New Economics Papers
on Banking
Issue of 2007‒10‒06
eight papers chosen by
Roberto J. Santillán–Salgado, EGADE-ITESM

  1. Innovation, Information and Financial Architecture By Solomon Tadesse; ;
  2. Larger crises cost more: impact of banking sector instability on output growth By Serwa, Dobromił
  3. Professor Becker on Free Banking: A Comment By van den Hauwe, Ludwig
  4. Hazardous Times for Monetary Policy: What do Twenty-three Million Bank Loans Say about the Effects of Monetary Policy on Credit Risk? By Jiminez, G.; Ongena, S.; Pedro, J.L.; Saurina, J.
  5. Integration of financial supervision By Holopainen, Helena
  6. The Cyclical Behaviour of European Bank Capital Buffers By Jokipii, Terhi; Milne, Alistair
  7. Rent-sharing in Portuguese Banking By Natália Pimenta Monteiro; Miguel Portela
  8. Default Option, Risk-Aversion and Household Borrowing Behaviour By Ingrid Groessl; Ulrich Fritsche

  1. By: Solomon Tadesse; ;
    Abstract: Does a financial system architecture anchored on banks better than one centered on markets in fostering technological innovations as engine of growth? In a panel of industrial sectors across a large cross section of countries, I find that while market-based systems have a general positive effect on innovations in all economic sectors, bank-based systems foster more rapid technological progress in more informationintensive industrial sectors, suggesting a heterogeneous impact of financial architecture. Thus, the relative performance of bank-based systems vis-à-vis market-based systems depends on the industrial structure of the economy.
    Keywords: Technological Progress, Innovation, Intangible Assets, Financial System Architecture, Bank-Based System, Market-Based System
    JEL: G1 G21 G32 E44 O14 O31 O34 O4
    Date: 2007–06–01
  2. By: Serwa, Dobromił
    Abstract: We propose a method for calculating the macroeconomic costs of banking crises that controls for the downward impact of recessions on banking activity. In contrast to earlier research, we estimate the cost of crises based on the size of banking crises. The extent of a crisis is measured using banking sector aggregates. The results, based on our method and data from over 100 banking crises, suggest that the size of a crisis matters for economic growth. Lower credit, deposit and money growth during crises cause GDP growth to decline.
    Keywords: banking crises; costs; output growth; event-study
    JEL: G21 E51 C32 G15
    Date: 2007
  3. By: van den Hauwe, Ludwig
    Abstract: Professor Becker´s paper about free banking written in 1956 was originally intended as a reaction to the 100-percent reserve proposals that were then popular at the University of Chicago. Today the original paper clearly illustrates how considerably our views and theories about free banking have evolved in the past 50 years. This development is to a considerable extent the result of the work and the writings of economists of the Austrian School. Professor Pascal Salin is one of the most prominent members of the Austrian free banking school. In a new introduction to this 1956 paper written especially for the Festschrift in honor of Professor Pascal Salin, Professor Gary Becker partially repudiates and mitigates some of his previous conclusions. This event offers a fitting opportunity to review some developments in the theory of free banking and related issues and to add a few clarifications concerning the present “state of the art” as regards an acceptable and adequate notion of free banking.
    Keywords: Free Banking; Monetary Regimes; Monetary Standards; Business Cycles
    JEL: E32 E42 E58
    Date: 2007–10–04
  4. By: Jiminez, G.; Ongena, S.; Pedro, J.L.; Saurina, J. (Tilburg University, Center for Economic Research)
    Abstract: We investigate the impact of the stance and path of monetary policy on the level of credit risk of individual bank loans and on lending standards. We employ the Credit Register of the Bank of Spain that contains detailed monthly information on virtually all loans granted by all credit institutions operating in Spain during the last twenty-two years ? generating almost twenty-three million bank loan records in total. Spanish monetary conditions were exogenously determined during the entire sample period. Using a variety of duration models we find that lower short-term interest rates prior to loan origination result in banks granting more risky new loans. Banks also soften their lending standards ? they lend more to borrowers with a bad credit history and with high uncertainty. Lower interest rates, by contrast, reduce the credit risk of outstanding loans. Loan credit risk is maximized when both interest rates are very low prior to loan origination and interest rates are very high over the life of the loan. Our results suggest that low interest rates increase bank risk-taking, reduce credit risk in banks in the very short run but worsen it in the medium run. Risk-taking is not equal for all type of banks: Small banks, banks with fewer lending opportunities, banks with less sophisticated depositors, and savings or cooperative banks take on more extra risk than other banks when interest rates are lower. Higher GDP growth reduces credit risk on both new and outstanding loans, in stark contrast to the differential effects of monetary policy.
    Keywords: monetary policy;low interest rates;financial stability;lending standards;credit risk;risk-taking;business cycle;bank organization;duration analysis.
    JEL: E44 G21 L14
    Date: 2007
  5. By: Holopainen, Helena (University of Helsinki)
    Abstract: The emergence of financial conglomerates and multinational financial institutions as well as the development of new financial products have raised concerns as to the ability of separate sectoral supervisors and different national authorities to effectively oversee financial markets. Concentrating on the European situation, this paper addresses these concerns by putting special emphasis on the role of organizational form in the supervisory process of financial institutions. I will first outline the developments that have led to increasing pressures to reform the current supervisory systems in Europe, proceed to discuss both some common and specific aspects of supervision of financial conglomerates and multinationals, and, finally, examine the challenges related to the integration of supervision. Using theoretical framework derived from economic theory, this paper points that multitude of factors (eg, several multitasking-related concerns) are likely to affect the effectiveness of integrated supervision.
    Keywords: financial supervision; financial conglomerates; multinationals; integration of supervision
    JEL: G21 G22 G28
    Date: 2007–09–26
  6. By: Jokipii, Terhi (Stockholm School of Economics); Milne, Alistair (Bank of Finland and Cass Business School)
    Abstract: Using an unbalanced panel of accounting data from 1997 to 2004 and controlling for individual bank costs and risk, we find capital buffers of the banks in the EU15 have a significant negative co-movement with the cycle. For banks in the accession countries there is significant positive co-movement. Capital buffers of commercial and savings banks, and of large banks, exhibit negative co-movement. Those of co-operative and smaller banks exhibit positive co-movement. Speeds of adjustment are fairly slow. We interpret these results and discuss policy implications, noting that negative co-movement of capital buffers will exacerbate the procyclical impact of Basel II.
    Keywords: Bank capital; bank regulation; business cycle fluctuations
    JEL: G21 G28
    Date: 2007–07–15
  7. By: Natália Pimenta Monteiro (Universidade do Minho); Miguel Portela (Universidade do Minho and IZA)
    Abstract: Using the fixed e¤ects estimator and the dynamic panel data system-GMM estimator, on a sample of 75 banks, covering the period 1988-2005, this paper estimates how wages in the Portuguese banking sector depend on the employers ability to pay. The results indicate that wages are strongly positively correlated with pro?ts even after controlling for ?rm and workforce characteristics. The Lester?s range of wages due to rent-sharing is 46% - 75% of the mean wage in the Portuguese banking sector.
    Keywords: rent-sharing, Portuguese banking industry, dynamic panel data.
    JEL: J31 J45 L33
    Date: 2007
  8. By: Ingrid Groessl (Department for Economics and Politics, University of Hamburg); Ulrich Fritsche (Department for Economics and Politics, University of Hamburg, and DIW Berlin)
    Abstract: Assuming a risk-neutral bank and assuming household utility to be exponential, we show how under information symmetry the covariance of income and loan repayments may explain higher household borrowings than in the case without default option. Under ex post information asymmetry and positive control costs, the result is less clear-cut. We also make evident that in a situation in which a household without default option would neither borrow nor save, the existence of a default option makes household borrowing behaviour unpredictable.
    Keywords: Consumption, exponential utility, certainty equivalent, households, default option, borrowing, risk, risk aversion, risk management
    JEL: D11 D14 D18 D53 D81
    Date: 2007–09

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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