New Economics Papers
on Banking
Issue of 2007‒11‒03
eleven papers chosen by
Roberto J. Santillán–Salgado, EGADE-ITESM

  1. Banking Competition and Capital Ratios By Martin Cihák; Klaus Schaeck
  2. The Liquidity Effect in Bank-Based and Market-Based Financial Systems By Johann Scharler
  3. Asset correlations and credit portfolio risk: an empirical analysis By Düllmann, Klaus; Scheicher, Martin; Schmieder, Christian
  4. A Two-step Analysis of Standardized Versus Relationship Bank Lending to Small Firms By Polly Hardee
  5. A Theory of Linkage between Monetary Policy and Banking Failure in Developing Countries By Cadet, Raulin Lincifort
  6. Public Financial Institutions in Developed Countries - Organization and Oversight By Aditya Narain; Lev Ratnovski
  7. Market Disciplining Role of Crisis on the Restructuring of the Turkish Banking Sector By Aysan, Ahmet Faruk; Ceyhan, Sanli Pinar
  8. Concentration, Competition, Efficiency and Profitability of the Turkish Banking Sector in the Post-Crises Period By Abbasoğlu, Osman Furkan; Aysan, Ahmet Faruk; Gunes, Ali
  9. What Determines the Banking Sector Performance in Globalized Financial Markets: The Case of Turkey? By Aysan, Ahmet Faruk; Ceyhan, Sanli Pinar
  10. Consolidation of Banks in Japan: Causes and Consequences By HOSONO Kaoru; SAKAI Koji; TSURU Kotaro
  11. Conflict of interest and certification in the U.S. IPO market By Luca Benzoni; Carola Schenone

  1. By: Martin Cihák; Klaus Schaeck
    Abstract: We use data for more than 2,600 European banks to test whether increased competition causes banks to hold higher capital ratios. Employing panel data techniques, and distinguishing between the competitive conduct of small and large banks, we show that banks tend to hold higher capital ratios when operating in a more competitive environment. This result holds when controlling for the degree of concentration in banking systems, inter-industry competition, characteristics of the wider financial system, and the regulatory and institutional environment.
    Keywords: Working Paper , Banks , Capital , Competition , Bank supervision , Industrial structure ,
    Date: 2007–09–17
  2. By: Johann Scharler (Department of Economics, Johannes Kepler University Linz, Austria)
    Abstract: This paper assesses how the financial system influences the strength of the liquidity effect in a calibrated limited participation model of the monetary transmission mechanism. The model suggests that bankbased systems should be characterized by smaller liquidity effects since monetary injections are spread out over a larger number of firms.
    Keywords: limited participation; transmission mechanism; financial systems
    JEL: E32 E52 E58
    Date: 2007–10
  3. By: Düllmann, Klaus; Scheicher, Martin; Schmieder, Christian
    Abstract: In credit risk modelling, the correlation of unobservable asset returns is a crucial component for the measurement of portfolio risk. In this paper, we estimate asset correlations from monthly time series of Moody’s KMV asset values for around 2,000 European firms from 1996 to 2004. We compare correlation and value-atrisk (VaR) estimates in a one–factor or market model and a multi-factor or sector model. Our main finding is a complex interaction of credit risk correlations and default probabilities affecting total credit portfolio risk. Differentiation between industry sectors when using the sector model instead of the market model has only a secondary effect on credit portfolio risk, at least for the underlying credit portfolio. Averaging firm-dependent asset correlations on a sector level can, however, cause a substantial underestimation of the VaR in a portfolio with heterogeneous borrower size. This result holds for the market as well as the sector model. Furthermore, the VaR of the IRB model is more stable over time than the VaR of the market model and the sector model, while its distance from the other two models fluctuates over time.
    Keywords: Asset correlations, sector concentration, credit portfolio risk
    JEL: C15 G21
    Date: 2007
  4. By: Polly Hardee
    Abstract: Using the 1998 Survey of Small Business Finances and banking data to produce a bank-firm match, the author tests for evidence of standardized versus relationship lending methods in both total bank credit and credit emanating from the firm’s most important source of financial services, its primary bank. The author employs a two-step Heckman procedure to test the likelihood a small firm has bank debt, then, conditional upon having debt, the level of credit outstanding. By comparing the determinants of bank and firm characteristics of primary bank credit with credit from all bank sources, she finds that relationship lending is inherent within the primary bank, whereas competing bank sources tend to employ standardized lending techniques such as credit scoring. With respect to credit availability, however, no clear dominance of one method over the other prevails.
    Date: 2007
  5. By: Cadet, Raulin Lincifort
    Abstract: This paper presents a model of the banking sector that maximize profit and an individual bank which is a price taker, in a developing country. The interest rate on treasury bills is included in the model to measure monetary policy. The mathematical expression of the probability of banking failure is calculated; And, I show that, in developing countries, a tightening monetary policy may induce efficient banking failure.
    Keywords: Banking Failure; Monetary Policy; Interest Rate; Developing Countries
    JEL: G23 G21 E52
    Date: 2006–12
  6. By: Aditya Narain; Lev Ratnovski
    Abstract: While public financial institutions (such as public development banks) are commonly associated with developing countries, in fact they are prevalent in the developed world as well. We study a sample of public financial institutions in industrialized countries and identify dominant trends in their organization and oversight. While practices in developed countries may be a useful reference point, a more nuanced approach, accounting for the disparity of institutional environment, regulatory capacity, and government accountability and effectiveness, may be required in developing countries. Further investment in the accumulation of evidence and formulation of best practices in the organization and oversight of public financial institutions seems warranted and necessary. This paper was prepared while Mr. Ratnovski was working in the Financial Supervision and Regulation Division during January-April 2006. The authors are grateful to Jonathan Fiechter, David Marston, and participants of an MCM seminar in April 2006 for their helpful comments.
    Keywords: Working Paper , Financial institutions , Developed countries , Bank regulations , Bank supervision , Public sector ,
    Date: 2007–09–26
  7. By: Aysan, Ahmet Faruk; Ceyhan, Sanli Pinar
    Abstract: This paper aims to find the productivity change in the banking sector between 1990 and 2006, with an emphasis to the period after 2001 crisis during which the Turkish banking system experienced a structural change. Using DEA, we find the Malmquist TFP Change Index and its mutually exclusive and exhaustive components of efficiency and technological changes over time. Additionally, we further decompose the technical efficiency change into pure technical and scale efficiency changes. The productivity of the banking sector is found out to have increased, the main reason being technological improvement rather than efficiency increase. For the cases of productivity decline, however, the changes come from the efficiency side rather than technology. An analysis with respect to the ownership status revealed that foreign banks were the most efficient group until 2001 after which state banks captured the first place. We attribute this change to the inflation accounting practice as well as better management of state banks with less political intrusion. The analysis with respect to bank size reveals that before 2000, the most efficient bank group was the medium-scale banks (the banks mainly purchased by foreign banks) followed by small banks while the efficiency scores converged after 2001.
    Keywords: Turkish Banking Sector; Data Envelopment Analysis; Efficiency; Productivity; Post-Crises Period
    JEL: E32 G20 G21
    Date: 2007
  8. By: Abbasoğlu, Osman Furkan; Aysan, Ahmet Faruk; Gunes, Ali
    Abstract: After 2001 crisis, the macroeconomic environment led to important changes in Turkish banking sector which has experienced a process of concentration by involving in merger and acquisition activities and liquidation of some insolvent banks. Using the data from the detailed balance sheets of the banks that operated in the years from 2001 to 2005, we examine the degree of concentration and degree of competition in the market by applying Panzar and Rosse’s approach. We also explore the existence of relationship between efficiency and profitability of the banks taking into account the internationalization of banking. Our results do not suggest the existence of relationship between concentration and competition. There is also no robust relationship between efficiency and profitability.
    Keywords: Concentration; Competition; Efficiency; Profitability of the Turkish Banking Sector
    JEL: G15 G20
    Date: 2007
  9. By: Aysan, Ahmet Faruk; Ceyhan, Sanli Pinar
    Abstract: This study attempts to give an insight about the trend in the performance of the Turkish banking sector by conducting a panel data fixed effects regression analysis. The results reveal that efficiency change is negatively related to the number of branches. We find a positive relationship between loan ratio and the performance indices efficiency and efficiency change. Furthermore, bank capitalization is positively related to efficiency change. Interestingly however, return on equity is not statistically significant in explaining any of the efficiency measures. There is also no robust relationship between foreign ownership and efficiency. Finally, restructuring attempts in post-crises epoch robustly account for the improvement in efficiency scores in recent years.
    Keywords: Panel Data Analysis; Efficiency; Productivity; Turkish Commercial Banks; Foreign Ownership
    JEL: C23 E44 O11
    Date: 2007
  10. By: HOSONO Kaoru; SAKAI Koji; TSURU Kotaro
    Abstract: We investigate the motives and consequences of the consolidation of banks in Japan during the period of fiscal year 1990-2004 using a comprehensive dataset. Our analysis suggests that the government's too-big-to-fail policy played an important role in the mergers and acquisitions (M&As), though its attempt does not seem to have been successful. The efficiency-improving motive also seems to have driven the M&As conducted by major banks and regional banks in the post-crisis period, while the market-power motive seems to have driven the M&As conducted by regional banks and corporative (shinkin) banks. We obtain no evidence that supports managerial motives for empire building.
    Date: 2007–10
  11. By: Luca Benzoni; Carola Schenone
    Abstract: We examine the long-run performance and valuation of IPOs underwritten by relationship banks. We find that over one- to three-year horizons these IPOs do not underperform similar stocks managed by independent institutions. Moreover, our analysis suggests that relationship banks avoid potential conflicts of interest by choosing to underwrite their best clients' IPOs. Consistent with this result, we show that investors value new issues managed by relationship banks higher than similar IPOs managed by outside banks. Our findings support the certification role of relationship banks and suggest that the effect of the 1999 repeal of Sections 20 and 32 of the Glass-Steagall Act has not been negative.
    Date: 2007

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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