bank – Buyer

Sources of Systemic Risk

  • Failure of a Firm and its impact on Suppliers and Customers (Flow of Goods)
  • Failure of a Bank and its impact on Trade Credit
  • Credit Contraction due to de-risking by the Banks
  • Decline in Correspondent Banking relations and its impact on Trade Finance

 

From Credit Chains and Sectoral Co-movement: Does the Use of Trade
Credit Amplify Sectoral Shocks?

Trade credit is an important source of short-term financing for firms, not only in the U.S., as documented by Petersen and Rajan (1997), but also around the World. For instance, accounts payables are larger than short-term debt in 60 percent of the countries covered by Worldscope. Also, across the world most firms simultaneously receive credit from their suppliers and grant it to their customers, which tend to be concentrated on specific sectors.  These characteristics of trade credit financing have led some authors to propose it as a mechanism for the propagation and amplification of idiosyncratic shocks. The intuition behind the mechanism is straightforward; a firm that faces a default by its customers may run into liquidity problems that force it to default to its own suppliers. Therefore, in a network of firms that borrow from each other, a temporary shock to the liquidity of some firms may cause a chain reaction in which other firms also get in financial difficulties, thus resulting in a large and persistent decline in aggregate activity. This idea was first formalized by Kiyotaki and Moore (1997) in a partial equilibrium setting, and has been recently extended to a general equilibrium environment by Cardoso-Lecourtois (2004), and Boissay (2006) who have also provided evidence of the potential quantitative importance of the mechanism by calibrating their models to the cases of Mexico and the U.S., respectively.

From Ontology of Bankruptcy Diffusion through Trade Credit
Channel

A supply network is a network of entities interacting to transform raw material into finished product for customers. Since interdependencies among supply network members on material, information, and finance are becoming increasingly intensive, financial status of one firm not only depends on its own management, but also on the performance and behaviours of other members. Therefore, understanding the financial flows variability and the material interactions is a key to quantify the risk of a firm. Due to the complex structure and dynamic interactions of modern supply networks, there are some difficulties faced by pure analysis approaches in analyzing financial status of the supply network members and the high degree of nonlinear interactions between them. Mathematical and operation research models usually do not function very well for this kind of financial decision making. These models always start with many assumptions and have difficulties modeling such complex systems that include many entities, relationships, features, parameters, and constraints. In addition, traditional modeling and analysis tools lack the ability to predict the impact of a specific event on the performance of the entire supply network.  Current financial data analysis with large volumes of structure data cannot offer the full picture and intrinsic insights into the risk nature of a company. Motivated by the literature gap in risk monitoring in investment background and limitations of analysis approaches for handling bankruptcy contagion phenomenon, we propose an ontological approach to present a formal, shared conceptualization of this domain knowledge.

From Inter-Firm Trade Finance in Times of Crisis

The severe recession that is hitting the global economy, with very low or even negative growth rates, has caused widespread contractions in international trade, both in developed and developing countries. World Trade Organization (WTO) has forecast that exports will decline by roughly 9% in volume terms in 2009 due to the collapse in global demand brought on by the biggest economic downturn in decades. The contraction in developed countries will be particularly severe with exports falling by 10%. In developing countries, which account for one-third of world trade, exports will shrink by some 2% to 3% in 2009.

The contraction in international trade has been accompanied by a sharp decline in the availability of trade finance. This decline is only partly explained by the contraction in demand: according to a BAFT (Banker’s Association for Trade and Finance) and International Monetary Fund (IMF) joint survey (2009), flows of trade finance to developed countries have fallen by 6% relative to the previous year, more than the reduction in trade flows, suggesting that part of the fall reflects a disruption of financial intermediation. The contraction in value of trade finance has also been accompanied by a sharp increase in its price. Fear that the decline in trade finance and the increase in its cost would accelerate the slowdown of world trade has triggered a number of government initiatives in support of trade finance (Chauffour and Farole,2009).

The situation is especially worrisome for firms operating in developing countries which rely heavily on trade finance to support both their exports and imports.1 With a restricted access to financing and an increased cost of financing, these firms may find difficulties in maintaining their production and trade activities.

 

Please see my related posts:

Supply Chain Finance (SCF) / Financial Supply Chain Management (F-SCM)

Production Chain Length and Boundary Crossings in Global Value Chains

Intra Industry Trade and International Production and Distribution Networks

Understanding Trade in Intermediate Goods

Trends in Intra Firm Trade of USA

Production and Distribution Planning : Strategic, Global, and Integrated

Development of Global Trade and Production Accounts: UN SEIGA Initiative

The Dollar Shortage, Again! in International Wholesale Money Markets

FDI vs Outsourcing: Extending Boundaries or Extending Network Chains of Firms

The Collapse of Global Trade during Global Financial Crisis of 2008-2009

Understanding Global Value Chains – G20/OECD/WB Initiative

Economics of Trade Finance

Balance Sheets, Financial Interconnectedness, and Financial Stability – G20 Data Gaps Initiative

Oscillations and Amplifications in Demand-Supply Network Chains

Contagion in Financial (Balance sheets) Networks

 

Key Sources of Research:

 

LIQUIDITY, BUSINESS CYCLES, AND MONETARY POLICY

Nobuhiro Kiyotaki
London School of Economics

John Moore
Edinburgh University and London School of Economics

27 November 2001

Click to access kimo.pdf

 

 

Credit Cycles

Nobuhiro Kiyotaki; John Moore

The Journal of Political Economy, Vol. 105, No. 2.

(Apr., 1997),

Click to access km.pdf

 

Credit chains

Nobuhiro Kiyotaki (Princeton University)

John Moore (University of Edinburgh)

Date January 1997

Click to access id118_esedps.pdf

Click to access Kiyotaki_CreditChains.pdf

 

 

Credit and Business Cycles

N Kiyotaki

1998

Click to access Credit-and-BusinessCycles.pdf

 

 

Inter-Enterprise Credit and Adjustment  During Financial Crises: The Role of Firm Size

Fabrizio Coricelli

Marco Frigerio

July, 2 2016

Click to access Coricelli%2C%20Fabrizio%20paper.pdf

 

 

Credit chains and bankruptcy propagation in production networks

Stefano Battiston, Domenico Delli Gatti, Mauro Gallegati,
Bruce Greenwald, Joseph E. Stiglitz

2007

Click to access 2007_Credit_Chains.pdf

 

 

Trade Finance in Crisis : Market Adjustment or Market Failure ?

Jean-Pierre Chauffour

Thomas Farole

Date Written: July 1, 2009

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1437955

Resaleable debt and systemic risk

Jason Roderick Donaldson , Eva Micheler

2018

Click to access Donaldson-Micheler-Resaleable_Debt.pdf

 

Supply chains and credit-market shocks: Some implications for emerging markets,

Jinjarak, Yothin (2013)

ADBI Working Paper Series, No. 443

Click to access 770887406.pdf

 

 

Financial Amplification Mechanisms and the Federal Reserve’s Supply of Liquidity during the Crisis

Asani Sarkar
Jeffrey Shrader

Staff Report no. 431
February 2010

Click to access sr431.pdf

 

 

Aggregate Fluctuations and the Role of Trade Credit

Lin Shao

2017

Click to access swp2017-37.pdf

 

 

Supply Chain Disruptions and Trade Credit

LU Yi OGURA Yoshiaki

TODO Yasuyuki ZHU Lianming

2017

Click to access 17e054.pdf

 

 

Credit Shocks and Aggregate Fluctuations in  an Economy with Production Heterogeneity

Aubhik Khan

Julia K. Thomas

September 2013

Click to access KhanThomasDCTsept2013.pdf

 

 

Financial Frictions in Production Networks

Saki Bigio

Jennifer La’O

February 7, 2013

Click to access FinancialFrictionsNetworks.pdf

 

Working Paper No. 67, April 2016

Click to access WP-67.pdf

 

 

The Origins of Aggregate Fluctuations in a Credit Network Economy

Levent Altinoglu

October 16, 2016

Click to access Altinoglu_JMP_CurrentVersion.pdf

September 30, 2015

Click to access fcb800d01a5b8dce9ed13a4a200bf51f6fed.pdf

 

Consolidated Bibliography

WTO

Click to access aid4tradesupplychain13_biblio_e.pdf

 

 

Propagation of Financial Shocks in an Input-Output Economy with Trade and Financial Linkages of Firms

Shaowen Luo

December 4, 2015

Click to access Luo.pdf

 

FDI, Trade Credit, and Transmission of Global Liquidity Shocks:
Evidence from Chinese Manufacturing Firms

Shu Lin and Haichun Ye

Click to access Lin–Ye_paper.pdf

 

 

Trade Credit, Financing Structure and Growth

Junjie Xia

October 27, 2016

Click to access jmp_oct16.pdf

 

The impact of corporate distress along the supply chain: evidences from United
States

Lucia Gibilaro

Gianluca Mattarocci

Click to access EFMA2017_0526_fullpaper.pdf

 

 

Does credit crunch investments down?
New evidence on the real eects of the bank-lending channel

Federico Cinganoz Francesco Manaresix Enrico Settex

December 2013

Click to access Credit_crunch_investments.pdf

 

Interwoven Lending, Uncertainty, and Liquidity Hoarding

Adam Zawadowski

December 13, 2017

Click to access credit.pdf

 

 

Trade credit: Elusive insurance of rm growth

DENNIS BAMS, JAAP BOS and MAGDALENA PISA*

October 5, 2016

Click to access Trade%20credit%20Elusive%20insurance%20of%20firm%20growth%202016.pdf

 

 

Chain Reactions, Trade Credit and the Business Cycle

Miguel Cardoso-Lecourtois

Click to access up.4593.1075462930.pdf

 

From production networks to geographical economics.

Gérard Weisbuch, Stefano Battiston.

Journal ofEconomic Behavior and Organization, Elsevier, 2007, 64 (3- 4), pp.448

https://hal.archives-ouvertes.fr/hal-00531863/document

 

 

Production networks and failure avalanches

Gerard Weisbuch
Stefano Battiston

March 5, 2018

Click to access 0507101.pdf

 

 

Self-organised patterns in production networks

Gerard Weisbuch

October 10, 2005

Click to access gwcomplexus.pdf

 

 

Networks : Propagation of Shocks over Economic Networks

Daron Acemoglu

July 22, 2014.

https://economics.mit.edu/files/9790

 

 

Debt-Rank Analysis of Financial Distress Propagation on a Production Network in Japan

FUJIWARA Yoshi
University of Hyogo
TERAI Masaaki
RIKEN
FUJITA Yuji
Turnstone Research Institute, Inc.
SOUMA Wataru
Nihon University

Click to access 16e046.pdf

 

 

Operational causes of bankruptcy propagation in supply chain

Zhongsheng Hua ⁎, Yanhong Sun 1, Xiaoyan Xu

2011

Click to access 48280.pdf

 

 

Propagation of Financial Shocks in an Input-Output Economy with Trade and Financial Linkages of Firms

Shaowen Luo
September 20, 2015

Click to access 10-02-15Luo.pdf

 

 

From Micro to Macro via Production Networks

Vasco M. Carvalho

Click to access carvalho_from_micro.pdf

 

 

Trade Credit and the  Propagation of Corporate Failure: An Empirical
Analysis

Tor Jacobson and Erik von Schedvin
August 2012

Click to access 723939764.pdf

 

CREDIT MARKET DISRUPTIONS AND LIQUIDITY SPILLOVER EFFECTS IN THE SUPPLY CHAIN

Anna M. Costello

August 8, 2017

Click to access costello-anna-acctgcamp2017_0.pdf

 

Modeling defaults of companies in multi-stage supply chain networks

Kamil J.Mizgier, StephanM.Wagner,, JanuszA.Holyst

2010

Click to access Mizgier_etal_InPress_Modeling_defaults_of.pdf

 

 

 

The origins of scale-free production networks

Stanislao Gualdizand Antoine Mandelx

June 28, 2015

Click to access Gualdi.pdf

 

 

Optimization of order policies in supply networks

S. GÄottlich¤ M. Hertyy C. Ringhoferz

August 18, 2008

Click to access FRG-2008-Ringhofer-Christian.FRG_Ringhofer_Orders080814.pdf

 

Financial Instability after Minsky: Heterogeneity, Agent Based Models and Credit
Networks

Domenico Delli Gatti

April 10, 2012

Click to access delli-gatti-domenico-berlin-paper.pdf

 

Measuring the Systemic Risk in Inter firm Transaction Networks

Makoto Hazama
And
Iichiro Uesugi

Click to access wp066.pdf

 

Systemic Risk Assessment in Complex Supply Networks

Anna Ledwoch, Alexandra Brintrup, J¨orn Mehnen, Ashutosh Tiwari

Click to access Ledwoch_etal_SJ_2016_Systemic_risk_assessment_in_complex_supply_networks.pdf

 

TRADE CREDIT DEFAULTS AND LIQUIDITY PROVISION BY FIRMS

Reint Gropp
Frédéric Boissay

2007

Click to access ecbwp753.pdf

 

The future of agent-based modelling.

Matteo Richiardi

Institute for New Economic Thinking and Nuffield College, Oxford, United Kingdom
Collegio Carlo Alberto, Moncalieri, Italy

This draft: June 2015

Click to access abmfuture-v12.pdf

 

 

Financially Constrained Fluctuations in an Evolving Network Economy

Domenico Delli Gatti
Mauro Gallegati
Bruce Greenwald
Alberto Russo
Joseph E. Stiglitz

Click to access DelliGatti%28presentation%29_ABM.pdf

 

 

Credit Chains and Sectoral Comovement: Does the Use of Trade Credit Amplify Sectoral Shocks?

Claudio Raddatz

The World Bank
March, 2007

Click to access Credit_chains_051707_withtables.pdf

 

 

Linkages and spillovers in global production networks: firm-level analysis of the Czech automotive industry

Petr Pavlinek

Pavla Žížalová

https://digitalcommons.unomaha.edu/cgi/viewcontent.cgi?article=1039&context=geoggeolfacpub

 

Ontology of Bankruptcy Diffusion through Trade Credit
Channel

Lin Cheng

Huaiqing Wang

Huaping Chen

Click to access JRPIT44.4.401.pdf

 

OPTIMAL ORDER AND DISTRIBUTION STRATEGIES IN PRODUCTION NETWORKS

Simone Gottlich, Michael Herty, and Christian Ringhofer

Click to access SpringerOpt10.pdf

 

Profitability, Trade Credit and Institutional Structure of Production

Michael Gofman
December 9, 2013

Click to access Supplier-Customer%20Network.pdf

 

The Economics of Information and Financial
Networks

Stefano Battiston
July 22, 2016

Click to access battiston2016information.pdf

 

Supply Chain Perspectives and Issues: A Literature Review

Albert Park
Gaurav Nayyar
Patrick Low

Click to access supply-chain-perspectives-and-issues.pdf

 

 

LIAISONS DANGEREUSES: INCREASING CONNECTIVITY, RISK SHARING, AND SYSTEMIC RISK

Stefano Battiston
Domenico Delli Gatti
Mauro Gallegati
Bruce C. Greenwald
Joseph E. Stiglitz

Click to access w15611.pdf

 

 

Inter-Firm Trade Finance in Times of Crisis

Anna Maria C. Menichini

Click to access WPS5112.pdf

 

 

Reducing the Probability of Bankruptcy Through Supply Chain Coordination

Xiaoyan Xu, Yanhong Sun, and Zhongsheng Hua

2010

Click to access 573eac9d08ae298602e6e77a.pdf

 

 

Pathways towards instability in financial networks

Marco Bardoscia, Stefano Battiston Fabio Caccioli & Guido Caldarelli

2017

Click to access bardoscia2017pathways-1.pdf

 

 

International Credit Supply Shocks

Ambrogio Cesa-Bianchiy Andrea Ferreroz Alessandro Rebuccix

June 16, 2017

https://www.bostonfed.org/-/media/Documents/events/2017/boston-policy-workshop/AlessandroRebucci.pdf?la=en

 

Risk Propagation through Payment Distortion in Supply Chains

Alejandro Serrano

Rogelio Oliva

Santiago Kraiselburd

Click to access 0e6d7dc9d4b4f6bcada884b71562791404ed.pdf

 

 

Payment Defaults and Interfirm Liquidity Provision

https://academic.oup.com/rof/article-abstract/17/6/1853/1591419

 

SYSTEMIC RISK: A SURVEY

BY OLIVIER DE BANDT
AND PHILIPP HARTMANN

November 2000

Click to access ecbwp0035.pdf

 

 

Risk Propagation in Supply Chains

Alejandro Serrano

Rogelio Oliva

Santiago Kraiselburd

Click to access f3278ab2a75ff11b0142fba19a4cf223805a.pdf

 

 

How Inventory Is (Should Be) Financed: Trade Credit in Supply Chains with Demand
Uncertainty and Costs of Financial Distress

Song (Alex) Yang, John R. Birge

Click to access YangBirge_trade%20credit.pdf

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2746645

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1734682

 

 

The Supply Chain Effects of Bankruptcy

S. Alex Yang

John R. Birge, Rodney P. Parker

Click to access 86a8667f24af2c6a5cd7eb52bbd12b39697b.pdf

http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.715.5812&rep=rep1&type=pdf

 

Supply Chain Management: Supplier Financing Schemes and Inventory Strategies

Min Wang

Click to access Min_Wang_Dissertation.pdf

 

Foreign Investment and Supply Chains in Emerging Markets: Recurring Problems and Demonstrated Solutions

Theodore H. Moran

PIIE

2014

Click to access wp14-12.pdf

 

Improving cash flow using credit management
The outline case

Click to access cid_improving_cashflow_using_credit_mgm_Apr09.pdf.pdf

 

CREDIT CHAINS AND THE PROPAGATION OF
FINANCIAL DISTRESS

2006

by Frederic Boissay

Click to access ecbwp573.pdf

 

Exposure to international crises: trade vs. financial contagion

Everett Grant

2016

https://www.esrb.europa.eu/pub/pdf/wp/esrbwp30.en.pdf?7b7cc950c1a2286d395ed8489bfde5c7

 

 

Credit Contagion and Trade Credit Supply:
Evidence from Small Business Data in Japan

TSURUTA Daisuke

Click to access 07e043.pdf

 

 

The Price of Complexity in Financial Networks

Joseph Stiglitz

2017

Click to access The%20Price%20of%20Complexity%20in%20Financial%20Networks.pdf

 

 

The Price of Complexity in Financial Networks

S. Battiston

2017

Click to access 160913_slides_battison.pdf