New Economics Papers
on Banking
Issue of 2007‒12‒19
five papers chosen by
Roberto J. Santillán–Salgado, EGADE-ITESM

  1. Bank size, credit and the sources of bank market risk By Ryan Stever
  2. When do enterprises prefer informal credit ? By Wimpey, Joshua; Safavian, Mehnaz
  3. What determines banks’ customer choice? Evidence from transition countries By De Haas, Ralph; Ferreira, Daniel; Taci, Anita
  4. Foreign banks in transition countries. To whom do they lend and how are they financed? By De Haas, Ralph; Naaborg, Ilko
  5. Relationship lending: empirical evidence for Germany By Memmel, Christoph; Schmieder, Christian; Stein, Ingrid

  1. By: Ryan Stever
    Abstract: This study examines bank risk by investigating the equity and loan portfolio characteristics of publicly-traded bank holding companies. Unlike the pattern for non-financial firms, equity betas of large banks are two to five times greater than those of small banks. In explaining this, we note that regulation imposes an effective cap on banks' equity volatility. Because the portfolios of small banks are less diversified, this cap has a greater effect on small banks than large banks. But we reject the hypothesis that small banks lower their equity volatility through lower leverage. Instead, we find that the reduced ability of small banks to diversify forces them to either pick borrowers whose assets have relatively low credit risk or make loans that are backed by relatively more collateral.
    Keywords: FBank size, beta, idiosyncratic, volatility
    Date: 2007–11
  2. By: Wimpey, Joshua; Safavian, Mehnaz
    Abstract: This paper tests the hypothesis that enterprises may forgo formal finance in lieu of informal credit by choice. They do so to avoid the additional regulatory scrutiny and harassment that engaging with the formal financial sector invites. We test this hypothesis using enterprise-level data on 3,564 enterprises in 29 countries. In this sample, enterprises finance approximately 57 percent of their working capital requirements with external finance. This external finance comes from formal sources, such as commercial bank s (53 percent) and informal sources (42 percent), such as trade creditors, or family and friends. In our sample, 14 percent of enterprises rely exclusively on informal finance. We find that the likelihood of enterprises preferring to only use informal finance is inversely related to the quality of the regulatory environment, particularly the quality of tax administration and overall governance. For example, we find that when an enterprise has been asked for bribes by tax inspectors, it is 17 percent more likely to prefer informal finance.
    Keywords: Access to Finance,Banks & Banking Reform,Debt Markets,,Small and Medium Size Enterprises
    Date: 2007–11–12
  3. By: De Haas, Ralph; Ferreira, Daniel; Taci, Anita
    Abstract: This paper explores how bank characteristics and the institutional environment influence the composition of banks’ loan portfolios. Using a new data set based on the recent EBRD Banking Environment and Performance Survey (BEPS), which was conducted in 2005 for 220 banks in 20 transition countries, we show that bank characteristics such as ownership and size are important determinants of bank customer focus. In particular, we find that foreign banks are relatively strongly involved in mortgage lending and lending to subsidiaries of foreign companies, while lending relatively less to large domestic firms. We also find that small banks lend relatively more to SMEs than large banks do, while large banks appear to have a comparative advantage in lending to large customers. We do not find much evidence for the hypothesis that better legal credit protection changes bank portfolio composition. An exception is that banks that perceive pledge and mortgage laws to be of high quality focus more on mortgage lending.
    Keywords: banking; portfolio composition
    JEL: K22 F3 P27 G21
    Date: 2007
  4. By: De Haas, Ralph; Naaborg, Ilko
    Abstract: We use focused interviews with managers of foreign parent banks and their affiliates in Central Europe and the Baltic States to analyse the small-business lending and internal capital markets of multinational financial institutions. Our approach allows us to complement the standard empirical literature, which has difficulty in analysing important issues such as lending technologies and capital allocation. We find that the acquisition of local banks by foreign banks has not led to a persistent bias in these banks’ credit supply towards large multinational corporations. Instead, increased competition and the improvement of subsidiaries’ lending technologies have led foreign banks to gradually expand into the SME and retail markets. Second, it is demonstrated that local bank affiliates are strongly influenced by the capital allocation and credit steering mechanisms of the parent bank.
    Keywords: foreign banks; transition economies; small-business lending; internal capital markets
    JEL: F23 G32 G21 F36
    Date: 2006
  5. By: Memmel, Christoph; Schmieder, Christian; Stein, Ingrid
    Abstract: Relationship lending is a common practice in credit financing all over the world, particularly in Germany. On the basis of a comprehensive data set comprising information on firm-bank relationships for more than 16,000 observations, this study analyses the determinants of relationship lending in Germany. We find that small, young and R&D-intensive firms tend to choose relationship lending. Furthermore, we find that firms with a higher creditworthiness are more likely to choose a relationship lender. We find that the importance of relationship lending stayed roughly constant since the mid 90s.
    Keywords: Relationship banking, German banking system, SME
    JEL: G21 G32
    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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