New Economics Papers
on Banking
Issue of 2007‒06‒02
twelve papers chosen by
Roberto J. Santillán–Salgado, EGADE-ITESM

  1. Uma Investigação Baseada em Reamostragem sobre Requerimentos de Capital para Risco de Crédito no Brasil By Ricardo Schechtman
  2. A Central de Risco de Crédito no Brasil: uma análise de utilidade de informação By Ricardo Schechtman
  3. Evaluation of Default Risk for The Brazilian Banking Sector By Marcelo Y. Takami; Benjamin M. Tabak
  4. Demand for Bank Services and Market Power in Brazilian Banking By Márcio I. Nakane; Leonardo S. Alencar; Fabio Kanczuk
  5. The role of banks in the Brazilian Interbank Market: Does bank type matter? By Daniel O. Cajueiro; Benjamin M. Tabak
  6. Information Sharing and Credit: Firm-Level Evidence from Transition Countries By Brown, Martin; Jappelli, Tullio; Pagano, Marco
  7. Fatores de Risco e o Spread Bancário no Brasil By Fernando G. Bignotto; Eduardo Augusto de Souza Rodrigues
  8. Italy-Assessing Competition and Efficiency in the Banking System By Andrea M. Maechler; Sandra Marcelino; Paulo Flavio Nacif Drummond
  9. An Analysis of Off-Site Supervision of Banks' Profitability, Risk and Capital Adequacy: a portfolio simulation approach applied to brazilian banks By Theodore M. Barnhill; Marcos R. Souto; Benjamin M. Tabak
  10. Financial dollarization - the role of banks and interest rates By Henrique S. Basso; Oscar Calvo-Gonzalez; Marius Jurgilas
  11. Safety Nets Within Banks By Felgenhauer, Mike; Grüner, Hans Peter
  12. Debt Structure and Bankruptcy of Financially Distressed Small Businesses By TSURUTA Daisuke; Peng XU

  1. By: Ricardo Schechtman
    Abstract: This study investigates the relation between absolute levels of credit risk capital requirements, bank solvency rates and stress scenarios of corporate default rates. The methodology is based on a resampling procedure developed based on the ideas of Carey (2002), which is used to estimate credit loss distributions of typical large Brazilian bank credit portfolios. In this approach, banks’ credit investment decisions are modeled as stratified independent draws from a representative pool of borrowers, in which such independency is brought about by the assumption that neither banks nor regulators are able to estimate, ex-ante, individual exposures’ sensitivities to systemic factors. As far as guaranteeing solvency for large Brazilian banks’ corporate portfolios, results suggest that the additional protection of the Brazilian version of Basel I is relevant mainly for highly stressed default rates.
    Date: 2006–12
  2. By: Ricardo Schechtman
    Abstract: Public Credit Registries contain data about borrowers' behaviour in the financial system and are, therefore, a valuable source of credit information. This paper examines the utility of different sets of information available at the Public Credit Register of the Central Bank of Brazil for predicting default of corporate credit exposures. It measures the quality increase in the estimates of probabilities of default in the situation where nonnegative information is included in the modelling or when financial institutions share information through the PCR. In both cases, not only discrimination and adjustment of the logistic regression models are improved, but also effects on credit extension and reduction of default rates in the economy are pointed out.
    Date: 2006–10
  3. By: Marcelo Y. Takami; Benjamin M. Tabak
    Abstract: This paper employs new methods to measure and monitor risk in the Brazilian banking sector. We prove that the option-based risk measure is negatively sensitive to interest rates. As this is an important issue for emerging market economies, the risk measures are built as deviations from mean. Additionally, the option-based indicator is compared with market-based financial fragility indicators. Results show that these indicators are useful for risk managers and regulators, especially during crisis. Furthermore, option-based methods are preferable to classify banks in periods of high distress, such as the banking crises that occurred in the early nineties in Brazil.
    Date: 2007–05
  4. By: Márcio I. Nakane; Leonardo S. Alencar; Fabio Kanczuk
    Abstract: We use bank-level data to model the demand for bank services in Brazil following the discrete choice literature. A multinomial logit specification is used to study the demand for time deposits, for an aggregate of demand and passbook savings deposits, and for loans. Market for each of these products is defined at the municipality level. In the supply side, we find the absolute price-cost margins consistent with Bertrand competition and with cartel. Our results suggest that even Bertrand competition overestimates the degree of market power in the Brazilian banking industry.
    Date: 2006–06
  5. By: Daniel O. Cajueiro; Benjamin M. Tabak
    Abstract: This paper presents an empirical analysis of the Brazilian interbank network structure. The Brazilian interbank market clearly presents a topology that is compatible to the free-scale networks. This market is characterized by money centers, which have exposures to many banks and are the most important source of large amounts of lending. Therefore, they have important positions in the network taken into account by the minimal spanning tree and the power domination measures of the network. We also develop a methodology to compare di®erent banks and their relative importance in the network.
    Date: 2007–01
  6. By: Brown, Martin; Jappelli, Tullio; Pagano, Marco
    Abstract: We investigate whether information sharing among banks has affected credit market performance in the transition countries of Eastern Europe and the former Soviet Union, using a large sample of firm-level data. Our estimates show that information sharing is associated with improved availability and lower cost of credit to firms, and that this correlation is stronger for opaque firms than transparent firms. In cross-sectional estimates, we control for variation in country-level aggregate variables that may affect credit, by examining the differential impact of information sharing across firm types. In panel estimates, we also control for the presence of unobserved heterogeneity at the firm level and for changes in selected macroeconomic variables.
    Keywords: credit access; information sharing; transition countries
    JEL: D82 G21 G28 O16 P34
    Date: 2007–05
  7. By: Fernando G. Bignotto; Eduardo Augusto de Souza Rodrigues
    Abstract: This work analyzes the determinants of the banking interest rate margin in Brazil from 2001 to 2004. Based on the Ho and Saunders' (1981) theoretical model, we verify the impacts of risk factors - interest-rate risk and default risk - and administrative costs over the banking interest rate margin charged. We used panel data to the bank-level variables and we applied the methodology proposed by Chamberlain (1982) for models with non-observed individual characteristics. The main conclusions are: (i) default risk, interest-rate risk and administrative costs have positive effects over the interest rate margin; (ii) beside this factors, there are other characteristics that have a significant impact over the interest rate margin, e.g. the liquidity level of the bank, the market-share and the banking services revenues; and (iii) the Chamberlain's methodology shows considerable efficiency gains relative to the 'fixed-effects' estimation in this sample.
    Date: 2006–07
  8. By: Andrea M. Maechler; Sandra Marcelino; Paulo Flavio Nacif Drummond
    Abstract: The paper assesses the degree of banking competition and efficiency in Italy?over time as well as compared to that in other countries, such as France, Germany, Spain, the United Kingdom, and the United States. The paper finds competition in the Italian banking sector has intensified in loan and deposit markets in recent years, but banks still operate in a highcost, high-income system, particularly with respect to retail/services, and efficiency gains have yet to fully materialize. The degree of competition falls within the range of estimates for a set of comparator countries. Greater contestability should act as a powerful force to drive banks to become more competitive and efficient. Competition policy will also continue to be an important consideration, both in enforcing Italy's antitrust laws and in ensuring that the procedures for dealing with weak banks and other merger and acquisition reviews focus on stability and competition objectives.
    Keywords: Banking systems , Italy , Competition ,
    Date: 2007–02–06
  9. By: Theodore M. Barnhill; Marcos R. Souto; Benjamin M. Tabak
    Abstract: In most countries, the role of off-site bank supervision involves continuous monitoring of profitability, risk and capital adequacy. The objective of this article is to demonstrate the value of bringing together advanced modeling techniques with data on banks' assets and liabilities and credit worthiness. More specifically, we apply an integrated market and credit risk simulation methodology to a group of six hypothetical banks. We show the capacity of the methodology: (i) to simulate credit transition probabilities of default close to the historical values estimated by the Central Bank of Brazil; and (ii) to simulate asset and equity returns that are unbiased estimators of average historical returns and standard deviations. Our results also indicate that: (i) a sharp reduction in the interest rate spreads of Brazilian banks reduces bank profitability and increases the probability of default; and (ii) most banks have low probability of bankruptcy. Our position is that utilization of forward looking risk evaluation methodologies in databases, such as those developed by the Central Bank of Brazil, has significant potential as an instrument of indirect supervision to identify potential risks before they materialize.
    Date: 2006–09
  10. By: Henrique S. Basso (School of Economics, Mathematics and Statistics, Birkbeck College, University of London, Malet Street, London, WC1E 7HX, United Kingdom.); Oscar Calvo-Gonzalez (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Marius Jurgilas (Department of Economics, College of Liberal Arts, University of Connecticut, 341 Mansfield Road, Unit1063, CT 06269-1063 USA.)
    Abstract: This paper develops a model to explain the determinants of financial dollarization. Expanding on the existing literature, our framework allows interest rate differentials to play a role in explaining financial dollarization. It also accounts for the increasing presence of foreign banks in the local financial sector. Using a newly compiled data set on transition economies we find that increasing access to foreign funds leads to higher credit dollarization, while it decreases deposit dollarization. Interest rate differentials matter for the dollarization of both loans and deposits. Overall, the empirical results lend support to the predictions of our theoretical model. JEL Classification: E44, G21.
    Keywords: Financial Dollarization, Foreign Banks, Interest Rate Differentials, Transition Economies.
    Date: 2007–05
  11. By: Felgenhauer, Mike; Grüner, Hans Peter
    Abstract: We study how banks should protect their credit departments against the external influence from potential borrowers. We analyze four mechanisms that are widespread in practice: a credit board with unanimity or simple majority, a hierarchy and an advisory system. A bank faces a trade-off between the quality of information aggregation and the effectiveness of barriers against external influence. We provide a ranking of the different schemes. Some of them are equivalent even though the credit managers' decision power differs. In large credit decisions, banks should sacrifice on the quality of information aggregation in order to better protect the decision making process from outside influence.
    Keywords: hierarchies; lobbying; voting rules
    JEL: D73 G32 L51
    Date: 2007–05
  12. By: TSURUTA Daisuke; Peng XU
    Abstract: Using a large sample of financially distressed small firms in Japan, we find that a distressed firm goes bankrupt faster if it uses proportionately more trade credits. Financially distressed firms experiencing a sharp decrease in trade payables are also more likely to go bankrupt. This suggests that coordination failure among a large number of dispersed trade creditors contributes to the bankruptcy of financially distressed firms. This finding supports the hypothesis that suppliers have an incentive to acquire credit information on distressed firms, and are able to do so more quickly than banks. Accordingly, they withdraw credits more quickly because trade credits, unlike bank loans, are unsecured.
    Date: 2007–05

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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