Scientific journal
European Journal of Natural History
ISSN 2073-4972

INFLUENCE OF FISHER´S EFFECT ON BANK STRATEGY

Arzyakov V.I., Arzyakova O.N
The analysis of management of the percent rate of and account in it of inflationary risk - one of major tasks of forecasting of bank activity in changeable conditions of market economy. Thus during inflation there are processes of implicit redistribution of the incomes between the creditors and borrowers (Fisher´s effect) according to a known principle of game of two persons to the zero sum.

For an example the situation arising in some conditional typical bank is considered: for simplicity of the analysis was considered, that the bank works with means of the physical persons and finances of the extremely legal persons; real specific profit in a chain " the investor - bank - the borrower " in conditions of a varied rate of inflation requires reassessment of cost of actives for each of the creditors; on an example of the conditional contributions and credits of volume in one rouble we shall analyze process of their depreciation as a result of inflation.

The performance of the given analysis is broken on three stages.

At the first stage the part " the investor - bank " Below, in tab. 1 is examined, the accounts of the incomes of the investor and bank under the conditional rouble contribution for the period 1996-2007 are given., where are used given Central Bank of Russian Federation under the interest rates in appropriate of year. Examined conditional typical bank (as the borrower) offered the investor (as to the creditor) some profit under the contributions. And the bank nominated the underestimated rates (except for 1996). The investor, agreeing on the offered conditions, lost the real incomes, which were distributed for the benefit of bank. Thus, the percent-price strategy of bank in a part rouble deposit in the researched period did not take into account interests of the investor expecting for protection of the contribution from inflation, and was not balanced up to 2000. After 2000 the percent-price strategy has relative equation, though the investors and carry the losses, but they are not so significant, and the appropriate interest rates specify that the contribution of money resources to bank is more favorable form of the savings of means of the physical persons. Since 2001 and about today the bank receives the rather low latent income, which is caused small deposit by the rate. It, in turn, specifies relative equation of percent-price strategy, and also on steady development of bank sector.

By development of percent-price strategy the special meaning is got by the bottom border of size of the percent rate compensating the level of inflation, which is defined recognizing that the final income of investments should be equal to zero.

Table 1. Dynamics of the investor incomes and bank under the conditional rouble contribution

 

 

Index

 

1996

 

1997

 

1998

 

1999

 

2000

 

2001

 

2002

 

2003

 

2004

 

2005

 

2006

2007 prognosis

1

Deposit rate of percent, %

 

26,35

 

11,3

 

24,57

 

20,47

 

11,15

 

11,15

 

11

 

9,8

 

9,2

 

8,4

 

7,7

 

7,5

2

Contribution, rouble

 

1

 

1

 

1

 

1

 

1

 

1

 

1

 

1

 

1

 

1

 

1

 

1

3

Contribution with the income, rouble

[ 3]=[2](1+[1]/100)

 

 

1,26

 

 

1,113

 

 

1,246

 

 

1,2

 

 

1,11

 

 

1,11

 

 

1,11

 

 

1,1

 

 

1,09

 

 

1,08

 

 

1,08

 

 

1,07

4

Rate of inflation, %

16,41

11,53

84,14

36,59

20,25

12,1

10,2

12

11,7

10,9

8,8

8

5

Real contribution with the income, rouble

[ 5]=[3](1-[4]/100)

 

 

 

1,06

 

 

 

0,98

 

 

 

0,2

 

 

 

0,76

 

 

 

0,89

 

 

 

0,98

 

 

 

0,99

 

 

 

0,97

 

 

 

0,96

 

 

 

0,96

 

 

 

0,98

 

 

 

0,98

6

Final income of the investor, rouble

[ 6]=[5]-[2]

 

 

0,06

 

 

-0,02

 

 

-0,8

 

 

-0,24

 

 

-0,11

 

 

-0,02

 

 

-0,01

 

 

-0,03

 

 

-0,04

 

 

-0,04

 

 

-0,02

 

 

-0,02

7

Final income of the investor, %

[ 7]=([6]/[2]).100

 

 

6

 

 

-2

 

 

-80

 

 

-24

 

 

-11

 

 

-2

 

 

-1

 

 

-3

 

 

-4

 

 

-4

 

 

-2

 

 

-2

8

Latent income of bank, %

 

-6

 

2

 

80

 

24

 

11

 

2

 

1

 

3

 

4

 

4

 

2

 

2

The formula for it account (in shares of unit) is those: , where - compensating rate of inflation; - rate of inflation (in shares of unit) in the examined period.

According to a technique of an estimation of Fisher´s effect, the real final income D can be determined from a relation , where D - real final income; v - size of the contribution; - the deposit rate of percent. With the account, , D=0 is received the dependence , i.e. compensating rate of inflation . The meanings, designed on given dependence are submitted to tab. 2.

From the given results follows, that the interest rate under the rouble contributions in 2000 compensating a rate of inflation, should be above actual (make 25,39 % instead of 11,15 %) in case of equilibrium strategy. Thus, with the purposes of a covering of the losses because of a high level of inflation at a rate of 20,25 % by bank should be nominated the interest rate above than level 25,39 %.

Table 2. Settlement meanings of the rouble interest rate compensating an inflation rate

Year

nominal percent rate

rate of inflation, %

compensating rate of inflation, %

deviation of the current rates %

1996

26,35

16,41

19,63

6,72

1997

11,3

11,53

13,03

-1,73

1998

24,57

84,14

530,52

-505,95

1999

20,47

36,59

57,7

-37,23

2000

11,15

20,25

25,39

-14,24

2001

11,15

12,1

13,76

-2,61

2002

11

10,2

11,35

-0,35

2003

9,8

12

13,64

-3,84

2004

9,2

11,7

13,25

-4,05

2005

8,4

10,9

12,23

-3,84

2006

7,7

8,8

9,65

-1,95

2007

prognosis

7,5

8

8,69

-1,19

7,5

6,5

6,95

0,55


One of the reasons of the lowered rates can be a post crisis situation of the Russian financial market, which was caused by crisis of August 1998. The bank adheres to percent-price strategy supposing some underestimation of the factor of inflation, that allows it to receive the latent additional incomes in conditions, when the investors are focused in the greater degree on reliability of bank, rather than on reception of the high income on the enclosed means. Such bank strategy was characteristic for banks which are carrying out the activity during 1998-2002.

The deviation of the current rates from compensating rate of inflation became less during 2001-2007, but still keeps negative dynamics. It is connected that in conditions of market economy the bank can not completely undertake the obligations to the investors on preservation of their contributions, because too great the meanings of compensating rate of inflation can which directly depend on rates of inflation.

On the second investigation phase the part of a chain " bank - borrower " for the rouble credit, results of account for which is considered during 1996-2007 are submitted in tab. 3.

The results of accounts for the conditional rouble credit in the examined period testify to the following. In 1996-1997 the credit rates of percent allowed banks to receive the real income of crediting in national currency. During 1998-2000 a high level of inflation, caused by an economic crisis in the country, destroyed  the income of banks under the credits in real sector of economy, thus bringing the latent damage to banks. But in these of year the latent advantages were received by the borrowers (in particular, enterprises of real sector of economy taken credits). During 2001-2002 the period of stabilization was observed, when the bank received the real income of crediting in national currency.

On the third investigation phase overlapping results of the first and second analysis stages is carried out with the purpose of revealing parameters of work of bank in view of the real incomes of its clients (depositors and investors - borrowers). Accounts final annual "deposit-credit" for examined conditional bank is submitted to efficiency of through rouble operation in tab. 4.

Table 3. Dynamics of the bank incomes under the conditional rouble credit

 

 

Index

 

1996

 

1997

 

1998

 

1999

 

2000

 

2001

 

2002

 

2003

 

2004

 

2005

 

2006

2007 prognosis

1

Credit rate of percent, %

 

49,08

 

28

 

52,35

 

38,45

 

20,8

 

20,8

 

17

 

13,3

 

11,6

 

10,6

 

10,4

 

9,9

2

Credit, rouble.

1

1

1

1

1

1

1

1

1

1

1

1

3

Credit with percent, rouble

[ 3]=[2](1+[1]/100)

 

 

1,49

 

 

1,28

 

 

1,52

 

 

1,38

 

 

1,21

 

 

1,21

 

 

1,17

 

 

1,13

 

 

1,12

 

 

1,11

 

 

1,1

 

 

1,1

4

Rate of inflation, %

16,41

11,53

84,14

36,59

20,25

12,1

10,2

12

11,7

10,9

8,8

8

5

Real credit with percent, rouble

[ 5]=[3](1-[4]/100)

 

 

1,25

 

 

1,13

 

 

0,24

 

 

0,88

 

 

0,96

 

 

1,06

 

 

1,05

 

 

0,99

 

 

0,98

 

 

0,98

 

 

1

 

 

1,01

6

Final income of the credit, rouble

[ 6]=[5]-[2]

 

 

0,25

 

 

0,13

 

 

-0,76

 

 

-0,12

 

 

-0,04

 

 

0,06

 

 

0,05

 

 

-0,01

 

 

-0,02

 

 

-0,02

 

 

0

 

 

0,01

7

Final income of the credit, %

[ 7]=([6]/[2])100

 

 

25

 

 

13

 

 

-76

 

 

-12

 

 

-4

 

 

6

 

 

5

 

 

-1

 

 

-2

 

 

-2

 

 

0

 

 

1

Table 4. Final annual efficiency of through rouble operation "deposit-credit"

Index

 

1996

 

1997

 

1998

 

1999

 

2000

 

2001

 

2002

 

2003

 

2004

 

2005

 

2006

2007 prognosis

Rate of inflation, %

16,41

11,53

84,14

36,59

20,25

12,1

10,2

12

11,7

10,9

8,8

8

Latent income from deposit operations, %

 

-6

 

2

 

80

 

24

 

11

 

2

 

1

 

3

 

4

 

4

 

2

 

2

Income of credit operations, %

 

25

 

13

 

-76

 

-12

 

-4

 

6

 

5

 

-1

 

-2

 

-2

 

0

 

1

Final income, %

19

15

4

12

7

8

6

2

2

2

2

3

The received parities testify to unprofitableness for examined bank during 1998-2000 the crediting in rouble of real sector of economy at the usual level rouble deposit and credit rates of percent, and also inflation, available a high level, and essential risks of the credits unreturn. However, probably, the given percent-price strategy of bank is connected that the bank in the examined crisis period felt absence of economic stimulus for rouble investments, in particular in real sector of economy, and tried to avoid crediting of the industrial enterprises. An examined example of typical conditional bank during 1996-2007 reflects a general situation of bank sector of economy and confirms necessity of realization " Strategy of development of Russian Federation bank sector for the period till 2008 "[1].

The article is admitted to the International Scientific Conference "Mathematical Modeling of Social and Economic Processes", United Arab Emirates (Dubai), 16-23th October, 2007, came to the editorial office on 09.11.07.


[1] The application of Government of Russian Federation and Central bank of Russian Federation about Strategy of development of bank sector of Russian Federation for the period till 2008 from April 5, 2005. М., 2005.