New Economics Papers
on Banking
Issue of 2006‒09‒16
twelve papers chosen by
Roberto J. Santillán–Salgado, EGADE-ITESM

  1. The impact of competition on bank orientation By Degryse,Hans; Ongena,Steven
  2. The impact of organizational structure and lending technology on banking competition By Degryse,Hans; Laeven,Luc; Ongena,Steven
  3. Asset Restructuring Strategies in Bank Acquisitions: Evidence from the Italian Banking Industry By Pietro ALESSANDRINI; Alberto ZAZZARO; Giorgio CALCAGNINI
  4. Is there a bank lending channel in Hungary? Evidence from bank panel data By Csilla Horváth; Judit Krekó; Anna Naszódi
  5. Banks, Distances and Financing Constraints for Firms By Pietro ALESSANDRINI; Alberto ZAZZARO; Andrea PRESBITERO
  6. Access and risk - friends or foes? Lessons from Chile By Adasme, Osvaldo; Majnoni, Giovanni; Uribe, Myriam
  7. The Cost of Banking Regulation By Luigi Guiso; Paola Sapienza; Luigi Zingales
  8. Studies on the validation of internal rating systems (revised) By Basel committee on banking supervision
  9. La scomparsa dei centri decisionali dal sistema bancario meriodionale By Alberto ZAZZARO
  10. The broadening of activities in the financial system : implications for financial stability and regulation By Wagner,Wolf
  11. Are Rural Credit Markets Competitive? Is There Room for Competition in Rural Credit Markets? By Kilkenny, Maureen; Jolly, Robert W.
  12. Performance of an economy with credit constraints, bankruptcy and labor inflexibility By Felipe Balmaceda; Ronald Fischer

  1. By: Degryse,Hans; Ongena,Steven (Tilburg University, Center for Economic Research)
    Abstract: How do banks react to increased competition? Recent banking theory offers conflicting predictions about the impact of competition on bank orientation - i.e., the choice of relationship based versus transactional banking. We empirically investigate the impact of interbank competition on bank branch orientation. We employ a unique data set containing detailed information on bank-firm relationships. We find that bank branches facing stiff local competition engage considerably more in relationship-based lending. Our results illustrate that competition and relationships are not necessarily inimical.
    Keywords: bank orientation;bank industry specialization;competition;lending relationships
    JEL: G21 L11 L14
    Date: 2006
  2. By: Degryse,Hans; Laeven,Luc; Ongena,Steven (Tilburg University, Center for Economic Research)
    Abstract: Recent theoretical models argue that a bank's organizational structure reflects its lending technology. A hierarchically organized bank will employ mainly hard information, whereas a decentralized bank will rely more on soft information. We investigate theoretically and empirically how bank organization shapes banking competition. Our theoretical model illustrates how a bank's geographical reach and loan pricing strategy is determined not only by its own organizational structure but also by organizational choices made by its rivals. We take our model to the data by estimating the impact of the rival banks' organization on the geographical reach and loan pricing of a singular, large bank in Belgium. We employ detailed contract information from more than 15,000 bank loans granted to small firms, comprising the entire loan portfolio of this large bank, and information on the organizational structure of all rival banks located in the vicinity of the borrower. We find that the organizational structure of the close rival banks matters for both branch reach and loan pricing. The geographical footprint of the lending bank is smaller when the close rival banks are large, hierarchically organized, and technologically advanced. Such rival banks may rely more on hard information. Large rival banks in the vicinity also lower the degree of spatial pricing. We also find that the effects on spatial pricing are more pronounced for firms that generate less hard information, such as small firms. In short, size and hierarchy of rival banks in the vicinity influences both branch reach and loan pricing of the lender.
    Keywords: banking sector;bank size;competition;mode of organization
    JEL: G21 L11 L14
    Date: 2006
  3. By: Pietro ALESSANDRINI (Universita' Politecnica delle Marche, Dipartimento di Economia); Alberto ZAZZARO (Universita' Politecnica delle Marche, Dipartimento di Economia); Giorgio CALCAGNINI (Universit… di Urbino "Carlo Bo", Facolt… di Economia)
    Abstract: One of the most lively debated effects of banking acquisitions is the change in lending and asset allocation of the target bank in favour of transactional activities, at the expense of small and informational opaque borrowers. These changes may be the result of two distinct restructuring strategies of the asset portfolio of the bidder bank. An asset cleaning strategy (ACS), in which the acquiring bank makes a clean sweep of all the negative net present value activities in the portfolio of the acquired bank, and an asset portfolio strategy (APS), in which the acquiring bank permanently changes the portfolio allocation of the acquired bank. In this paper we focus on Italian bank acquisitions and test which asset restructuring strategy was predominantly pursued over the period 1997-2003. Moreover, we estimate both a model for the whole Italian banking industry and a model for the acquired banks located in economic backward Southern regions. At the national level we find evidence of a primacy of ACSs over APSs. When we concentrate on bank acquisitions that occurred in the Mezzogiorno (Italy’s Southern regions), evidence seems to reverse, i.e. APSs dominate over ACSs.
    Keywords: asset restructuring strategies, bank acquisitions, small business lending
    JEL: G21 L22
    Date: 2006–06
  4. By: Csilla Horváth; Judit Krekó (Magyar Nemzeti Bank); Anna Naszódi (Magyar Nemzeti Bank)
    Abstract: In this paper we analyze the bank lending channel in Hungary. We provide a brief overview of the theory and the empirical approaches used to investigate the existence of bank lending channel. From the possible methods we use the generally applied approach suggested by Kahsyap and Stein (1995) which relies on discovering asymmetries in changes in the amount of loans to monetary actions in order to isolate supply and demand effects. We estimate an ARDL model where the asymmetric effects are captured by interaction-terms. We find significant asymmetric adjustment of loan quantities along certain bank characteristics. The existence of bank lending channel, and therefore loan supply decisions of banks, can explain these asymmetries. In addition, we do not find any sign for asymmetric loan demand adjustment along these variables. According to these findings, we cannot rule out the existence of the bank lending channel in Hungary.
    Keywords: monetary transmission, credit channel, bank lending channel, ARDL model.
    JEL: C23 E44 E52 G21
    Date: 2006
  5. By: Pietro ALESSANDRINI (Universita' Politecnica delle Marche, Dipartimento di Economia); Alberto ZAZZARO (Universita' Politecnica delle Marche, Dipartimento di Economia); Andrea PRESBITERO ([n.a.])
    Abstract: The wave of bank mergers and acquisitions experienced in European and U.S. credit markets during the Nineties has deeply changed the geography of banking industry. While the number of bank branches has increased in almost every country, reducing the operational distance between banks and borrowers, bank decisional centres and strategic functions have been concentrated in only a few places within each nation, increasing the functional distance between banks and local communities. In this paper, we carry out a multivariate analysis to assess the correlation of functional and operational distances with local borrowers' financing constraints. We apply our analysis on Italian data at the local market level defined as provinces. Our findings consistently show that increased functional distance makes financing constraints more binding, it being positively associated with the probability of firms being rationed, investment-cash flow sensitivity, and the ratio of credit lines utilized by borrowers to credit lines make available by banks. These adverse effects are particularly evident for small firms and for firms located in southern Italian provinces. Furthermore, our findings suggest that the negative impact on financing constraints following the actual increased functional distance over the period 1996-2003 has substantially offset (and sometimes exceeded) the beneficial effects of the increased diffusion of bank branches occurring during the same period.
    Keywords: financing constraints, funtional distance, local banking system, operational proximity
    JEL: G21 G34 R51
    Date: 2006–09
  6. By: Adasme, Osvaldo; Majnoni, Giovanni; Uribe, Myriam
    Abstract: This paper documents the link between risk, stability, and access to credit markets in an emerging economy. It presents annual credit loss distributions of Chilean banks for the period 1999-2005, providing the first empirical evidence of the cyclical pattern of expected losses and unexpected losses of bank loan portfolios in emerging countries. The paper provides three main contributions to the debate on bank solvency and access to credit markets. First, it derives nonparametric estimators of expected losses and unexpected losses, free from model error and, in particular, from distributional restrictions. Second, it shows how the distribution of credit losses for portfolios of retail and commercial loans is affected by the lumpiness of bank loans. Finally, it shows that the shape of credit loss distributions helps select appropriate policies to promote broader and sounder access to bank credit for the poor and the unbanked.
    Keywords: Banks & Banking Reform,Investment and Investment Climate,Financial Intermediation,Economic Theory & Research,Insurance & Risk Mitigation
    Date: 2006–09–01
  7. By: Luigi Guiso; Paola Sapienza; Luigi Zingales
    Abstract: We use exogenous variation in the degree of restrictions to bank competition across Italian provinces to study both the effects of bank regulation and the impact of deregulation. We find that where entry was more restricted the cost of credit was higher and - contrary to expectations- access to credit lower. The only benefit of these restrictions was a lower proportion of bad loans. Liberalization brings a reduction in rates spreads and an increased access to credit at a cost of an increase in bad loans. In provinces where restrictions to bank competition were most severe, the proportion of bad loans after deregulation raises above the level present in more competitive markets, suggesting that the pre-existing conditions severely impact the effect of liberalizations.
    JEL: E0 G0
    Date: 2006–08
  8. By: Basel committee on banking supervision
    Date: 2005
  9. By: Alberto ZAZZARO (Universita' Politecnica delle Marche, Dipartimento di Economia)
    Abstract: More than a decade has now gone by since the crises of Banco di Napoli, Banco di Sicilia, Sicilcassa and the majors southern "Casse di Risparmio" have actually decreed the vanishing of a independent banking system in southern regions, but the economic and political debate on the effects of this process is still lively. In this paper, I introduce the main themes debated during the last ten years by scholars, practitioners and politicians. Specifically, I present the theoretical and practical reasons of those who consider the present structure of the southern banking system unsatisfactory for he economic prospects of the area.
    Keywords: banks, decisional centres, mergers and acquisitions, southern italian regions
    JEL: G21 G34 R11
    Date: 2006–05
  10. By: Wagner,Wolf (Tilburg University, Center for Economic Research)
    Abstract: Conglomeration and consolidation in the financial system broaden the activities financial institutions are undertaking and cause them to become more homogenous.Although resulting diversification gains make each institution appear less risky, we argue that financial stability may not improve as total risk in the financial system remains the same. Stability may even fall as institution' incentives for providing liquidity and limiting their risk taking worsen. Optimal regulation may thus not provide a relief for diversification. However, we also identify important benefits of a broadening of activities. By reducing the differences among institutions, it lowers the need for inter-institutional risk sharing. This mitigates the impact of any imperfections such risk sharing may be subject to. The reduced importance of such risk sharing, moreover, lowers externalities across institutions. As a result, institutions' incentives are improved and there is less need for regulating them.
    Keywords: conglomeration;financial consolidation;homogenization;stability
    JEL: G21 G28
    Date: 2006
  11. By: Kilkenny, Maureen; Jolly, Robert W.
    Abstract: Not available.
    Date: 2006–05–31
  12. By: Felipe Balmaceda; Ronald Fischer
    Abstract: We present a static general equilibrium model of an economy with agents with heterogenous wealth and endogenous credit constraints due to moral hazard. Credit constraints give rise to inefficiencies which are larger if wealth is distributed more unequally. We show that increases in the loan recovery rate improve the efficiency of the economy and raise the equilibrium interest rate. We also determine the sensitivity of the economy to the wealth distribution, and how this response depends on the loan recovery rate. We examine these results in an open economy, where interest rate increases are translated into inflows of capital due to improvements in loan recovery. The previous results are compounded if the economy faces labor inflexibilities, so smaller increases in inequality lead to productive inefficiencies and to lower wages. We simulate our model economy to determine the importance of these effects.
    Date: 2006

This issue is ©2006 by Roberto J. Santillán–Salgado. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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