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Amiyatosh Purnanandam Profile picture
@amiyatosh
Jul 21 • 3 tweets • 1 min read Twitter logo Read on Twitter
FedNow is perhaps the most important innovation in US payments system in a long time. India and Brazil have been way ahead on instant payments. Our study (w/ @tamannasdubey) from India documents significant benefit of fast payment system to marginal households & businesses. 1/2
Fast payments can cut down transactions costs (fees/time) & borrowing frictions. It can also enhance the contracting space for credit markets (e.g., credit linked to cash flows). Our paper from India's @UPI_NPCI (@NPCI_NPCI) experience attached below: 2/3
Can Cashless Payments Spur Economic Growth? @SSRN
@tamannasdubey #FedNow

3/3papers.ssrn.com/sol3/papers.cf…

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More from @amiyatosh

Amiyatosh Purnanandam Profile picture
Dec 31, 2020
This was so refreshing to see a meaningful debate on the economics of the farmer bill by @rahulkanwal with two leading economists holding opposite views.

I see broad agreements between @APanagariya and Abhijit Banerjee on the need for the reform. That's good. 1/n
Abhijit's primary objections to the bill come from: (a) timing of the reform is wrong (why do it during the pandemic), (b) why expose farmers to price risk, and (c) speculation about private buyer becoming a monopolist eventually. 2/n
The first objection (timing) seems insignificant: sure, the law can be put on hold for some time if that gives everyone time to communicate the costs/benefits of a market-based system. 3/n
Read 7 tweets
Amiyatosh Purnanandam Profile picture
May 7, 2020
Our new WP on returns earned by taxpayers on TARP bailout. TARP invested billions of dollars in the U.S. banks via preferred equity in 2008, right after the Lehman collapse.

"Banks paid back TARP money with return" is a common refrain. But was the return enough?
NO

1/6
Investments were made in a bad state (right after the collapse of Lehman), but the repayments came in good state: soon after the stock market began to recover.

Market participants require higher compensation to bear this risk. Was TARP's return "fair" given the risk?

2/6
We compare realized returns on TARP with returns on market securities with comparable risk (preferred equity return in the market) over exactly the same time period. TARP's return was considerably lower than the benchmark, especially for riskier banks.
3/6
Read 6 tweets
Amiyatosh Purnanandam Profile picture
Mar 11, 2020
Will/should @YESBANK AT1 bonds be converted into equity? If at all, bailout retail investors, not MFs. As per the terms of contract, AT1 bonds are of the "write-off" type. Hence they should just be written off, as per the original @RBI plan.
@dugalira @andymukherjee70
1/n
Sophisticated MFs bought AT1 & earned higher yield precisely for the risk that it had. If they get bailed out, what incentive do they have to monitor banks that issue bonds in the future (AT1 or otherwise)?Death of market discipline.
But retail investors are different.
2/n
They bought it perhaps due to misselling. If the goal is to protect them, a distinction must be made between MFs and retail. Retail AT1 should be converted into deposit, not equity. One way to do this -> extend deposit insurance to AT1 & cap it based on amount.

3/n
Read 5 tweets
Amiyatosh Purnanandam Profile picture
Mar 9, 2020
Long thread on AT1 Bonds given Yes Bank's collapse. Basel III introduced 3 types of capital:
1. Common Equity Tier 1, CET1
2. Additional Tier 1, AT1 Bonds
3. Additional Tier 2, AT2 Bonds

AT1 is a "contingent" equity capital: it's bond now, equity later if a trigger occurs.

1/n
AT1 is a perpetual bond providing promised coupons if the trigger has not happened. When the bank's equity falls below the trigger one of two things happens: write-off or conversion into common equity as laid out in the contract terms. Bonds are priced to reflect this risk.
2/n
AT1 bond is a "going-concern" capital, i.e., it provides capital before the bank becomes insolvent. AT2 bond is a "gone-concern" capital, i.e., it absorbs losses (for the senior bondholders/depositors) after the insolvency of the bank. AT1 riskier -> attracts higher returns
3/n
Read 6 tweets
Amiyatosh Purnanandam Profile picture
Dec 1, 2019
Opaque foreign investors in Indian Banks make me a bit nervous. Our paper "Why Banks Hide Losses", looks at reasons behind NPA divergence (hidden losses) in Indian Banks after the asset quality review by the RBI.
@dugalira @FinMinIndia @SubramanianKri @RBI
#YesBank
1/n
Two factors stand out: (i) higher the foreign institutional investors in a bank, higher the hiding,
(ii) higher the managerial comp, especially linked to reported NPA/profits number, higher the hiding.
Here is the paper: papers.ssrn.com/sol3/papers.cf…

2/n
FIIs are not good monitors of Indian banks. They substitute lower monitoring with high powered incentive contracts. Bank managers respond to high powered incentive contracts by reporting higher profits, unfortunately often by hiding losses. 3/n
Read 4 tweets

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