New Economics Papers
on Banking
Issue of 2007‒06‒11
nine papers chosen by
Roberto J. Santillán–Salgado, EGADE-ITESM

  1. Lending Competition, Relationship Banking, and Credit Availability for Entrepreneurs By OGURA Yoshiaki
  2. Finance and Efficiency: Do Bank Branching Regulations Matter? By Viral V. Acharya; Jean Imbs; Jason Sturgess
  3. Diversification and the banks’ risk-return-characteristics – evidence from loan portfolios of German banks By Behr, Andreas; Kamp, Andreas; Memmel, Christoph; Pfingsten, Andreas
  4. Risk Taking by Banks in the Transition Countries By Paul Wachtel; Rainer Haselmann
  5. How do banks adjust their capital ratios? Evidence from Germany By Memmel, Christoph; Raupach, Peter
  6. Bank Restructuring in Asia: Crisis management in the aftermath of the Asian financial crisis and prospects for crisis prevention -Malaysia- By ITO Takatoshi; HASHIMOTO Yuko
  7. Bank Consolidation and Soft Information Acquisition in Small Business Lending By OGURA Yoshiaki; UCHIDA Hirofumi
  8. Banks, depositors and liquidity shocks: long term vs. short term interest rates in a model of adverse selection By Geethanjali Selvaretnam
  9. ATM SURCHARGES: EFFECTS ON DEPLOYMENT AND WELFARE By Ramón Faulí-Oller; Ioana Chioveanu; Joel Sandonís; Juana Santamaria-Garcia

  1. By: OGURA Yoshiaki
    Abstract: Existing theories consistently predict that relationship banking enhances credit availability for new firms. To put more concretely, these theories predict that soft information acquisition about borrowers' creditworthiness and the resulting incumbent lender's profit-improving and relation-specific consulting ability yield a monopolistic rent for the incumbent lender, and that this expected rent encourages a bank to lend to younger firms to pre-empt an exclusive relationship ahead of rival banks. The present study tries to provide evidence for this hypothesis using a dataset collected from the 2003 Survey of the Financial Environment of Enterprises in Japan. Our statistical analysis shows that the time interval from start-up to the first loan approval for a firm is shorter if a bank intends to undertake relationship banking, even after controlling fund-demand and creditworthiness factors of each firm. This result provides evidence to support the above hypothesis. Our logit analysis shows that the probability for banks to undertake relationship banking is decreasing or hump-shaped against the number of competing banks. Thus, the increase in the number of competing banks is more likely to discourage these banks from providing relationship banking, and this in turn diminishes credit availability for new firms. Besides such an effect arising from relationship banking, the data shows evidence suggesting the statistical significance of another mechanism generating a negative correlation between the number of competing banks and credit availability for new firms, which may be explained by the theory of winner's curse. As a whole, credit availability for new firms was higher in more concentrated local credit markets in the last fifteen years in Japan.
    Date: 2007–06
  2. By: Viral V. Acharya (London Business School & CEPR); Jean Imbs (University of Lausanne - HEC, CEPR & Swiss Finance Institute); Jason Sturgess (London Business School)
    Abstract: We use portfolio theory to quantify the efficiency of state-level sectoral patterns of production in the United States. On the basis of observed growth in sectoral value added output, we calculate for each state the efficient frontier for investments in the real economy, the efficient Sharpe ratio, and the corresponding weights on investments in different industries. We study how rapidly different states converge to an efficient allocation, depending on access to finance. We find that convergence is faster - in terms of distance to the efficient frontier and improving Sharpe ratios - following intra- and (particularly) interstate liberalization of bank branching restrictions. This effect arises primarily from convergence in the volatility of state output growth, rather than in its average. The realized industry shares of output also converge faster to their efficient counterparts following liberalization, particularly for industries that are characterized by young, small and external finance dependent firms. Convergence is also faster for states that have a larger share of constrained industries, greater distance from the efficient frontier before liberalization and larger geographical area. These effects are robust to industries integrating across states and the endogeneity of liberalization dates. Overall, our results suggest that financial development has important consequences for the efficiency and specialization (or diversification) of investments, in a manner that depends crucially on the variancecovariance properties of investment returns, rather than on their average only.
    Keywords: Financial development, Growth, Sharpe ratio, Volatility, Diversification
    JEL: E44 F02 F36 O16 G11 G21 G28
    Date: 2006–11
  3. By: Behr, Andreas; Kamp, Andreas; Memmel, Christoph; Pfingsten, Andreas
    Abstract: Banks face a tradeoff between diversifying and focusing their loan portfolio. In this paper we carry out an empirical study for the German market to shed light on the question whether or not the benefits of risk sharing outweigh those of specialization. We use data from the Bundesbank’s quarterly borrowers statistic to determine the degree of diversification in the banks’ loan portfolios and combine this data with the banks’ balance sheets and audit reports. The unique database comprises data from all German banks during the period from 1993 to 2003. Our main results can be summarized in three statements: i) Specialized banks have a slightly higher return than diversified banks. ii) Specialized banks have lower relative loan loss provisions and lower shares of non-performing loans, iii) However, the standard deviations of the loan loss provision ratio and the non-performing loan ratio are lower for diversified banks.
    Keywords: bank lending, loan portfolio, portfolio theory, diversification, riskreturn analysis
    JEL: C23 C43 G11 G21
    Date: 2007
  4. By: Paul Wachtel; Rainer Haselmann
    Date: 2007
  5. By: Memmel, Christoph; Raupach, Peter
    Abstract: We analyze the dynamics of banks’ regulatory capital ratios. Using monthly data of regulatory capital ratios for a subset of large German banks, we estimate the target level and the adjustment speed of the capital ratio for each bank separately. We find evidence that, first, there exists a target level for a substantial percentage of banks; second, that private banks and banks with liquid assets are more likely to adjust their capital ratio tightly; and third, that banks compensate for low target capital ratios with low asset volatilities and high adjustment speeds. Fourth, banks with a target capital ratio seem to use an internal lower limit for their current ratios that is just above the regulatory minimum of 8%.
    Keywords: Regulatory bank capital, target capital ratio, partial adjustment, Ornstein-Uhlenbeck process
    JEL: G21 G32
    Date: 2007
  6. By: ITO Takatoshi; HASHIMOTO Yuko
    Abstract: This paper analyzes the bank restructuring process in Malaysia from the currency crisis of 1997 to present. Even though the banking sector in Malaysia had relatively lower NPLs compared to other Asian countries, financial sector suffered financial crisis and various problems emerged. This paper covers topics such as setting up financial restructuring agencies, a scheme of capital injection to weak banks, and a corporate restructuring process conducted by the Malaysian government. Plans of Mergers/ closures of banks, setting up an asset management company, a recapitalization agency, and a corporate debt restructuring committee, such as Pengurusan Danaharta Nasional Berhad (Danaharta), Danamodal Nasional Berhad (Danamodal), and the Corporate Debt Restructuring Committee (CDRC), were accompanied by several policy measures such as an exchange rate system pegged to the U.S. dollar, capital controls, and a fiscal stimulus package. Through these measures, the authorities, to some extent, succeeded in bringing down NPLs and in merging several banks to some extent. The reform was considered basically completed by 2002. The banking sector was reorganized with 10 banking groups, and two of the restructuring agencies were closed by 2003.
    Date: 2007–06
  7. By: OGURA Yoshiaki; UCHIDA Hirofumi
    Abstract: We empirically examine the impact of bank consolidation on bankers' acquisition of soft information about borrowers. Using a dataset of small businesses, we found that bank mergers have a negative impact on soft information acquisition by small banks while those by large banks that have less interest in acquiring soft information irrespective of mergers have no impact. Detailed analyses of the post-merger organizational restructuring show that the measures of an increase in organizational complexity have a negative and significant impact on soft information acquisition by small banks, while the measures of cost-cut do not have any significant impact on soft information acquisition. This result implies that the increase in organizational complexity by bank mergers hindered soft information acquisition, which is consistent with Stein's prediction [2002, J. Fin.] on the comparative advantage of simple and flat organizations in acquiring and processing soft information.
    Date: 2007–06
  8. By: Geethanjali Selvaretnam
    Abstract: This model takes into consideration the fact that depositors have private information about their probability of having to withdraw early. The banks can offer a menu of contracts with different combinations of long and short term interest rates to those who withdraw early and wait respectively. This is a principal- agent model of a bank in a competitive market and depositors where depositors are either low or high type which indicates the probability of early withdrawal. Therefore they will consider the long-term and short-term returns in their investment decision. We find the contracts that the banks offer that can be sustained as equilibrium - symmetric pooling equilibrium where only one contract is offered and a separating equilibrium where two contracts are offered. It is found that found return of more than one can never be sustained. Further, there is no symmetric pooling equilibrium when both types withdraw with some probability. However a symmetric pooling equilibrium can be sustained if the proportion of low type agents is high enough and they never withdraw early. There is a separating equilibrium if the proportion of low type agents is sufficiently high.
    Keywords: adverse selection, interest rates, liquidity shock, private information.
    JEL: D82 G21
    Date: 2007–05
  9. By: Ramón Faulí-Oller (Universidad de Alicante); Ioana Chioveanu (Universidad de Alicante); Joel Sandonís (Universidad de Alicante); Juana Santamaria-Garcia (Universidad de Alicante)
    Abstract: This paper analyzes the effects of ATM surcharges on deployment and welfare, in a model where banks compete for ATM and banking services. Foreign fees, surcharges and the interchange fee are endogenously determined. We find that, when the interchange fee is cooperatively fixed by banks to maximize joint profits, surcharges should be allowed, as they neutralize the collusive effect of the interchange fee. As a consequence, ATM deployment is higher and retail prices lower than without surcharges, increasing consumer surplus and social welfare.
    Keywords: ATM, surcharge, foreign fee, interchange fee, collusion
    JEL: L1 G2
    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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