New Economics Papers
on Banking
Issue of 2007‒05‒19
six papers chosen by
Roberto J. Santillán–Salgado, EGADE-ITESM

  1. Cross-Border Lending Contagion in Multinational Banks By Alexis Derviz; Jiri Podpiera:
  2. The Impact of Legal Sanctions on Moral Hazard when Debt Contracts are Renegotiable. By Régis Blazy; Laurent Weill
  3. Audit Coordinates in Financial-Banking Marketing - Evidence from Romania By Dura, Codruta; Driga, Imola
  4. Measurement of capital stock and input services of Spanish banks By Alfredo Martín-Oliver; Vicente Salas-Fumás; Jesús Saurina
  5. Regulatory reform and labour earnings in Portuguese banking By Natália Pimenta Monteiro
  6. The Spanish savings banks and the competitive cooperation model (1928-2002) By Francisco Comín

  1. By: Alexis Derviz; Jiri Podpiera:
    Abstract: We study the interdependence of lending decisions in different country branches of a multinational bank. This is done both theoretically and empirically. First, we formulate a model of a bank that delegates the management of its foreign unit to a local manager with non-transferable skills. The bank differs from other international investors due to a liquidity threshold which induces a depositor run and a regulatory action if attained. Therefore, lending decisions are influenced by delegation and precautionary motives. We then show that these two phenomena create a separate channel of shock propagation, a function of bank shareholder and manager incentives. The workings of this channel can lead to either “contagionâ€, meaning parallel reactions of the loan volumes in both countries to the parent bank home country disturbance, or standard “diversificationâ€, when the reactions of a standard international portfolio optimizer within the two country units go in opposite directions. In particular, it can happen that the impact of an exogenous shock on credit has a different sign in the “relationship†as opposed to the “arm’s-length†banking environment. Second, we construct a large sample of multinational banks and their branches/subsidiaries and look for the presence of lending contagion by panel regression methods. We obtain mixed results concerning contagion depending on the parent bank home country and the host economy of cross-border penetration. While the majority of multinational banks behave in line with the contagion effect, more than one-third do not. In addition, the presence of contagion seems to be related to the geographical location of subsidiaries.
    Keywords: Delegation, diversification, lending contagion, multinational bank, panel regression.
    JEL: F37 G21 G28 G31
    Date: 2006–12
  2. By: Régis Blazy (CREFI-LSF, Luxembourg University, Luxembourg School of Finance, Luxembourg.); Laurent Weill (LARGE, Université Robert SchumanInstitut d’Etudes Politiques,Strasbourg.)
    Abstract: This research investigates how bankruptcy law influences the design of debt contracts and the investment choice through the sanction of faulty managers. We model a lending relationship between a small firm and a monopolistic bank which decides the loan rate. The firm may perform asset substitution, which is punished by the Law through legal sanctions. These sanctions are implemented in case of costly bankruptcy only. This way of resolving financial distress can be avoided yet, if a private agreement is achieved. First, – when sanctions are high – we show that costly bankruptcy may be preferred by honest firms over private negotiation. Thus costly bankruptcy cannot be avoided under a severe legal environment. However, as the bank internalizes the rules of default, debt contracts are designed so that this situation never happens at equilibrium (“legal efficiency”). Second, a peculiar legislation may incite banks to accept generalized moral hazard (“economic inefficiency”). Then, the legislator can indirectly enforce economic efficiency. However he must consider effects beyond the simple comparison between legal sanctions and bankruptcy costs, and focus on the impact of such legal sanctions on the design of the debt contract. Simulated results show that even small changes of legal sanctions may have drastic effects on the firm’s investment policy. Besides, it appears that extreme severity (i.e. 100% of the manager’s wealth is subject to legal sanctions) is not needed to ensure economic efficiency. Last, in some cases, the legislator may have the choice between several levels of legal sanctions all leading to economic efficiency: when choosing between them, the legislator affects the profit sharing only.
    Keywords: Bankruptcy, Credit Lending, Moral Hazard, Sanctions
    JEL: G33 D82 D21
    Date: 2007–05
  3. By: Dura, Codruta; Driga, Imola
    Abstract: The general term of internal audit was established in relation to the financial accounting activity; this notion was gradually replaced by a new approach which expands the sphere of the audit so that the preoccupation for the future is very important for any audit activity. If forming and consolidating a favorable image of the bank among service consumers represents a marketing problem, then solving it requires numerous instruments from the marketing policies; the most important role is attributed to the audit. The final goal of the marketing audit is drawing up a table regarding the performances and the efficiency of the bank, in relation to the risks involved by financial institutions and its operations. In this respect, specialists in banking management have come up with different models of calculations and rating systems in their trials to obtain the most accurate scan of the “state of health” of the banks, and moreover in their trials to identify the institutions which face financial and operational difficulties leading to bankruptcy. The uniform bank rating system is a specific instrument for the supervising activity and has its origins in the USA ; it has later been borrowed by German, Italian, Great Britain authorities, which use influential components in their banking system; later on, their system was adopted by most central banks within the European Union. In Romania, the uniform bank rating system has been implemented by N.B.R. (the National Bank of Romania) since 2000; the specific components that were analyzed are: the capital adequacy (C), the quality of assets (A), the management (M), profitability (P), liquidities (L) and sensitivity (S) starting from the year 2005. For short, this system is called CAMPL. The evaluation of these specific elements represents an important criterion for establishing a compound rating, which means assigning scores to each bank. The compound rating for the banking system is established based on economic – financial indicators and prudence indicators.
    Keywords: marketing audit; uniform bank rating system; the capital adequacy; the quality of assets ; sensitivity to market risk
    JEL: M31 E58 A10
    Date: 2007–04–17
  4. By: Alfredo Martín-Oliver (Banco de España); Vicente Salas-Fumás (Banco de España; Universidad de Zaragoza); Jesús Saurina (Banco de España)
    Abstract: This paper contains estimates of physical and intangible (information technology, advertising and training) capital stock, together with capital, labor and externally provided input services, of Spanish commercial and saving banks in the period 1983 to 2003. Capital stocks are valued at replacement costs and assets’ services flows are computed using estimates of the risk-adjusted user cost of capital. Replacement costs of assets are substantially higher than book values and economic estimates of costs of input services allow for more accurate measures of efficiency and productivity of banks.
    Keywords: Spanish banks, intangible assets, cost of capital services
    JEL: G21 G31 M41
    Date: 2007–05
  5. By: Natália Pimenta Monteiro (Universidade do Minho - NIPE)
    Abstract: this study exemines changes union contracts and wage structure during and after the introduction of regukatory reforms (deregulation and privatisation) in the Portuguese banking sector. The main finding is that, despite a relative wage erosion detected in the contract dada, banking workers were able to enjoy an increasing wage premium in the period 1985-2000, probably reflecting the increasing profitability of the industry and the rise in labour productivity. The evidence also shows that some specific groups benefited relatively more than others: the least skilled and educated workforce and male workers gained more from the regulatory reforms. However, this unequal sharing of the wage premium did not raise wage inequality across ownership groups in the industry.
    Keywords: Deregulation, privatisation, wage structure, Portuguese banking industry
    JEL: J31 J45 L33
    Date: 2007
  6. By: Francisco Comín
    Abstract: This paper explores the relationship between the nature of Spanish Savings banks and the extent of their market success during the twentieth century. It deals with the key factors that have made so good a performance possible, such as: their ability to promote private saving, to cooperate with government economic policy, to adapt to changing circumstances, to operate in particular geographical areas, and to cooperate with one another. Finally, the paper deals with this last factor in depth. The competitive cooperation model is used to explain the outstanding role of the Spanish Confederation of Savings Banks in making the strategic alliance among the Spanish savings banks possible.
    Date: 2007–04

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