New Economics Papers
on Banking
Issue of 2007‒01‒02
six papers chosen by
Roberto J. Santillán–Salgado, EGADE-ITESM

  1. When target CEOs contract with acquirers: evidence from bank mergers and acquisitions By Elijah Brewer, III; William E. Jackson, III; Larry D. Wall
  2. Bank branch presence and access to credit in low-to-moderate income neighborhoods By O. Emre Ergungor
  3. Foreclosures: relationship lending in the consumer market and its aftermath By O. Emre Ergungor
  4. Bank imputed interest rates: unbiased estimates of offered rates? By Evren Örs; Tara Rice
  5. The competitive effects of risk-based bank capital regulation: an example from U.S. mortgage farkets By Diana Hancock; Andreas Lehnert; Wayne Passmore; Shane M. Sherlund
  6. What can we learn about financial access from U.S. immigrants? By Una Okonkwo Osili; Anna Paulson

  1. By: Elijah Brewer, III; William E. Jackson, III; Larry D. Wall
    Abstract: This paper investigates the impact of the target chief executive officer’s (CEO) postmerger position on the purchase premium and target shareholders’ abnormal returns around the announcement of the deal in a sample of bank mergers during the period 1990–2004. We find evidence that the target shareholders’ returns are negatively related to the postmerger position of their CEO. However, these lower returns are not matched by higher returns to the acquirer’s shareholders, suggesting little or no wealth transfers. Additionally, our evidence suggests that the target CEO becoming a senior officer of the combined firm does not boost the overall value of the merger transaction.
    Date: 2006
  2. By: O. Emre Ergungor
    Abstract: Banks specialize in lending to informationally opaque borrowers by collecting soft information about them. Some researchers claim that this process requires a physical presence in the market to lower information collection costs. The author provides evidence in support of this argument in the mortgage market for low-income borrowers. Mortgage originations increase and interest spreads decline when there is a bank branch located in a low-to-moderate income neighborhood.
    Keywords: Mortgage loans ; Branch banks
    Date: 2006
  3. By: O. Emre Ergungor
    Abstract: Relationship lending theory suggests that lenders in close proximity to their borrowers might be the most efficient providers of screening and monitoring services, because the cost of collecting information declines with distance. The author presents evidence that ties bank branch presence to borrower performance in the low-income housing market, which provides support for this theory.
    Keywords: Branch banks ; Mortgage loans
    Date: 2006
  4. By: Evren Örs; Tara Rice
    Abstract: We examine whether “imputed” interest rates obtained from bank financial statements are unbiased estimates of “offered” interest rates that the same banks report in surveys. We find evidence of a statistically significant amount of bias. However, the statistical bias that we document does not appear to be economically significant. When used as dependent variables in regression analysis, imputed rates and offered rates lead to the same policy conclusions. Our work has important methodological implications for empirical research that examines the product market competition among depository institutions.
    Date: 2006
  5. By: Diana Hancock; Andreas Lehnert; Wayne Passmore; Shane M. Sherlund
    Abstract: Basel II bank capital regulations are designed to be substantially more risk sensitive than the current regulations. In the United States, only the largest banks would be required to adopt Basel II; other depositories could choose to adopt such standards or to remain under the Basel I capital standards. We consider possible effects of this two-pronged or "bifurcated" approach on the market for residential mortgages. Specifically, we analyze whether those institutions that adopt Basel II will enjoy lower costs than nonadopters and whether they have an incentive to retain mortgages in their own portfolios. We find that (1) despite the large differences in regulatory capital requirements between adopters and nonadopters, it is unlikely that there will be any measurable effect of Basel II implementation on most mortgage rates and, consequently, any direct impact on the competition between adopters and nonadopters for originating or holding residential mortgages; (2) the most significant competitive impact may be felt among mortgage securitizers; and (3) adopters might have increased profits from some mortgages relative to nonadopters because they will capture some of the deadweight losses that occur under the current regulatory regime, but nonadopters would likely retain their market shares.
    Date: 2006
  6. By: Una Okonkwo Osili; Anna Paulson
    Abstract: We find that wealthier and more educated immigrants are more likely to make use of basic banking services and other formal financial services. Holding these (and other) factors constant, we find immigrants from countries with more effective institutions are more likely to have a relationship with a bank and use formal financial markets more extensively. Institutional quality appears to be an important factor in both determining both the breadth and the depth of financial access. It can explain approximately 17 percent of the country-of- origin-level variation in bank account usage among immigrants in the U.S., after other characteristics, including wealth, education and income, are controlled for. Institutional quality is even more important for explaining more extensive participation in financial markets, accounting for 27 percent of the analogous variation. We examine various measures of institutional effectiveness and are careful to control for unobserved individual characteristics, including specifications with country fixed-effects.
    Date: 2006

This issue is ©2007 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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