This thesis is a collection of three essays with contributions to the empirical literature on banking and the lending channel of monetary policy. The first essay on monetary policy identification addresses the endogeneity of the monetary policy measure employed in most bank level studies of the lending channel. It shows how an identified, exogenous measure of policy evokes different lending dynamics in U.S. commercial banks compared to the standard endogenous measure of monetary policy. The second essay empirically assesses the impact of financial deregulation on the lending channel in the U.S. In particular, it analyses how the gradual phasing out of deposit rate ceilings commonly known as Regulation Q significantly altered bank level frictions as well as the transmission of monetary policy to individual bank lending. While the first two essays consider U.S. bank level data, the third essay analyses individual bank level lending responses in the euro area. Its contribution lies in the construction of a range of exogenous and unanticipated monetary policy shocks as well as in the introduction of a financial conditions index into standard lending regressions. It finds that the lending responses of individual banks to monetary policy do not support the existence of a separate lending channel in the euro area. Further, equilibrium lending responses to policy as measured by a range of policy shocks is non-linear in financial conditions. Specifically, financial conditions as measured by the relative performance of a broad index of euro area banking stocks to the overall euro area stock market reverse the impact of monetary policy on lending.

This research has studied bank risk management in relation to efficient bank regulation in the form of optimal bank financial reorganization. Efficient banking regulation can be achieved only if it includes closure policies which prevent moral hazard behaviour; in turn, they should enhance bank regulators' accountability. Yet, Basel II gives more discretion to domestic banking authorities and focuses more on the implementation of best practices of risk management. This creates a gap between the needs of efficient banking regulation and the objectives of Basel II, on the one hand, and Indonesian bank regulation on the other. To fill the gaps, the Fries, Mella-Barral, Peraudin (FMP) model, under a robust regulatory regime concept, is used to provide a framework for banking regulation. Optimal bank reorganization aims at achieving efficient bank regulation, where bank regulators are assumed to act as social planners. In this thesis, optimal bank reorganization is analysed within the concept of a "robust regulatory regime". Optimal bank reorganization comprises closure rules and bailout policies arising endogenously through the interaction of two factors, namely regulators' attempts to minimize discounted, expected bankruptcy costs, and equity-holders' incentives to recapitalise banks. The shareholders will be allowed to continue to control the bank if the bank is well capitalized. The cash flow approach to optimal bank financial reorganization is adopted. The subsidy policies for financially ailing banks consider the implementation of socially-optimal closure rules at minimum financial cost to regulators and which reduce moral hazard. The FMP model implies that optimal bank reorganization requires a deposit insurance scheme. The FMP model involves capital and risk management as crucial factors. This research includes an empirical study of the implementation of the FMP model in Indonesia using the American call option approach. Maximum likelihood estimates in VAR and GARCH are applied to monthly data on the market return and equity and deposit values for relatively-large Indonesian banks, including regional banks and foreign banks. The results indicate that the authorities can establish an optimal closure rule for each bank, levy fair deposit insurance premiums that can be adjusted to take account of quantitative and qualitative factors, estimate optimal subsidies at different deposit insurance premiums, and identify the banks' imminence to bankruptcy. (Continues...).

This paper reviews theoretical and empirical evidence of asset price movements impact on the real economic activity. A key channel is the wealth effect on consumption. Fluctuations in stock prices and housing prices influence the households wealth and could have important impacts on households consumption. In addition, stock prices may affect corporate sector investments and property prices may affect building activity. Here, the method of cointegration is used to estimate the wealth effect and the investment effect in aggregate time series for Germany after the Reunification in 1990. Moreover, we discuss the role of asset prices in the monetary policy strategy of the ECB.

This dissertation explores the implications of natural disaster risk for access to financial services, especially credit. Its results show that disasters can dramatically undermine the ability of financial intermediaries (FIs) to lend after an event, increasing the cost of the disaster and delaying recovery. Moreover, the risk of natural disasters discourages investment in vulnerable regions and economic sectors and so slows economic development. Financial risk transfer mechanisms such as insurance can help maintain lending following an event. While many international development projects have targeted disaster insurance markets to households, managing disaster-related credit risk may be done more effectively through insurance products for FIs. Additionally, prudential supervision and the credit risk rating methods of investors in developing and emerging economies are dominated by developed country standards that overlook natural disaster risks. Public and private interests align in the need to tailor such standards and so enhance the effectiveness with which vulnerable FIs manage disaster risk.

This is a study of how knowledge producing actors, like professors of economics, ecological economics and investigators at public institutions, portray the monetary system in general and fractional reserve banking specifically. The methodology of Political Discourse Analysis, with focus on argumentation and legitimisation, is used to identify and compare how different actors portray the monetary system. The outcome shows that there exist competing knowledge discourses that are diametrically different in how they define keywords and describe the relation between the monetary system, societal power relations and environmental impact. Some important concepts under academic debate include the origin of money, which actor (the state or commercial banks) controls the money supply and seigniorage (money issuer’s revenue), if private banks really are intermediaries and multiply central bank money, and if interest-bearing money is a cause of socioecological unsustainability. By critically analysing the moral norms within knowledge discourses that otherwise might be naturalised as portraying ‘facts’ or ‘truth’, this thesis helps identify needs for further research – especially regarding how the financial system can be better adapted for socioecological sustainability.