Essays on Financial Stability and Banking
Open Access DepositedChapter 1: In the context of growing concerns about climate change’s financial stabilityimplications, this paper investigates the short- and long-term impact of climate change on the banking sector. Utilizing a unique dataset combining bank-branch information and climate data across U.S. counties, the paper analyzes the relationship between average yearly temperature changes and deposit growth rates. The findings suggest significant negative effect on deposit growth at the lower end of the temperature distribution, especially if their primary activity is agricultural. Positively, while these effects seem to intensify in a 5-year period, potential adaptation seems to diminish the aggregate effects over a longer time frame. This research contributes to the broader understanding of physical climate risks on financial institutions, offering a novel and holistic approach to quantifying these effects. From a financial stability point of view, the climate channel can lead to the hollowing out of banking activity in certain areas and requires further attention by regulators. Chapter 2: The adoption of the Current Expected Credit Loss (CECL) standard in theU.S. coincided with the start of the economic downturn caused by COVID-19. The change in the accounting method combined with the severe recession resulted in an extraordinary increase in the level of allowances for credit losses during the first half of 2020. Concerned with the sharp deterioration in lending, the banking agencies allowed banks to delay the impact of CECL on regulatory capital. Using a differences-in-differences methodology, the paper shows that the adoption of CECL led to a increase in allowances for consumer lending and a reduction in lending. The results suggest that regulatory relief provided by the banking agencies quickly mitigated the impact of COVID-19 on bank’s consumer exposure and offset any impact on the remaining portfolios. Chapter 3: The 2010 sovereign crisis in the Euro Area (EA) brought to light the depth ofthe structural weaknesses of the monetary union. In particular, it highlighted the dangers of the sovereign-bank nexus –the amplification effect of sovereign debt being held primarily by domestic banks-. In this paper we review the main regulatory proposals aimed at curtailing both exposure to sovereign risk and ownership concentration. We assess their impact on bank capital and risk-weighted assets and simulate bank’s reaction to these measures. We conclude that these solutions could have relevant side effects for both banks and bond markets, thus implying that completing the Monetary Union and, in particular, issuing an European safe asset, is the first order mitigating solution for this vulnerability.
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FernandezDionis_gwu_0075A_16933.pdf | 2025-04-09 | Open Access |
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Signed_Permission_Request_for_Use_of_Extracts_in_Academic_Dissertation_(002).pdf | 2025-04-11 | Open Access |
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