New Economics Papers
on Banking
Issue of 2007‒04‒14
five papers chosen by
Roberto J. Santillán–Salgado, EGADE-ITESM

  1. Competitive effects of Basel II on U.S. bank credit card lending By William W. Lang; Loretta J. Mester; Todd A. Vermilyea
  2. X-efficiency, scale economies, Technological Progress and Competition of Pakistani’s banks By Qayyum, Abdul; Khan, Sajawal
  3. Bank supervision Russian style: Evidence of conflicts between micro- and macroprudential concerns By Claeys, Sophie; Schoors, Koen
  4. Banks, Risk, and the Business Cycle: An Analysis Based on Real-Time Data By Pierdzioch, Christian; Kizys, Renatas
  5. Credit market and macroeconomic volatility By Caterina Mendicino

  1. By: William W. Lang; Loretta J. Mester; Todd A. Vermilyea
    Abstract: The authors analyze the potential competitive effects of the proposed Basel II capital regulations on U.S. bank credit card lending. They find that bank issuers operating under Basel II will face higher regulatory capital minimums than Basel I banks, with differences due to the way the two regulations treat reserves and gain-on-sale of securitized assets. During periods of normal economic conditions, this is not likely to have a competitive effect; however, during periods of substantial stress in credit card portfolios, Basel II banks could face a significant competitive disadvantage relative to Basel I banks and nonbank issuers. ; Payment Cards Center Discussion Paper No. 07-04
    Keywords: Basel capital accord ; Credit cards
    Date: 2007
  2. By: Qayyum, Abdul; Khan, Sajawal
    Abstract: This study aims at investigating empirically the x-efficiency, scale economies, and technologicalprogress of commercial banks operating in Pakistan. As banking sector efficiency is consider as a precondition for macroeconomic stability, monetary policy execution, and economic growth.We also make efficiency comparisons between the domestic and foreign banks and big banks.Our results indicate that the domestic banks operating in Pakistan are relatively less efficient than their foreign counterparts. The scale economies for small banks, especially foreign banks are higher. Results show also that market share of big five banks are declining over the period but average interest spread shows fluctuations. The main conclusions that can be drawn from these results are that mergers are more likely to take place, especially in small banks. If the mergers do take place between small domestic banks and foreign banks, these will reduce cost due to scale economies as well as x-efficiency (because foreign banks are x-efficient relative to small domestic banks). Even if mergers do take place between small and big banks, cost will reduce with out conferring any monopolistic power to these banks. This will also help in stability of the financial sector, which an important concern of the State Bank of Pakistan SBP). So the best policy option for SBP is to encourage mergers, while keeping a check on interest spread, so that the benefits from reduction in cost due mergers are passed on to depositors and borrowers.
    Keywords: x-efficiency; scale economies; technologicalprogress; Commercial Banks; Pakistan
    JEL: G21
    Date: 2006
  3. By: Claeys, Sophie (Research Department, Central Bank of Sweden); Schoors, Koen (CERISE)
    Abstract: Supervisors sometimes have to manage both the micro- and macro- prudential dimensions of bank stability. These may either conflict or complement each other. We analyze prudential supervision by the Central Bank of Russia (CBR). We find evidence of micro-prudential concerns, measured as the rule-based enforcement of bank standards. Macro-prudential concerns are also documented: Banks in concentrated bank markets, large banks, money center banks and large deposit banks are less likely to face license withdrawal. Further, the CBR is reluctant to withdraw licenses when there are “too many banks to fail”. Finally, macro-prudential concerns induce regulatory forbearance, revealing conflicts with micro-prudential objectives.
    Keywords: Prudential Supervision; Bank Stability; Systemic Stability
    JEL: E50 G20 N20
    Date: 2007–03–01
  4. By: Pierdzioch, Christian; Kizys, Renatas
    Abstract: An important question for stock market investors and bank supervisors is to which extent the stock returns of banks reflect business-cycle sensitive risk in the banking industry. In order to find an answer to this question, we built on the stochastic discount factor model to derive a multivariate exponential GARCH-in-mean model. We used monthly U.S. data for the period from 1980 to 2006 to estimate the model. The novel feature of our empirical analysis is that we used both real-time and revised macroeconomic data to measure the business cycle. Our empirical results suggest that using real-time rather than revised macroeconomic data can significantly alter estimates of the risk premium that stock market investors require for bearing business-cycle sensitive risk in the banking industry.
    Keywords: Stochastic discount factor model; multivariate exponential GARCH-in-mean model; risk in the banking industry; real-time macroeconomic data
    JEL: E32 C32 G12 E44
    Date: 2007–03–01
  5. By: Caterina Mendicino (Monetary and Financial Analysis Department, Bank of Canada, 234 Wellington St., Ottawa, K1A 0G9, Ontario, Canada.)
    Abstract: This paper investigates the role of credit market size as a determinant of business cycle fluctuations. First, using OECD data I document that credit market depth mitigates the impact of variations in productivity to output volatility. Then, I use a business cycle model with borrowing limits a la Kiyotaki and Moore (1997) to replicate this empirical regularity. The relative price of capital and the reallocation of capital are the key variables in explaining the relation between credit market size and output volatility. The model matches resonably well the reduction in productivity-driven output volatility implied by the established size of the credit market observed in OECD data. JEL Classification: E21, E22, E44, G20.
    Keywords: Credit frictions, reallocation of capital, asset prices.
    Date: 2007–03

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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