New Economics Papers
on Banking
Issue of 2006‒12‒09
nine papers chosen by
Roberto J. Santillán–Salgado, EGADE-ITESM

  1. Entry of Foreign Banks and their Impact on Host Countries By Lehner, Maria; Schnitzer, Monika
  2. Determinants of banks' engagement in loan securitization By Christina E. Bannier; Dennis N. Hänsel
  3. Bank income and profits over the business and interest rate cycle By Johann Burgstaller
  4. Mesure de la productivité et pratique de benchmarking:Le cas d’un groupe bancaire français By Aude Hubrecht
  5. ATM networks and cash usage By Snellman , Heli; Virén , Matti
  6. Optimal capacity in the banking sector<br />and economic growth By Bruno Amable; Jean-Bernard Chatelain; Olivier De Bandt
  7. Functional and structural complementarities of banks and microbanks in L.D.C's By SODOKIN, Koffi
  8. The Impacts of Capital Adequacy Requirements on Emerging Markets By Ray Barrell; Sylvia Gottschalk
  9. Can financial infrastructures foster economic<br />development? By Jean-Bernard Chatelain; Bruno Amable

  1. By: Lehner, Maria; Schnitzer, Monika
    Abstract: Foreign bank entry is frequently associated with spillover effects for local banks and increasing competition in the local banking market. We study the impact of these effects on host countries. In particular, we ask how these effects interact and how they depend on the competitive environment of the host banking market. An increasing number of banks is more likely to have positive welfare effects the more competitive the market environment, whereas spillovers are less likely to have positive welfare effects the stronger competition. Hence, competitive effects seem to reinforce each other, while spillovers and competition tend to weaken each other.
    Keywords: competition in banking; foreign bank entry; multinational bank; spillovers
    JEL: F37 G21 L13 O16
    Date: 2006–11
  2. By: Christina E. Bannier; Dennis N. Hänsel
    Abstract: This paper provides new insights into the nature of loan securitization. We analyze the use of collateralized loan obligation (CLO) transactions by European banks from 1997 to 2004 and try to identify the influence that various firm-specific and macroeconomic factors may have on an institution's securitization decision. We find that not only regulatory capital arbitrage under Basel I has been driving the market. Rather, our results suggest that loan securitization is an optimal funding tool for banks with high risk and low liquidity. It may also have been used by commercial banks to indirectly access investment-bank activities and the associated gains.
    Keywords: Securitization, credit risk transfer, collateralized loan obligations
    JEL: G21
    Date: 2006–10
  3. By: Johann Burgstaller (Department of Economics, Johannes Kepler University Linz, Austria)
    Abstract: If and how the conduct of the banking sector contributes to the propagation of aggregate shocks has become a prominent empirical research question. This study explores what a cyclicality analysis of net interest margins and spreads, as well as profitability figures, can contribute to the discussion. By using time series data for the Austrian banking sector from 1987 to 2005, it is found that many of these measures fall in economic upturns. Net interest income from granting loans and taking deposits from non-banks, however, evolves procyclically and increases with rising interest rates. Combined with the observation that the margins’ countercyclical variations are rather small, it can be concluded that there is no striking evidence for a financial accelerator caused by the Austrian banking sector.
    Keywords: Bank interest margins; business cycles; financial accelerator; impulse response analysis
    JEL: E32 G21
    Date: 2006–07
  4. By: Aude Hubrecht (Université de Bourgogne)
    Abstract: (VF)Une meilleure compréhension de la productivité des agences bancaires permet de résoudre des questions stratégiques au niveau du groupe bancaire. Pour évaluer toutes les facettes de la productivité, les mesures utilisées correspondent à de nombreux ratios avec au numérateur les dépôts rémunérés, les crédits aux particuliers ou encore l’épargne financière et au dénominateur le facteur capital, le facteur travail ou encore le nombre de comptes. Nous mesurons la productivité de 1611 agences réparties au sein de 16 groupes bancaires. Environ 30% des agences étudiées sont productive. A partir d’un diagnostic individuel des agences nous proposons un diagnostic « réseau » au niveau du groupe bancaire. Nous discutons les variations de la productivité à l’intérieur de chaque groupe bancaire et également entre chaque groupe bancaire à partir d’une approche DEA (« Data Envelopment Analysis »). Cette approche permet de développer un indicateur synthétique de la productivité et de pratiquer du benchmarking.(VA)An understanding of bank branch productivity allows solving strategic question at the group banking level. Branches productivity measurement has commonly used ratios of outputs such as interest-bearing deposit, personal loans or financial saving, and inputs factors like labour capital or number of accounts to measure different facets of productivity. We measure the productivity of 1611 branches divided in 16 banking group. We find that 30% of these branches are productive. From the individual branches diagnostic we propose a “network” diagnostic at the banking group level. We discuss the productivity variation inside each banking group and from a banking group to another by using a DEA (“Data Envelopment Analysis”) approach. This approach allows to develop a synthetic productivity index and to practice benchmarking.
    Keywords: productivité;benchmarking;réseaux d’agences bancaires;productivity;bank branches network
    JEL: G21 M11
    Date: 2006–11
  5. By: Snellman , Heli (Bank of Finland Research); Virén , Matti (Bank of Finland Research)
    Abstract: This paper deals with the issue of how the market structure in banking affects the choice of means of payment. In particular, the demand for cash is analysed from this point of view. The analysis is based on a simple spatial transactions model in which the banks’ optimization problem is solved. The solution quite clearly shows that monopoly banks have an incentive to restrict the number of ATMs to a minimum. In general, the number of ATMs depends on competitiveness in the banking sector. The predictions of the theoretical analysis are tested using panel data from 20 OECD countries for the period 1988–2003. Empirical analysis reveals that there is a strong and robust relationship between the number of ATM networks and the number of ATMs (in relation to population). It also reveals that the demand for cash depends both on the number of ATMs and ATM networks and on the popularity of other means of payment. Thus, the use of cash can be fairly well explained in a transaction demand framework, assuming proper controls for market structure and technical environment.
    Keywords: automated teller machine; demand for cash; banking; means of payment
    JEL: E41 E51
    Date: 2006–11–05
  6. By: Bruno Amable (PSE - Paris-Jourdan Sciences Economiques - [CNRS : UMR8545] - [Ecole des Hautes Etudes en Sciences Sociales][Ecole Nationale des Ponts et Chaussées][Ecole Normale Supérieure de Paris]); Jean-Bernard Chatelain (PSE - Paris-Jourdan Sciences Economiques - [CNRS : UMR8545] - [Ecole des Hautes Etudes en Sciences Sociales][Ecole Nationale des Ponts et Chaussées][Ecole Normale Supérieure de Paris], EconomiX - [CNRS : UMR7166] - [Université de Paris X - Nanterre]); Olivier De Bandt (Banque de France - [Banque de France])
    Abstract: The paper investigates, from the welfare and growth point of view, the determination<br />of the optimal capacity of the banking system. For that purpose, we consider an<br />overlapping generation model with endogenous growth. There is horizontal differentiation<br />and imperfect competition in the banking sector. Macro-economic shocks affect<br />the return on capital and, together with the expectations of depositors, condition the<br />stability of the banking sector. We specify to what extent deposit insurance may reduce<br />instability and increase the number of deposits, welfare and growth. We also characterise<br />the conditions under which excess banking capacities may appear and how their<br />reduction may improve welfare.
    Keywords: Deposit insurance; Imperfect competition; Banking; Growth; Overlapping<br />generation model
    Date: 2006–11–29
  7. By: SODOKIN, Koffi (LEG - CNRS UMR 5118 - Université de Bourgogne)
    Abstract: The prime objective of this paper is to explain the concept of monetary payments as a foundation of an analytical construction of microfinance institutions (microbanks) and official banks (banks) functional complementarity's in Less Developing Countries (L.D.C's). The second objective is to show that in L.D.C's production process, part of the non spent generated income is preserved after the payment operation, in the form of deposits accounts near microbanks and banks. The share preserved near microbanks, when it is not used to finance consumer expenditure and the income generating activities, is often invested in a portfolio of deposits account near banks. Microbanks are structurally complementary to banks. They are, for this purpose, a "super deposits accounts de facto" for households which do not have access to banks financial services. From a functional point of view and taking into account their role in microfirms production cost funding, microbanks cause monetary income generation. They are "banks de facto" and are functionally complementary to banks in L.D.C's.
    Keywords: Microfinance institutions ; non monetary intermediaries ; official banks ; money creation ; Banks ; microbanks ; complementarity ; monetary intermediation ; financial intermediation ; West Africa ; Low Developing Countries.
    JEL: E42 E44 O11 O17
    Date: 2006–10
  8. By: Ray Barrell; Sylvia Gottschalk
    Abstract: We investigate the macroeconomic impacts of changes in capital adequacy requirements, as developed in the Basel Capital Accords, on Brazil and Mexico. Changes in the capital adequacy requirements of international and domestic banks are considered, since the former adopted the Basel Capital Accord in 1988 and the latter in the mid-90s. Unlike most papers in the budding literature on the effects of the Basel Capital Accords on developing countries, we adopt an empirical approach, grounded in a general equilibrium macroeconometric model, which allows us to examine indirect transmission mechanisms. We first estimate a reduced financial block for Brazil and Mexico, which we integrate into the National Institute's General Equilibrium Model (NiGEM). We then simulate a shock to domestic and international capital adequacy ratios. The simulations show that an increase in capital adequacy ratios-either domestic or international-has adverse impacts on Brazilian and Mexican GDPs. A moderate credit crunch occurs in both cases and in both countries and is accompanied by a rise in lending rates. However, there are important differences in banks' reaction to tighter solvency ratios in each country. In Brazil, international and domestic banks adjust their portfolios by switching from higher-risk loans (private sector) to zero-risk loans (sovereign and public sector), instead of increasing their capital provisions. Sovereign lending, and hence government spending, thus rises sharply in Brazil. This offsets the negative impacts of the fall in private investment that follows the credit crunch. In Mexico, sovereign lending from domestic banks remains largely unaffected by changes in capital adequacy ratios, whereas foreign loans to the Mexican public sector decrease. In both cases, the Mexican private sector bears the bulk of the adjustment of domestic and foreign banks to the new regulatory rules. These findings suggest the existence of a financial "crowding-out", where government borrowing replaces private sector borrowing in domestic banks loans portfolios. Household borrowing including housing loans represents around 5 per cent of GDP in Mexico and about 8 per cent of GDP in Brazil, on average over 1997-2004. These ratios are considerably lower than those of countries such as the UK and the US. In 2000, for instance, total consumer credit in the UK and the US amounted to 73 and 78 per cent of GDP respectively (See Byrne and Davis 2003). This may account for our finding that consumer credit in both countries is not sensitive to changes in solvency ratios. Nonetheless, our simulations show that household consumption in Brazil and Mexico drops following a rise in capital adequacy ratios. The transmission mechanism is carried out through household net wealth. Higher solvency ratios lead to higher interest rates, which, other things unchanged, increase net interest payments of households and thus their net financial wealth. In our model, lower financial wealth results into lower consumption. Overall, given an increase of ½ percentage point in solvency ratios, we found that GDP falls by 3.5 per cent in Brazil, and by 2.2 per cent in Mexico.
    Date: 2006–02
  9. By: Jean-Bernard Chatelain (PSE - Paris-Jourdan Sciences Economiques - [CNRS : UMR8545] - [Ecole des Hautes Etudes en Sciences Sociales][Ecole Nationale des Ponts et Chaussées][Ecole Normale Supérieure de Paris], EconomiX - [CNRS : UMR7166] - [Université de Paris X - Nanterre]); Bruno Amable (PSE - Paris-Jourdan Sciences Economiques - [CNRS : UMR8545] - [Ecole des Hautes Etudes en Sciences Sociales][Ecole Nationale des Ponts et Chaussées][Ecole Normale Supérieure de Paris])
    Abstract: In this paper, financial infrastructures increase the efficiency of the banking sector: they decrease the market power due to horizontal differentiation of the financial intermediaries,<br />lower the cost of capital, increase the number of depositors and the amount of intermediated<br />savings, factors which in turn increase the growth rate and may help countries to take off<br />from a poverty trap. Taxation finances financial infrastructures and decreases the private<br />productivity of capital. Growth and welfare maximising levels of financial infrastructures<br />are computed.
    Keywords: Endogenous growth; Imperfect competition; Financial infrastructures
    Date: 2006–11–30

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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