New Economics Papers
on Banking
Issue of 2006‒10‒28
four papers chosen by
Roberto J. Santillán–Salgado, EGADE-ITESM

  1. Non-Parametric Analysis of Efficiency Gains from Bank Mergers in India By Adrian R. Gourlay; Geetha Ravishankar; Tom Weyman-Jones
  2. INTEREST RATE PASS-THROUGH IN COLOMBIA: A MICRO- BANKING PERSPECTIVE By Rocío Betancourt; Hernando Vargas; Norberto Rodríguez Niño
  3. A Lender-Based Theory of Collateral By Inderst, Roman; Mueller, Holger M
  4. Determining What's Really Important to Lenders: Factors Affecting the Agricultural Loan Decision-Making Process By Christine Wilson; Allan Featherston; Terry Kastens; John Jones

  1. By: Adrian R. Gourlay (Dept of Economics, Loughborough University); Geetha Ravishankar (Dept of Economics, Loughborough University); Tom Weyman-Jones (Dept of Economics, Loughborough University)
    Abstract: This paper offers an insight into the effectiveness of economic policy reforms in the Indian Banking System by examining the efficiency benefits of mergers among Scheduled Commercial Banks in India over the post-reform period 1991-92 to 2004-05. It does this by using the methodology developed by Bogetoft and Wang (2005). We also provide a metric for judging the success or failure of a merger. Overall, we find that bank mergers in the post-reform period possessed Considerable potential efficiency gains stemming from harmony gains. Post-merger efficiency analysis of the merged bank with a control group of non-merging banks reveals an initial merger related efficiency advantage for the former that, while persistent, did not show a sustained increase this failing to provide merging banks with a competitive advantage vis-a-viz their non-merging counterparts.
    Keywords: Data Envelopment Analysis, Mergers, Banking, Intermediation Approach, Production Approach.
    JEL: C14 G21 G34
    Date: 2006–10
  2. By: Rocío Betancourt; Hernando Vargas; Norberto Rodríguez Niño
    Abstract: Banks and other credit institutions are key players in the transmission of monetary policy, especially in emerging market economies, where the responses of deposit and loan interest rates to shifts in policy rates are among the most important channels. This pass-through depends on the conditions prevailing in the loan and deposit markets, which are, in turn, affected by macroeconomic factors. Hence, when setting their policy, monetary authorities must take into account those conditions and the behavior of banks. This paper illustrates this point by means of a theoretical micro-banking model and shows empirical evidence for Colombia suggesting that some aspects of the model might be relevant features of the transmission mechanism.
    Date: 2006–10–01
  3. By: Inderst, Roman; Mueller, Holger M
    Abstract: We consider an imperfectly competitive loan market in which a local (e.g., relationship) lender has valuable soft, albeit private, information, which gives her a competitive advantage vis-à-vis distant transaction lenders who provide arm’s-length financing based on hard, publicly available information. The competitive pressure from transaction lenders forces the local lender to leave surplus to borrowers, which distorts the local lender’s credit decision in the sense that she inefficiently rejects marginally profitable projects. Collateral mitigates this inefficiency by 'flattening' the local lender’s payoff function, thus improving her payoff from precisely those projects that she inefficiently rejects. Our model predicts that technological innovations such as small business credit scoring that narrow the information advantage of local lenders vis-à-vis transaction lenders lead to higher collateral requirements, thus strengthening the role of collateral in local lending relationships.
    Keywords: collateral; relationship lending vs transaction lending; soft information
    JEL: G21 G32
    Date: 2006–06
  4. By: Christine Wilson (Department of Agricultural Economics, College of Agriculture, Purdue University); Allan Featherston; Terry Kastens (Department of Agricultural Economics, Kansas State University); John Jones
    Abstract: Agricultural lenders in today’s environment face many challenges when evaluating the creditworthiness of farm borrowers. To address these challenges, a survey was conducted with financial institutions in Kansas and Indiana where agricultural lenders were asked for their response to hypothetical agricultural loan requests. Each loan request differed by the borrower’s character, financial record keeping, productive standing, Fair Isaac credit bureau score, and credit risk. Lenders provided information about themselves and their financial institutions. The survey data obtained determine the relative importance of financial and non-financial information when analyzing agricultural loan applications. Tobit models are estimated to identify the borrower and lender characteristics that are important in determining loan approval while OLS models are used to investigate the factors that affect interest rates offered to farm borrowers. The results provide a comparison of agricultural lending between two important agricultural states. The results from this analysis also provide lenders with insight on the factors that influence the decision making process of other agricultural lenders.
    Keywords: Agricultural loans, Credit bureau score, Credit evaluation, Interest rates
    JEL: G2 G21
    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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