CAPACIDAD DE RESPUESTA (Y)
2.4 Procesamiento y análisis de la información
Following Berger and Bouwman (2009) we employ both a narrow and a
broad measure of liquidity creation. The narrow measure (defined as ‘nonfat’ in
Berger and Bouwman’s terminology) focuses on banks’ on-balance sheet activities
only, while the broad measure (defined as ‘fat’ in the Berger and Bouwman’s
terminology) takes into consideration both on- and off-balance sheet (OBS) activities. We compute these two measures of bank liquidity creation based on the categorisation (cat) of balance sheet and off-balance sheet items as follows. 59
59 We are unable to compute measures of liquidity creation based on the maturity profiles of on- and off- balance sheet activities due to data limitations.
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Table 4.3 | Construction of Liquidity Creation Measures
Panel A: Item classification and weighting
Assets
Illiquid assets
(weight = ½) Semi-liquid assets (weight = 0) Liquid assets (weight =-½) Commercial loans
Premises and movable property
Other assets
Customers’ liabilities for
acceptance and guarantees
Consumer loans
Residential real estate loans
Trading account securities Money held in trust Investment securities Call loans
Bills purchased
Monetary claims purchased Cash and due from banks Foreign exchange
Liabilities plus equity
Liquid liabilities
(weight = ½) Semi-liquid liabilities (weight = 0) Illiquid liabilities & equity (weight = -½) Current deposits Ordinary deposits Savings deposits Call money Trading liabilities Deposits at notice Time deposits Negotiable certificates of deposit Bills sold Commercial paper Borrowed money Foreign exchange Debentures Corporate bonds Convertible bonds
Acceptance and guarantees Other liabilities
Common stock
New stock subscriptions
Off-balance sheet activities (OBS)
Illiquid OBS
(weight = ½) Semi-liquid OBS (weight = 0) Liquid OBS (weight = -½) Guarantees
Standby letters of credit Letters of credit
Interest rate derivatives Foreign exchange derivatives Equity derivatives
Fixed income derivatives Commodity derivatives Credit derivatives Panel B: Liquidity creation measures
Cat-fat 1 2⁄ ∗ (illiquid assets + liquid liabilities + illiquid OBS) −1 2⁄ ∗ (liquid assets + illiquid liabilities + equity + liquid OBS)
Cat-nonfat 1 2⁄ ∗ (illiquid assets + liquid liabilities) −1 2⁄ ∗ (liquid assets + illiquid liabilities + equity) This table illustrates the classification and the weighting of the balance sheet items in line with the liquidity creation measure by Berger and Bouwman (2009) adapted for the Japanese banking industry. Panel A lists the items of bank balance sheets and off-balance sheets under liquid, semi-liquid and illiquid. Bank activities that add to liquidity creation are classified as illiquid, those that have a neutral effect are classified as semi- liquid, and those that subtract from liquidity creation are classified as liquid. The weigths ½, 0, and -½ are multiplied times the yen amount of the corresponding bank activities. Panel B illustrates the calculation of cat-fat and cat-nonfat. The weighted yen amounts are added to arrive at the total yen value of liquidity creation of each bank in our sample.
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First, we classify balance sheet items as liquid, semi-liquid, or illiquid. Second, these classified items are assigned weights in line with liquidity creation theory as follows: 0.5 for illiquid assets, liquid liabilities, and illiquid OBS items; 0 for semi-liquid liabilities and semi-liquid OBS items; and -0.5 for liquid assets, illiquid liabilities, and liquid OBS items. Third, the classified and weighted on- and off-balance sheet items are combined to obtain the broad (cat-fat) and the narrow (cat-nonfat) liquidity creation measures (Berger and Bouwman, 2009, 2016). Table 4.3 illustrates the classification and the weighting of the balance sheet items in line with the construction of the two liquidity measures. Finally, following Berger and Bouwman (2009, 2016), our analysis is based on the cat-fat and the cat-nonfat liquidity creation measures normalised by total assets to make them comparable across banks.
4.3.2 Data
Our analysis focuses on commercial banks operating in Japan over the period from March 1998 (fiscal year 1997) through September 2001 (fiscal year 2001). The sample period straddles the introduction of the Tokyo tax in April 2000. In order to ensure that there is sufficient overlap in the distribution of the covariates across the affected and unaffected banks, we restrict our analysis to commercial (city and regional) banks. This allows us to obtain correct statistical inference from our difference-in-differences analysis (Imbens and Rubin 2015).
Our sample comprises city and regional banks. Trust banks and long-term credit banks are excluded from the sample, since these types of banks have business models that differ from those pursued by commercial banks. Banks which either failed or went bankrupt during the sample period are also excluded from
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our sample.60 One merger between an affected and an unaffected bank occurred during our sample period.61 These banks are also excluded from the empirical analysis in order to ensure the separability of affected and unaffected banks.
The primary source of data is the Japanese Bankers Association. This provides detailed semi-annual balance sheet and income statement information for each member bank. We supplement this information with hand collected data on off-balance items drawn from electronic copies of bank financial statements (yuho) obtained from Bloomberg. Our final sample is an unbalanced panel of 745 bank-year observations of 107 Japanese commercial banks (8 City banks and 99 Regional banks). Of the 107 commercial banks in our sample, 16 banks were affected by the Tokyo bank tax.
Panel A of Table 4.4 reports the mean and standard deviation of the bank liquidity creation measures for the affected and unaffected banks before and after the introduction of the Tokyo bank tax. According to the broad (cat-fat) measure of liquidity creation, unaffected banks create slightly more liquidity than taxed counterparts. Specifically, in the pre-tax period both groups create approximately ¥0.30 of liquidity per ¥1 of total assets employed. The difference between the two groups is also statistically indistinguishable from zero (t-stat = 0.07). In the post Tokyo tax period, however, control group banks create ¥0.46 of liquidity per ¥1 of total assets employed compared to affected banks which create ¥0.42 of liquidity
60 The following banks were excluded from the sample: Hokkaido Takushoku Bank (failed November 17, 1997), Tokuyo City Bank (failed Nov 27, 1997), Tokyo Sowa Bank (under public administration, June 12, 1999), Kokumin Bank (under public administration, April 11, 1999), Niigata Chuo Bank (under public administration, October 2, 1999), Ishikawa Bank (failed, March 2001), Chubu Bank (failed, March 8, 2001), Kyoto Kyoei Bank (failed, October 14, 1997), Kofuku Bank (under public administration, May 22, 1999), Kansai Sawayaka Bank (formerly Kofuku Bank), Namihaya Bank (under public administration, August 7, 1999), Midori Bank (failed, May 15,1998). (Source: Bank of Japan, Deposit Insurance Corporation Japan, Financial Services Agency Japan).
61 Hachijuni Bank (affected) acquires Niigata Chuo Bank (unaffected), September 29, 2000 (Financial Services Agency Japan).
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per ¥1 of total assets employed. This difference is statistically significant at the 5% level (t-stat = 2.47).
Table 4.4 | Summary Statistics
Variables Affected banks Unaffected banks
Before After Before After
Panel A: Dependent Variables
Cat-fat 0.30 0.42 0.30 0.46
(0.18) (0.12) (0.19) (0.10)
Cat-nonfat 0.28 0.40 0.29 0.45
(0.18) (0.12) (0.19) (0.10) Panel B: Control Variables
Capital Adequacy (%) 2.81 3.33 1.91 2.18 (0.93) (0.85) (0.69) (0.98) Asset Quality (%) 2.86 3.97 2.62 4.79 (2.03) (1.61) (2.10) (2.15) Management Efficiency (%) 0.97 1.09 1.03 1.05 (0.16) (0.10) (0.15) (0.16) Earnings (%) -0.23 0.10 -0.08 -0.03 (0.65) (0.22) (0.63) (0.44) Diversification (%) 25.94 30.06 17.50 17.58 (11.41) (8.77) (6.72) (6.30) Size (log) 30.50 30.52 28.15 28.18 (1.02) (1.02) (0.66) (0.68) Market Share (%) 3.48 3.49 0.26 0.27 (2.89) (2.92) (0.16) (0.17) Number of Observations 80 47 450 267 Number of Banks 16 16 91 91
The table presents means and standard deviations (in parenthesis) of both dependent and control variables used in our analysis before and after the introduction of the Tokyo bank tax and by treatment status. The set of control variables include capital adequacy, asset quality, management efficiency, earnings, size, diversification and market share. See Table 3.2 for a definition.
Panel B of Table 4.4 reports the mean and standard deviation for each of the control variables used in our analysis for both affected and unaffected banks before and after the introduction of the Tokyo bank tax. Overall, the summary statistics confirm that affected and unaffected banks are on average relatively similar across a number of covariates including capital adequacy, asset quality, management efficiency, and earnings. Affected and unaffected banks differ to some extent in terms of size, market share, and diversification. Affected banks are larger, hold more market share and are more diversified than their unaffected counterparts.
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4.4 Findings
Table 4.5 presents our main results. In Column 1 we report estimates using the broad liquidity creation measure (cat-fat to total assets) as the dependent variable, while controlling for time and bank fixed effects only. The treatment effect is -0.035 and is statistically significant at the 5% level. This result indicates that banks affected by the Tokyo tax experience a 3.5 percentage point reduction in their liquidity creation relative to unaffected banks. The economic significance of the impact of the tax on bank liquidity creation is considerable. To illustrate this point, consider the average affected bank in our sample, which has total assets of ¥28.3 trillion ($249 billion). The 3.5 percentage point reduction in the cat-fat to total assets ratio implies a loss of ¥990 billion ($8.71 billion) in liquidity creation.62 The effect of taxation on liquidity creation is robust when we control for bank level time varying characteristics albeit the coefficient in this case (shown in Column 2) is marginally smaller.
In Columns 3 and 4, the dependent variable is the narrow liquidity creation measure (cat-nonfat to total assets). The results using this measure are similar in both size and significance to the results for our broad liquidity creation measure. This suggests that the reduction in liquidity creation by affected banks is not due to changes in their OBS activities, but rather arises from changes in the composition of on-balance sheet assets and liabilities.
Next, we explore the relationship between the gross profit tax and the components of liquidity creation. Table 4.6 presents the results of model (4.1) re- estimated using the individual components of the broad (cat-fat) liquidity creation
62 When considering the median treated bank in our sample with total assets of ¥10.9 trillion ($95.82 billion) the effect of the tax is equally notable, as it implies a reduction of ¥381 billion ($3.35 billion) on its liquidity creation.
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measure. Here we use the liquid, semi-liquid, and illiquid items of the asset-side, liability-side, and OBS section of the balance sheet (deflated by total assets) as outcome variables. We find that the tax is associated negatively with bank liquidity
Table 4.5 | The Effect of Tax on Liquidity Creation
cat-fat cat-fat cat-nonfat cat-nonfat TAX -0.035** -0.028** -0.034** -0.028*** (0.017) (0.014) (0.016) (0.013) Capital Adequacy 0.001 -0.0006 (0.004) (0.004) Asset Quality 0.004** 0.004** (0.002) (0.002) Management Efficiency 0.0002 0.002 (0.022) (0.002) Earnings 0.002 0.001 (0.005) (0.005) Market Share 0.009 0.020 (0.042) (0.040) Diversification -0.001* -0.0004 (0.0003) (0.0003) Size -0.088* -0.089* (0.052) (0.050) Constant 0.060*** 2.579* 0.059*** 2.589* (0.006) (1.472) (0.006) (1.437)
Bank Fixed Effects Y Y Y Y
Observations 844 844 844 844
R2 0.890 0.893 0.885 0.888
This table reports the results of ordinary least squares regressions using a sample of 107 Japanese banks spanning the period from March 1998 to September 2001. The dependent variables are cat-fat and cat-nonfat. The main explanatory variable is TAX, an indicator variable equal to one for banks affected by the Tokyo bank tax when it comes into effect and zero otherwise. To control for potential heterogeneity between affected and unaffected banks the lagged values of capital adequacy, asset quality, management efficiency, earnings, market share, diversification and size are included in some specifications as further control variables. In addition, a set of time dummies and bank specific fixed effects are included across all regressions. Robust standard errors clustered at the bank level are reported in parentheses. ***, **, *, indicate significance at the 1%, 5%, and 10% level respectively.
creation on the asset-side of the balance sheet only. Banks liable to pay the Tokyo bank tax have significantly less illiquid assets. This could be due to affected banks contracting their loan portfolios as a response to the tax (see Buch et al., 2016; Schandlbauer 2017; Banerji et al., 2018). There is little evidence of an effect of the tax on either semi-liquid or liquid assets. The detrimental effect of the tax on asset- side liquidity creation is offset partially by the lower equity to total assets held by
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affected banks relative to their unaffected counterparts; a difference that is significant at the 1% level (Table 4.6 Panel C).
Table 4.6 | Components of Liquidity Creation
Panel A: Assets
Illiquid (1/2) Semi-Liquid (0) Liquid (-1/2)
TAX -0.057** -0.024 0.005
(0.023) (0.014) (0.004)
Control variables YES YES YES
Bank Fixed Effects YES YES YES
Observations 844 844 844
Panel B: Liabilities
Illiquid (1/2) Semi-Liquid (0) Liquid (-1/2)
TAX 0.004 -0.025*** 0.007
(0.003) (0.009) (0.006)
Control variables YES YES YES
Bank Fixed Effects YES YES YES
Observations 844 844 844
Panel C: Equity
Illiquid (1/2) Semi-Liquid (0) Liquid (-1/2)
TAX -0.004***
(0.001) Control variables YES Bank Fixed Effects YES
Observations 844
Panel D: Off-Balance Sheet Activities
Illiquid (1/2) Semi-Liquid (0) Liquid (-1/2)
TAX 0.00024 -0.00005
(0.00408) (0.00067)
Control variables YES YES
Bank Fixed Effects YES YES
Observations 844 844
This table reports the results of ordinary least squares regressions using a sample of 107 Japanese banks spanning the period from March 1998 to September 2001. The dependent variables are liquidity creation components normalised by the total assets. Liquidity is calculated based on the cat-fat measure. The set of control variables include capital adequacy, asset quality, management efficiency, earnings, size, diversification and market share. In addition, a set of time dummies and bank specific fixed effects are included across all regressions. Robust standard errors clustered at the bank level are reported in parentheses. ***, **, *, indicate significance at the 1%, 5%, and 10% level respectively.
We find that the tax affects semi-liquid liabilities. However, this category of liabilities carries a zero weight in the construction of both the broad and narrow measures of liquidity creation, and so does not impact on the overall liquidity created by banks (see Table 4.6 Panel B). In terms of magnitude, the imposition of
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the Tokyo bank tax induces a reduction in asset-side liquidity of 5.7 percentage points, in liability- and equity-side liquidity of 2.5 and 0.4 percentage points respectively. The effect of tax on the asset-side of bank liquidity creation is larger than any of the other components of the balance sheet. Overall, the findings in Table 4.6 indicate that the reduction in bank liquidity creation is driven mainly by the negative impact of the Tokyo bank tax on the asset side of the balance sheet. 63