CEU Electronic Theses and Dissertations, 2024
| Author | Kollarik, Andras |
|---|---|
| Title | Essays in Financial Intermediation |
| Summary | The thesis consists of three single-authored chapters. The first chapter compares central bank digital currency (CBDC) with the current monetary system without CBDC but with deposit insurance. The second chapter is a step towards a theory of commercial bank money creation. The last chapter gives some empirical evidence for this theory. The individual chapters are summarized in the following abstracts. Chapter 1: Central Bank Digital Currency versus Deposit Insurance This paper compares Central Bank Digital Currency (CBDC) with deposit insurance (DI) in a moral hazard setting. The relevant agents’ utilities are the same in the two systems when either the deposit insurance fee is paid ex post or the deposit insurance fund (DIF) bears the risk-free market interest rate. If the DIF’s return is lower than the risk-free market rate, then CBDC yields higher welfare than DI. As in reality the DIF mainly invests in claims on the government, CBDC and DI can be regarded equivalent in practice. However, in old times of metallic standard the DIF could have invested primarily in non-interest bearing metal, which is in line with the fact that early central banks issued demand deposits to the non-bank private sector. Chapter 2: Creative Banks: A Theory This paper addresses the questions: What does liquidity creation of a commercial bank depend on? What is the reaction of the deposit market to a loan demand shock of the bank’s borrowers? I unify existing theories of commercial bank money creation in an asset-liability management model. A liquidity creation ability parameter determines the co-movement of deposits and loans. I show that the ability plays a liquidity risk hedging role for the bank: the larger the ability, the smaller the bank’s liquid asset holding and the greater the bank’s liquidity creation. I also show a conjecture according to which the bank’s deposit demand increases in its borrower’s loan demand, and this effect is larger for banks with worse money creation ability. Chapter 3: Creative Banks: Evidence This paper gives some empirical evidence for the theory of Chapter 2. Using a quarterly panel of US commercial banks from 1994 to 2021, I show that the correlation between deposit and loan shocks is typically positive, around 1/2. The correlation decreased over time, especially for larger banks. However, it is not necessarily a sign of worsening money creation ability, due to a regime change after the Great Financial Crisis. I also find some evidence that a rise in the deposit-loan correlation is associated with a drop in banks’ liquidity holding. In addition, deposit demand co-moves with loan demand, especially for institutions with less money creation ability. |
| Supervisor | Zawadowski, Adam |
| Department | Economics PhD |
| Full text | https://www.etd.ceu.edu/2024/kollarik_andras.pdf |
Visit the CEU Library.
© 2007-2021, Central European University