|
on Banking |
| By: | Tressel, Thierry; Detragiache, Enrica; Demirguc-Kunt, Asli |
| Abstract: | This paper studies whether compliance with the Basel Core Principles for Effective Banking Supervision (BCP) improves bank soundness. BCP compliance assessments provide a unique source of information about the quality of bank supervision and regulation around the world. The authors find a significant and positive relationship between bank soundness (measured with Moody ' s financial strength ratings) and compliance with principles related to information provision. Specifically, countries that require banks to report regularly and accurately their financial data to regulators and market participants have sounder banks. This relationship is robust to controlling for broad indexes of institutional quality, macroeconomic variables, sovereign ratings, as well as reverse causality. Measuring soundness through z-scores yields similar results. The findings emphasize the importance of transparency in making supervisory processes effective and strengthening market discipline. Countries aiming to upgrade banking regulation and supervision should consider giving priority to information provision over other elements of the Core Principles. |
| Keywords: | Banks & Banking Reform,Financial Intermediation,Corporate Law,Financial Crisis Management & Restructuring,Insurance & Risk Mitigation |
| Date: | 2006–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3954&r=ban |
| By: | Til Schuermann; Kevin J. Stiroh |
| Abstract: | This paper examines the common factors that drive the returns of U.S. bank holding companies from 1997 to 2005. We compare a range of market models from a basic one-factor model to a nine-factor model that includes the standard Fama-French factors and additional factors thought to be particularly relevant for banks such as interest and credit variables. We show that the market factor clearly dominates in explaining bank returns, followed by the Fama-French factors. The bank-specific factors are not informative, particularly for the largest banks, which take advantage of protection in the form of interest rate and credit derivatives. Even in our broadest model, however, considerable residual variation remains, with the mean pairwise correlation of residuals for the largest banks near 0.25. This finding suggests that important hidden factors remain. A principal component analysis shows that this residual variance is relatively diffuse, although the largest banks do tend to load in the same direction on the first component. Relative to the returns of large firms in other sectors, bank returns are relatively well explained with standard risk factors, and both the residual correlation and degree of factor loading agreement are not particularly large. These results have clear implications both for public policymakers seeking to quantify those shared bank exposures that create systemic risk and to portfolio managers seeking to devise optimal diversification strategies. |
| Keywords: | Bank holding companies ; Bank profits ; Rate of return ; Bank investments |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:252&r=ban |
| By: | Hirofumi Uchida; Gregory F. Udell; Nobuyoshi Yamori |
| Abstract: | Theoretical and empirical work suggests that commercial loan officers play a critical role in relationship lending by producing soft information about their SME borrowers. We test whether loan officers in the Japanese SME loan market perform this role in a manner that is consistent with the theoretical predictions in the relationship lending literature. While we find limited evidence that soft information may benefit SME borrowers, we do not find evidence that is on balance consistent with theoretical predictions that loan officers produce soft information that is not easily transmitted to others within the bank. These results are consistent with alternative explanations including the possibility that the social environment in Japan leads to a credit culture where it is easier to transmit soft information from one loan officer to another. It could also be consistent with the possibility that the relationship lending may not be particularly important in the Japanese SME loan market. |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:06031&r=ban |
| By: | Ralph de Haas; Iman van Lelyveld |
| Abstract: | We use panel data on the intra-group ownership structure and balance sheets of 45 of the largest banking groups from 1992 to 2004 to analyse what determines the credit growth of multinational bank subsidiaries. Both home- and host-country conditions and characteristics of the subsidiaries themselves and their parent banks are taken into account. We find that the lending of multinational bank subsidiaries is influenced by substitution effects, in which parent banks trade-off lending in several countries, as well as support effects, in which parent banks support weak subsidiaries. This provides strong evidence for the existence of internal capital markets through which multinational banks manage the credit growth of their subsidiaries. We also find that greenfield subsidiaries are more closely integrated into internal capital markets than subsidiaries that result from a take-over. |
| Keywords: | multinational banks; credit supply; internal capital markets |
| JEL: | F15 F23 F36 G21 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:101&r=ban |
| By: | Massimiliano Affinito (Banca d'Italia); Fabio Farabullini (Banca d'Italia) |
| Abstract: | The availability of new harmonized data on bank interest rates allows a rigorous assessment to be made of cross-country price homogeneity/heterogeneity in euro area retail credit markets. Econometric analysis shows that the banking market is still highly segmented and that the degree of integration in a single country (Italy, taken as a benchmark for integration) is greater than in the euro area. However, national differences can be partially explained by variables reflecting the characteristics of domestic depositors and borrowers (“demand side” regressors, such as risk exposure, disposable income, alternative financing sources, average firm size) and the characteristics of the banking systems (“supply side” regressors, such as banking market concentration, asset and liability structure). The euro area prices appear different because national banking products appear different or because they are differentiated by national factors. Once these factors have been controlled for, many differences disappear. |
| Keywords: | bank interest rates, convergence, integration |
| JEL: | E43 E44 G21 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_589_06&r=ban |
| By: | Alessio De Vincenzo (Bank of Italy); Claudio Doria (Bank of Italy); Carmelo Salleo (Bank of Italy) |
| Abstract: | Bank takeovers result on average in little improvements in performance. This may be due to conflicting driving forces behind them; however these have seldom been studied. We study directly the motivations for bank acquisitions by analyzing the prices paid for them, under the assumption that bankers are willing to pay for what they want. We find that there is no evidence that bankers are ready to pay for possible economies of scale and scope; on the other hand buyers expect to transfer their superior managerial skills to targets. Market power seems to hold little value while entry (or diversification) commands a premium. Agency issues at the buyer are also an important motivation for takeovers: other things being equal acquirers with more free capital are willing to pay more. |
| Keywords: | banking, M&As, pricing, corporate governance, market power |
| JEL: | G21 G34 L21 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_587_06&r=ban |
| By: | Antonio Di Cesare (Banca d'Italia) |
| Abstract: | This paper analyzes the ability of credit default swap spreads, bond spreads and stock prices to anticipate the decisions of the main rating agencies, for the largest international banks. Conditional on negative rating events, all the three indicators show signi¯cant abnormal changes before both announcements of review and actual credit rating changes, but rating actions still seem to convey new information to the market. Results for positive rating events are less clear-cut with the market indicators generally showing abnormal behaviors only in conjunction with the events. As for the predictive power of the ¯nancial indicators examined, the CDS market is particularly useful for negative events and stock prices for positive events. However, all indicators also send many false signals and are to be interpreted with care. |
| Keywords: | Credit derivatives, credit default swaps, option-adjusted spreads,credit ratingss |
| JEL: | G14 G21 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_593_06&r=ban |
| By: | Leo de Haan; Elmer Sterken |
| Abstract: | We study competitive price setting behavior in the Dutch mortgage market, using daily observations on advertised 5- and 10-year mortgage interest rates for a sample of the four largest Dutch banks. We (1) estimate a VECM model, (2) a discrete choice model and (3) a structural conjectural variation model. The results indicate that one of the banks is a price leader, but that waiting for the leader to set the first step does not exclude competitive pricing by the followers. |
| Keywords: | Mortgage market; Competition; Price leadership; VECM; Probit; Conjectural variation. |
| JEL: | G21 L13 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:102&r=ban |
| By: | Warren E. Weber |
| Abstract: | Prior to the Civil War there were three major differences among states in how U.S. banks were regulated: (1) Whether they were established by charter or under free-banking laws. (2) Whether they were permitted to branch. (3) Whether the state established a state-owned bank. I use a census of the state banks that existed in the United States prior to the Civil War that I recently constructed to determine how these differences in state regulation affected the banking outcomes in these states. Specifically, I determine differences in banks per capita by state over time; bank longevities (survival rates) by state, size, and type of organization; and bank failure probabilities also by state, size, and type of organization. In addition, I estimate the losses experienced by note holders and determine whether there were systematic differences in these depending on whether or not a bank was organized under a free banking law. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmwp:642&r=ban |