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on Banking |
| By: | Australian Prudential Regulation Authority (Australian Prudential Regulation Authority) |
| Date: | 2005–07–19 |
| URL: | http://d.repec.org/n?u=RePEc:apr:aprpdp:dp0021&r=ban |
| By: | Australian Prudential Regulation Authority (Australian Prudential Regulation Authority) |
| Date: | 2005–07–28 |
| URL: | http://d.repec.org/n?u=RePEc:apr:aprpdp:dp0022&r=ban |
| By: | Australian Prudential Regulation Authority (Australian Prudential Regulation Authority) |
| Date: | 2005–07–28 |
| URL: | http://d.repec.org/n?u=RePEc:apr:aprpdp:dp0023&r=ban |
| By: | Australian Prudential Regulation Authority (Australian Prudential Regulation Authority) |
| Date: | 2005–10–04 |
| URL: | http://d.repec.org/n?u=RePEc:apr:aprpdp:dp0025&r=ban |
| By: | Mark Carlson; Kris James Mitchener |
| Abstract: | Because California was a pioneer in the development of intrastate branching, we use its experience during the 1920s and 1930s to assess the effects of the expansion of large-scale, branch-banking networks on competition and the stability of banking systems. Using a new database of individual bank balance sheets, income statements, and branch establishment, we examine the characteristics that made a bank a more likely target of a takeover by a large branching network, how incumbent unit banks responded to the entry of branch banks, and how branching networks affected the probability of survival of banks during the Great Depression. We find no evidence that branching networks expanded by acquiring "lemons"; rather those displaying characteristics of more profitable institutions were more likely targets for acquisition. We show that incumbent, unit banks responded to increased competition from branch banks by changing their operations in ways consistent with efforts to increase efficiency and profitability. Results from survivorship analysis suggest that unit banks competing with branch bank networks, especially with the Bank of America, were more likely to survive the Great Depression than unit banks that did not face competition from branching networks. Our statistical findings thus support the hypothesis that branch banking produces an externality in that it improves the stability of banking systems by increasing competition and forcing incumbent banks to become more efficient. |
| JEL: | E44 G21 L1 N22 |
| Date: | 2007–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12938&r=ban |
| By: | Carlos Gustavo Machicado (Institute for Advanced Development Studies) |
| Abstract: | This paper shows how uncertainty about liquidity demand can lead to a high degree of dollarization in the banking system. I study a model where the demand for currency in each period is random, and where it is easier for banks to borrow in local currency in times of crisis than in dollars. Banks choose a portfolio composed of local currency, dollars, and real loans. Compared to the anticipated transactions demand for each currency, I show that the bank will hold a relatively large amount of dollars and a relatively small amount of local currency. I also show the existence of a dollarization multiplier : as the anticipated transactions demand for dollars increases, the dollarization of the banking sector increases more than proportionately. |
| Keywords: | Dollarization, Banking crisis, Banking System |
| JEL: | F31 G21 G33 |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:adv:wpaper:200609&r=ban |
| By: | Greg Caldwell |
| Abstract: | The author develops a dynamic model of banking competition to determine which capital instrument is most effective in disciplining banks' risk choice. Comparisons are conducted between equity, subordinated debentures (SD), and uninsured deposits (UD) as funding sources. The model, adapted from Repullo (2004), analyzes the effectiveness of regulatory capital when banks incorporate charter value and competition for depositors into their risk-taking decision. The paper's main finding is that although all three instruments can induce market discipline on banks, equity weakly dominates SD and UD (with SD weakly dominating UD). |
| Keywords: | Financial institutions |
| JEL: | G21 G28 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:07-9&r=ban |
| By: | Kick, Thomas; Koetter, Michael |
| Abstract: | Outright bank failures without prior indication of financial instability are very rare. Supervisory authorities monitor banks constantly. Thus, they usually obtain early warning signals that precede ultimate failure and, in fact, banks can be regarded as troubled to varying degrees before outright closure. But to our knowledge virtually all studies that predict bank failures neglect the ordinal nature of bank distress. Exploiting the distress database of the Deutsche Bundesbank we distinguish four different distress events that banks experience. Only the worst entails a bank to exit the market. Weaker orders of distress are, first, compulsory notifications of the authorities about potential problems, second, corrective actions such as warnings and hearings and, third, actions by banking pillar's insurance schemes. Since the four categories of hazard functions are not proportional, we specify a generalized ordered logit model to estimate the respective probabilities of distress simultaneously. Our model estimates each set of probabilities with high accuracy and conrms, first, the necessity to account for different kinds of distress events and, second, the violation of the proportional odds assumption implicit in most limited dependent analyses of bank failure. |
| Keywords: | Bank, failure, distress, generalized ordered logit |
| JEL: | C35 G21 G33 K23 L50 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp2:5355&r=ban |
| By: | Kwang-Won Lee; Ian Sharpe (Australian Prudential Regulation Authority) |
| Abstract: | We investigate the relationship between the borrowing firm’s abnormal loan announcement return and the lending bank’s monitoring ability using a new, well-specified, ex-ante proxy for the bank’s monitoring ability. While recent studies have suggested that bank loan relationships and the related monitoring services may no longer matter, we find significant loan announcement returns over the 1995-1999 period and, controlling for borrower and loan characteristics, a strong positive relationship between a labour input based proxy for monitoring ability and the borrowing firm’s abnormal return. Our results are consistent with banks with superior monitoring ability adding more value to the borrower than less capable banks.<p> |
| Date: | 2006–10–03 |
| URL: | http://d.repec.org/n?u=RePEc:apr:aprewp:wp2006-04&r=ban |
| By: | Koetter, Michael; Porath, Daniel |
| Abstract: | Efficiency is considered a key factor when evaluating a bank's performance. Moreover, efficiency enhancement is an explicit policy objective in the Single Market Directive of the European Commission. But efficiency improvements may come at the expense of deteriorating bank profits and excessive risk-taking. Both the quantitative effects and dynamic reactions of performance in response to efficiency improvements remain often unclear on both theoretical and empirical grounds. We analyze the dynamic relations between efficiency and performance in the German banking market. To this end we use panel data for all German banks for the years from 1993 to 2004 and estimate impulse response functions (IRF) derived from a vector autoregressive model. The IRF estimate the response of a shock in efficiency on profits or default probabilities. The former is estimated with stochastic frontier analysis, the latter is estimated with a hazard rate model. The results indicate that a positive unit shift in efficiency reduces the probability of default and increases prots. On the one hand, we find evidence that the long-run impact of profit efficiency on risk is larger than for cost efficiency. However, cost efficiency impacts with a shorter time lag on the probability of default. On the other hand, cost efficiency has on average a slightly larger impact on profits than profit efficiency. |
| Keywords: | Bank performance, efficiency, bank failure, vector autoregression, performance forecast |
| JEL: | C33 C53 D21 G21 G33 L25 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp2:5354&r=ban |
| By: | Neil Esho; Paul Kofman; Michael G Kollo; Ian G. Sharpe (Australian Prudential Regulation Authority) |
| Abstract: | We examine evidence of market discipline in domestic and international subordinated debt of Australian banks. We estimate fixed effects panel error correction models to examine long-run relationships and short-run dynamics between bond risk spreads and accounting measures of bank risk. We find a significant long-run equilibrium relationship between the risk spread and both the impaired loans ratio and risk-adjusted capital ratio of Australian banks, consistent with the presence of market discipline. There is also evidence of significant short-run causality with changes in the one quarter lagged risk spread predicting changes in the current impaired loans ratio and somewhat weaker evidence of reverse causality. The results generally support the Basel Committee’s regulatory approach of seeking a greater role for market discipline in prudential regulation and supervision.<p> |
| Date: | 2005–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:apr:aprewp:wp2005-02&r=ban |
| By: | Carlos Gustavo Machicado (Institute for Advanced Development Studies) |
| Abstract: | This article illustrates how the industrial organization of a banking system affects economic growth in a partially dollarized economy. I study a model where banking competition has some potentially good and some potentially bad effects for growth. I analyze how important they are quatitatively and, surprisingly, they do not seem to matter much. The main reason for this is that while competition leads banks to offer consumers a "better deal" on their deposits, this does not lead to a large increase in the savings rate. The effect depends on the main structural parameter values of the economy. In particular, if there is a high demand for liquidity insurance. I calibrate the model for the Bolivian economy and show that the growth rates under both systems are not significantly different. |
| Keywords: | General equilibrium and growth, Dollarization, Banking, Industrial Organization |
| JEL: | D50 F31 G21 L10 |
| Date: | 2007–01 |
| URL: | http://d.repec.org/n?u=RePEc:adv:wpaper:200702&r=ban |
| By: | Enrique Alberola (Banco de España); Rodrigo César Salvado (Banco Centroamericano de Integración Económica) |
| Abstract: | A remarkable fact of the mushrooming remittances market is the absence of commercial banks as relevant players. Furthermore, remittances have been identified as a potential catalyst for the financial deepening of receiving countries through higher access to banking services by migrants' families. Building upon these features, this paper sets up a two-period financial model of remittances without uncertainty. The formulation acknowledges, on the one hand, the altruism component of remittances sent by migrants to their families and, on the other hand, the dominant position of Money Transfer Operators (MTO's) due to migrants' mistrust to banks, which hinders the access of banks to the market. Altruism compounded with a non-competitive market allows MTO's to set excessively high remittance fees and to attain monopolistic rents. The model shows that banks can challenge this position thanks to their role as providers of remunerated saving and credit, which enables them to overcome the competitive disadvantage derived by migrants' mistrust. Notwithstanding this, the main positive impact of banks' entry is attained through higher competition, not through the provision of financial services. All in all, the entry of banks reduces the fees and increases the level of remittances, allows an optimal consumption smoothing and improves the welfare of migrants and their families, although it also increases the volatility of remittances. |
| Keywords: | banks, financial development, migrations, remittances |
| JEL: | G20 J61 |
| Date: | 2006–08 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:0621&r=ban |
| By: | Gordy, Michael B.; Lütkebohmert, Eva |
| Abstract: | The credit value-at-risk model underpinning the Basel II Internal Ratings-Based approach assumes that idiosyncratic risk has been diversified away fully in the portfolio, so that economic capital depends only on systematic risk contributions. We develop a simple methodology for approximating the effect of undiversified idiosyncratic risk on VaR. The supervisory review process (Pillar 2) of the new Basel framework offers a potential venue for application of the proposed granularity adjustment (GA). Our GA is a revision and extension of the methodology proposed in the Basel II Second Consultative Paper. The revision incorporates some technical advances as well as modifications to the Basel II rules since the Second Consultative Paper of 2001. Most importantly, we introduce an “upper bound” methodology under which banks would be required to aggregate multiple exposures to the same underlying obligor only for a subset of their obligors. This addresses what appears to be the most significant operational burden associated with any rigorous assessment of residual idiosyncratic risk in the portfolio. For many banks, this approach would permit dramatic reductions in data requirements relative to the full GA. Adressenkonzentration in einem Kreditportfolio entsteht, wenn sehr wenige Kreditnehmer in dem Portfolio sind oder wenn die Kreditvolumina sehr ungleich verteilt sind. Das Kreditrisikomodell, welches dem Internen Ratings-Basierten (IRB) Ansatz von Basel II unterliegt, berücksichtigt die Adressenkonzentration nicht. Es wird vielmehr sogar angenommen, dass das Portfolio einer Bank perfekt granular ist, in dem Sinne, dass jeder einzelne Kredit nur einen sehr kleinen Anteil zum Gesamtportfolio beiträgt. Reale Bankportfolios sind selbstverständlich nicht perfekt granular. In dieser Arbeit stellen wir eine einfache Granularitätsanpassung (GA) als Methode vor, mit der der Beitrag von Adressenkonzentration zum Risiko eines Portfolios quantifiziert werden kann. Das bankenaufsichtliche Überprüfungsverfahren (Säule 2) unter Basel II bietet ein Anwendungsfeld für die vorgeschlagene Methode. Diese Version der GA ist eine Überarbeitung und Erweiterung früherer Methoden und dient insbesondere dazu, die Kosten für eine Umsetzung in der Praxis zu reduzieren. In praktischen Anwendungen stellen meistens die benötigten Daten (und nicht die Formel, die auf diese Daten angewendet wird) das größte Hindernis dar. Wenn eine Bank mehrere Kredite an denselben Kreditnehmer vergeben hat, erfordert die Messung von Adressenkonzentration, dass diese Kredite aggregiert werden. Das ist unabhängig davon, ob die von uns vorgeschlagene Methode oder eine beliebige robuste Alternative verwendet wird. Diese Aggregation von Kreditinformationen stellt momentan eine wesentliche Herausforderung für die Banken dar. Unsere überarbeitete GA bietet den Banken die Möglichkeit, eine obere Schranke für die GA in einem Portfolio zu berechnen, indem sie sich ausschließlich auf Informationen über die größten Kredite stützt. Dadurch entfällt die Notwendigkeit, Daten für jeden einzelnen Kreditnehmer zu aggregieren. Für viele Banken würde dieser Ansatz eine erhebliche Reduktion der Datenanforderungen im Vergleich zu früheren Methoden zur Bestimmung der Granularitätsanpassung darstellen. Wir wenden unsere GA Methode auf mehrere realistische Portfolios an, die auf dem Millionenkreditmeldewesen basieren. Unsere Ergebnisse zeigen, dass der Effekt der Adressenkonzentration bedeutend sein kann und dass die von uns vorgeschlagene GA eine robuste Methode für ihre Messung darstellt. |
| Keywords: | Basel II, granularity adjustment, value-at-risk, idiosyncratic risk |
| JEL: | G28 G31 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp2:5353&r=ban |
| By: | Ziqi Liao (Department of Finance & Decision Sciences, Hong Kong Baptist University); Wing-Keung Wong (Risk Management Institute and Department of Economics, National University of Singapore) |
| Abstract: | This paper empirically explores the major considerations associated with Internet-enabled e-banking systems and systematically measures the determinants of customer interactions with e-banking services. The results suggest that perceived usefulness, ease of use, security, convenience and responsiveness to service requests significantly explain the variation in customer interactions. Exploratory factor analysis and reliability test indicate that these constructs are relevant and reliable. Confirmatory factor analysis confirms that they possess significant convergent and discriminatory validities. Both perceived usefulness and perceived ease of use have significant impact on customer interactions with Internet e-banking services. Perceived security, responsiveness and convenience also represent the primary avenues influencing customer interactions. In particular, stringent security control is critical to Internet e-banking operations. Furthermore, prompt reactions to the service requests from customers should encourage them to use Internet e-banking services. The findings have managerial implications for enhancing extant Internet e-banking operations and developing viable e-banking systems and services. |
| Keywords: | Customer interactions, determinants, Internet, e-banking, service operations management |
| URL: | http://d.repec.org/n?u=RePEc:nus:nusewp:wp0701&r=ban |
| By: | Donald P. Morgan |
| Abstract: | We define predatory lending as a welfare-reducing provision of credit. Using a textbook model, we show that lenders profit if they can tempt households into "debt traps," that is, overborrowing and delinquency. We then test whether payday lending fits our definition of predatory. We find that in states with higher payday loan limits, less educated households and households with uncertain income are less likely to be denied credit, but are not more likely to miss a debt payment. Absent higher delinquency, the extra credit from payday lenders does not fit our definition of predatory. Nevertheless, it is expensive. On that point, we find somewhat lower payday prices in cities with more payday stores per capita, consistent with the hypothesis that competition limits payday loan prices. |
| Keywords: | Predatory lending ; Loans, Personal |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:273&r=ban |