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on Banking |
| By: | Nikola A. Tarashev; Haibin Zhu |
| Abstract: | This paper develops an empirical procedure for analyzing the impact of model misspecification and calibration errors on measures of portfolio credit risk. When applied to large simulated portfolios with realistic characteristics, this procedure reveals that violations of key assumptions of the well-known Asymptotic Single-Risk Factor (ASRF) model are virtually inconsequential. By contrast, flaws in the calibrated interdependence of credit risk across exposures, which are driven by plausible small-sample estimation errors or popular rule-of-thumb values of asset return correlations, can lead to significant inaccuracies in measures of portfolio credit risk. Similar inaccuracies arise under erroneous, albeit standard, assumptions regarding the tails of the distribution of asset returns. |
| Keywords: | Correlated defaults, value at risk, multiple common factors, granularity, estimation error, tail dependence, bank capital |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:230&r=ban |
| By: | Safavian, Mehnaz; Sharma, Siddharth |
| Abstract: | Creditor-friendly laws are generally associated with more credit to the private sector and deeper financial markets. But laws mean little if they are not upheld in the courts. The authors hypothesize that the effectiveness of creditor rights is strongly linked to the efficiency of contract enforcement. This hypothesis is tested using firm level data on 27 European countries in 2002 and 2005. The analysis finds that firms have more access to bank credit in countries with better creditor rights, but the association between creditor rights and bank credit is much weaker in countries with inefficient courts. Exploiting the panel dimension of the data and the fact that creditor rights change over time, the authors show that the effect of a change in creditor rights on change in bank credit increases with court enforcement. In particular, a unit increase in the creditor rights index will increase the share of bank loans in firm investment by 27 percent in a country at the 10th percentile of the enforcement time distribution (Lithuania). However, the increase will be only 7 percent in a country at the 80th percentile of this distribution (Kyrgyzstan). Legal protections of creditors and efficient courts are strong complements. |
| Keywords: | Debt Markets,,Banks & Banking Reform,Emerging Markets,Labor Policies |
| Date: | 2007–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:4296&r=ban |
| By: | Petr Teplý (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Milan Matejašák (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic) |
| Abstract: | In recent years, regulators have increased their focus on the capital adequacy of banking institutions to enhance their stability, hence the stability of the whole financial system. The purpose of this paper is to assess and compare how American and European banks adjust their level of capital and portfolio risk under capital regulation, whether and how they react to constraints placed by the regulators. In order to do this, we estimate a modified version of the simultaneous equations model developed by Shrieves and Dahl. This model analyzes adjustments in capital and risk at banks when they approach the minimum regulatory capital level. The results indicate that regulatory requirements have the desired effect on bank behavior. Both American and European banks that are close to minimum requirements simultaneously increase their capital. In addition, the US banks decrease their portfolio risk taking. |
| Keywords: | banking regulation, Basel Capital Accord, capital adequacy, banks, simultaneous equations model |
| JEL: | C30 G18 G21 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2007_23&r=ban |
| By: | Lindsay Jones; Stefan Krause |
| Abstract: | The purpose of this paper is to determine whether foreign bank presence has had a stabilizing or destabilizing effect on the Latin American banking sector. Our results suggest that, while "brick and mortar" operations of foreign banks in Latin American countries contribute to the reduction of the probability of a banking crisis, there is no significant effect of direct foreign lending initiated outside the country on the likelihood of experiencing financial distress. |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:emo:wp2003:0713&r=ban |
| By: | Martín Vallcorba (Banco Central del Uruguay); Javier Delgado (Banco de España) |
| Abstract: | This paper examines the determinants of the non-performing loans ratio of Uruguayan banks and studies the existence of cointegration relationships between this ratio and a set of macroeconomic variables. Authors find evidence of the existence of a relationship between non-performing loans ratio, variation of wages measured in dollars and interest rates. The paper concludes that lower wages and higher rates lead to a higher default ratio in the long term. This conclusion emphasizes the importance of the exchange-rate risk over the credit risk in such economies with dollarized banking systems. The estimated model is then used to simulate the effects of several hypothetical stress scenarios on defaulted loans ratio. As a result of this exercise, the paper concludes that the Uruguayan banking system presents nowadays a more solid position than during the period before the 2002 crisis. |
| Keywords: | morosidad, dolarización, cointegración, Uruguay |
| JEL: | E32 E44 G21 |
| Date: | 2007–07 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:0722&r=ban |
| By: | John K. Ashton (Centre for Competition Policy, University of East Anglia) |
| Abstract: | This study examines the frequency and form of deposit account interest rate change. Specifically, the question of whether depost rate change is synchronised with other banks or staggered at periodic intervals is addressed. Overall, evidence consistent with individual banks changing deposit interest rates in a staggered manner is recorded. Further, larger banks are seen to change interest rates in a more synchronised manner than smaller banks. Lastly, when banks offer multiple deposit accounts, these products' interest rates are generally changes simultaneously by individual banks. These findings extend the current understanding of deposit interest rate change, and indicate that UK deposit interest rate setting is relatively rigid. |
| Keywords: | Retail banking, interest rates, staggering, synchronisation |
| JEL: | G21 |
| Date: | 2007–01 |
| URL: | http://d.repec.org/n?u=RePEc:ccp:wpaper:wp07-14&r=ban |
| By: | Luis Gutiérrez de Rozas (Comisión Nacional de Energía (CNE)) |
| Abstract: | The aim of this paper is to assess the level of competition prevailing in the Spanish banking system. The current analysis employs a widely used non-structural methodology put forward by Panzar and Rosse (1987) —the so-called H-statistic— and draws upon a comprehensive panel dataset of Spanish commercial and savings banks covering the period 1986-2005. Standard estimates characterize a hump-shaped profile for the H-statistic throughout the time span under consideration. Nevertheless, a weighted procedure is subsequently performed in order to control for firm size and the number of branches. The estimation outcome reveals a gradual rising path for the H-statistic, thus suggesting a more competitive environment among larger banks. In both settings, a noteworthy increase in the degree of competition is identified at the turn of the eighties, when several liberalization-oriented policy measures came into force. The aforementioned findings discredit the widespread hypothesis which states that concentration impairs competition. |
| Keywords: | banking, competition, Panzar-Rosse, market structure |
| JEL: | G21 L13 L10 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:0726&r=ban |
| By: | Jason Allen; Ying Liu |
| Abstract: | The authors examine the degree of contestability in the Canadian banking system using the <em>H</em>-statistic proposed by Panzar and Rosse (1987) and modified by Bikker, Spierdijk, and Finnie (2006). A modification is necessary because the standard approach of controlling for size using total assets leads to an upward bias in the <em>H</em>-statistic. The authors propose a variety of model specifications and test for contestability using detailed quarterly balance-sheet data from 2000 to 2006. Contrary to Bikker, Spierdijk, and Finnie (2006), the authors find that the Canadian banking sector is in equilibrium and characterized by monopolistic competition. This result is in line with earlier studies of the Canadian banking sector (Nathan and Neave 1989) as well as cross-country studies that use cruder measures of Canadian banking inputs (Claessens and Laeven 2005). As in Bikker, Spierdijk, and Finnie (2006), the authors show that projecting revenue on total assets leads to an upward bias regarding the level of competition. |
| Keywords: | Financial institutions |
| JEL: | E5 E6 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocadp:07-7&r=ban |
| By: | Sirtaine, Sophie; Skamnelos, Ilias |
| Abstract: | High credit growth in Emerging Europe, generally considered a sign of catching-up with the " old " Europe, has begun receiving considerable attention among investors and policymakers alike. Given heightened global risks and the demands under the European Union accession process, the need to better understand this high credit growth ' s drivers, riskiness, and the possible macroeconomic and financial stability consequences is strong. The authors adopt a holistic approach in reviewing the rapid credit growth experienced in the region, examining macroeconomic, financial sector, corporate sector, and asset market consequences and possible vulnerabilities. They consider three possible scenarios-a catching-up with older European countries, a soft landing as experienced by Portugal in the early 2000s, and a hard landing as experienced by Asia in 1997. |
| Keywords: | Banks & Banking Reform,Financial Intermediation,Financial Crisis Management & Restructuring,Economic Theory & Research,Investment and Investment Climate |
| Date: | 2007–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:4281&r=ban |