Stefan W. Schmitz

The Effects of Electronic Commerce on the Structure of Intermediation

The paper questions the notion that the diffusion of electronic commerce will lead to disintermediation. Rather than interpreting intermediation as a single service it is pointed out that intermediaries can provide a number of services. The analysis based on the New Institutional Economics, Market Microstructure Theory, and Information Economics shows that the three intermediation services studied are, generally, not under threat by the diffusion of electronic commerce. The overall effects on intermediation depend on the relevance of these services relative to others (e.g., order processing), which are supposed to become obsolete.[1]

The Impact of the Liquidity Coverage Ratio (LCR) on the Implementation of Monetary Policy

This paper analyses the impact of the short�?term component of the new Basel III liquidity standards, namely the liquidity coverage ratio (LCR), on the implementation of monetary policy in the euro area. It employs a conceptual framework to investigate the interaction between the money market and monetary policy implementation. Based thereon, it argues that the isolated focus on the impact on the LCR tends to underestimate the future challenges to monetary policy implementation for two reasons: first, feedback and network dynamics exacerbate the impact of the standard; second, the ongoing crisis itself challenges monetary policy implementation in the euro area by its impact on the (perceived) arbitrage relationship between open market operations and the unsecured money market. The paper concludes by discussing potential policy reactions concerning both, the calibration of the LCR and the framework for monetary policy implementation.

Structure and Stability in Payment Networks – A Panel Data Analysis of ARTIS Simulations

The purpose of this study is the investigation of the importance and impact of network structure, both, at the network level across days and at the node level across days and scenarios (stricken ARTIS participants) for the stability of payment systems in the face of operational shocks. The analysis is based on a large number of simulations of the Austrian large-value payment system ARTIS that quantify the contagion impact of operational shocks at participants’ sites. The analysis uncovers that only few payment system participants are systemically important and that contagion displays substantial variation across time and across scenarios. A subsequent panel data investigation tries to explain the variation across time and network participants by structural differences of the payment network across time and the position of the stricken account within the network. It uncovers that (i) standard variables such as liquidity and liquidity loss can explain a substantial fraction of variation, both, across time and across scenarios, that (ii) the structure of the network itself adds very little and (iii) the position of the stricken account within the network indeed contributes somewhat to explaining the variations of contagion. Relative explanatory power is higher when the analysis focuses on contagion measured by the number of banks with unsettled payments or the value of unsettled payments than in the case of the measure based on the number of unsettled payments. In light of the fact that those structural indicators add only little – in terms of explanatory power – to the more traditional measures of the role of an individual participants in the payment system (value and volume of payments) we conclude that at this stage network indicators seem to be of limited use for stability analysis.

Systemically Important Accounts, Network Topology and Contagion in Artis

This study investigates the relevance of network topology for the stability of payment systems in the face of operational shocks. The analysis is based on a large number of simulations of the Austrian large-value payment system ARTIS that quantify the contagion impact of operational shocks at participants’ sites. It uncovers that only few accounts are systemically important. We also find that network indicators at the node level can have some explanatory power, which is higher when the analysis focuses on contagion measured by the number of banks with unsettled payments than on that measured by the value of unsettled payments. The explanatory power is, however, lower than that of the more traditional measures of node activity(value and volume) of payments. At this stage of our research, network indicators at the network level seem to be of limited use for stability analysis.

The Impact of the Basel III Liquidity Standards on the Implementation of Monetary Policy

This paper analyses the impact of the new Basel III liquidity standards, in particular the liquidity coverage ratio (LCR), on the implementation of monetary policy in the Euro area. I develop a conceptual framework to investigate the interaction between the money market and monetary policy implementation. Based thereon, I argue that the future challenges to monetary policy implementation require a complete overhaul of the implementation framework ror two reasons: first, negative network dynamics and feedback loops exacerbate the impact of the standards; second, the on-going crisis itself challenges monetary policy implementation in the Euro area by its impact on the arbitrage relationship between open market operations and the unsecured money market rate. Finally, I discuss potential policy reactions.

B2c E-Commerce: A Frictionless Market is Not in Sight - Arguments, Empirics and Policy Implications

After the dramatic failures of the dot coms in 2000 and 2001, many observers were quick to report on the death of electronic commerce. Investor confidence sagged, stock prices of technology firms in nearly all of the related sectors suffered. In reality, the picture is not nearly as dismal as the press would have us believe. E-commerce is not dead, but it has moved beyond its overhyped beginning stage. This book is an effort to sort through the hype, providing a realistic assessment of the state of electronic commerce today, and the important areas of opportunity and challenge for tomorrow. The book sees all kind of developments where e-business is becoming an integral part of ‘traditional’ business processes, with special emphasis on practical and policy importance. E-commerce scholars from a number of disciplines and countries contribute to assess the impact of the dot com bust and the current state of e-commerce.

The Governance of Occupational Pension Funds and the Politico-Economic Implications: The Case of Austria

This paper analyses the efficacy of the governance structure of occupational pension funds (Pensionskassen – PKs) in Austria. Based on the results of the analysis, it further investigates the politico- economic implications for the political and legislative process regarding recent changes to the relevant Act (Pensionskassengesetz – PKG). The first section explains the exclusion of the beneficiaries’ interests from the institutional interest of the PKs’ association, i.e. the distribution of power, by the underlying governance structure of PKs. This section focuses on the structural conflict of interest PKs face, namely between their beneficiaries and their shareholders (almost exclusively large Austrian banks and insurance companies). The institutional interests of PKs are determined by the governance structure at the micro and meso levels and the interests of the stakeholders, in particular those of the shareholders, while the governance structure is treated as given. The second section focuses on the empirical investigation of the politico-economic impact of the findings in the first section. It analyses the role of the PKs and in particular the PK association (Fachverband der Pensionskassen) in the political process in a case study. It argues that the repercussions of the governance structure at the micro and meso levels on the political level can result in a vicious circle for beneficiaries and that the political risks associated with long-term guarantees for beneficiaries of occupational pension funds are substantial and aggravated by the governance structure at the micro and meso level. It employs an actor- centred institutionalism.

Bank Solvency and Funding Cost: New Data and New Results

This paper presents new evidence on the empirical relationship between bank solvency and funding costs. Building on a newly constructed dataset drawing on supervisory data for 54 large banks from six advanced countries over 2004–2013, we use a simultaneous equation approach to estimate the contemporaneous interaction between solvency and liquidity. Our results show that liquidity and solvency interactions can be more material than suggested by the existing empirical literature. A 100 bps increase in regulatory capital ratios is associated with a decrease of bank funding costs of about 105 bps. A 100 bps increase in funding costs reduces regulatory capital buffers by 32 bps. We also find evidence of non-linear effects between solvency and funding costs. Understanding the impact of solvency on funding costs is particularly relevant for stress testing. Our analysis suggests that neglecting the dynamic features of the solvency-liquidity nexus in the 2014 EU-wide stress test could have led to a significant underestimation of the impact of stress on bank capital ratios.

Die Auswirkungen von Zahlungsverkehrsinnovationen auf die Geldpolitik

This paper analyses the effects of innovations in retail payment systems on the conduct and implementation of monetary policy. Recent innovations in retail payment systems (access products and electronic money products) are placed in the context of historical institutional change in the economy-wide payments system. The first part presents the central in-stitutional characteristics of the economy-wide payments system and the conceptualisation of the fundamentals of monetary policy. The second part analyses the effects of payment system innovations on the question whether monetary policy will survive payment system innovations in principle, its effects on the efficacy and implementation of monetary policy. In addition to these direct effects, the second part also discusses the indirect effects on monetary policy via the efficiency and stability of payment systems. The analysis is based on the New Institutional Economics.

The Assessment of Operational Risk in the Austrian Large Value Payment System ARTIS

The objective of this paper is to quantify the impact of an operational incident on the smooth functioning of ARTIS and on the operational reliability of the system by use of simulations. The analysis focuses on operational problems occurring in the realm of one of the participants. In this project we do not simulate an operational failure of the ARTIS platform itself. The scenarios are designed according to an ex-ante estimation of potential risk concentrations based on actual data for the sample period (Schmitz et al. 2006). The main finding of the simulations was - given the existing business continuity arrangements would prove effective - the high operational reliability of ARTIS. However, without the use of business continuity arrangements or in the case that they would not prove fully effective, the contagion effect on the smooth functioning of the payment system was substantial in all three scenarios. A non-negligible number of banks failed to settle payments.