New Economics Papers
on Banking
Issue of 2008‒01‒12
ten papers chosen by
Roberto J. Santillán–Salgado, EGADE-ITESM

  1. Optimal Banking Sector Recapitalization By Oviedo, P. Marcelo
  2. Bank profitability and taxation By Ugo Albertazzi; Leonardo Gambacorta
  3. The National Banking System: a brief history By Bruce Champ
  4. Balance-sheet ratios and stock returns: An analysis for Italian banks By Angela Romagnoli
  5. Bank consolidation and lending policies to small business: Differences across geographical areas By Enrico Beretta; Silvia Del Prete
  6. The National Banking System: the national bank note puzzle By Bruce Champ
  7. The Default Risk of Firms Examined with Smooth Support Vector Machines By Wolfgang Härdle; Yuh-Jye Lee; Dorothea Schäfer; Yi-Ren Yeh
  8. Uncertainty, Information, and Trust in Banking Intermediation By Enzo Dia
  9. Services Trade in Developing Asia:A case study of the Banking and Insurance Sector in Bangladesh By Salahuddin Ahmad; Dilli Raj Khanal
  10. International Islamic Banking By saleem, shahid

  1. By: Oviedo, P. Marcelo
    Abstract: Government-financed bank restructuring programs, occasionally costing up to 50% of GDP, are commonly used to resolve banking crises. We analyze the Ramsey-optimal paths of bank recapitalization programs that weigh recapitalization benefits and costs under different financing options. In our model bank credit is essential, due to a working capital constraint on firms, and banks are financial intermediaries that borrow from households and lend to firms. A banking crisis produces a disruption of credit and a fall in output equivalent to those in developing countries affected by banking crises. Full recapitalization of the banking system immediately after the crisis is optimal only if international credit is available. One-shot recapitalization is not optimal with domestically-financed programs, even if the government has access to non-distortionary taxes. The welfare cost of a crisis is substantial: the equivalent permanent decline in the no-crisis steady state consumption ranges between 0.51% and 0.65%, depending on the source of financing the recapitalization program.
    Keywords: bank recapitalization; banking crises; financial intermediation; banking capital
    JEL: F3 G0 H0 H2
    Date: 2008–01–04
  2. By: Ugo Albertazzi (Banca d'Italia); Leonardo Gambacorta (Banca d'Italia)
    Abstract: This paper investigates how bank profitability is affected by corporate income tax (CIT) using aggregate data on the banking sector of the main industrialized countries for the period 1981-2003. Two main novelties emerge with respect to the existing literature. First, the paper explicitly considers that CIT is not specific to the banking sector, so that changes in the CIT rate can affect both banks and borrowing firmsÂ’ behaviour. Thus, with the help of a simple theoretical model we derive a set of predictions about the impact of CIT on banksÂ’ income statement. Second, by considering all the main components of banksÂ’ profit and loss accounts, we are able to test such predictions and to disentangle the extent to which a bank is able to shift its tax-burden onto its borrowers, depositors, and purchasers of fee-generating services. It turns out that CIT has a substantial impact on the composition of banking sector revenues but cannot explain large differences in the level of profitability across countries.
    Keywords: tax-shifting, corporate income tax, bank profitability
    JEL: C53 G20 G21
    Date: 2007–11
  3. By: Bruce Champ
    Abstract: During the period of the National Banking System (1863–1913), national banks could issue bank notes backed by holdings of eligible U.S. government securities. This paper presents an overview of the legal and financial history of this period. It begins with the reasons the National Banking System was created. It also examines the rules of operation for national banks as established by the National Banking Act and its subsequent revisions. Furthermore, the paper serves as a brief financial history of the period, examining the various forces that shaped the environment in which national banks operated.
    Keywords: National banks (United States)
    Date: 2007
  4. By: Angela Romagnoli (Bank of Italy)
    Abstract: The paper assesses whether the monthly returns of the listed shares of Italian banks are predicted by changes in balance-sheet indicators. The sample covers the period from January 1997 to June 2003. Estimates use both unadjusted and risk-adjusted returns. Results show that the stock returns of Italian banks are positively related to past profitability, liquidity, and asset quality, while they are not significantly affected by banksÂ’ capital ratios. Furthermore, in the sample period an increase in traditional lending activity leads to higher stock returns.
    Keywords: bank stock returns, bank-specific accounting ratios
    JEL: C14 G12 G21
    Date: 2007–11
  5. By: Enrico Beretta (Bank of Italy, Branch of Genoa, Research Office); Silvia Del Prete (Bank of Italy, Branch of Florence, Research Office)
    Abstract: Using Bank of Italy data on Italian banks in the period 1990-2004, the paper analyses the short and long-run effects of the concentration of the banking industry on the availability of credit to small and medium-sized firms. Our study employs a bank-based approach and investigates the differential effects of banking consolidation in the various geographical areas, in order to capture the influence of the different economic contexts. Our research also considers the different groups of intermediaries involved, as well as the role of “new entry” banks and of those not involved in consolidations (e.g. rivals). We find that banks’ specialization in terms of credit policy seems to be affected by M&As. On the one hand, the portion of credit allocated to small businesses decreases in the long run after mergers, which result in a more pronounced size change and a more complex organizational structure; this effect is stronger in the South and in the North East of Italy. On the other hand, in the case of acquisitions, banking groups improve their “expertise” in small business lending. These results hold in all the main geographical areas, except for the southern regions, where – everything being equal – small firms are riskier and banks’ takeovers are motivated mainly by the need to allow financial restructuring. However, in this market, the entry of new banks and close relationships between local banks and agglomerations of small firms partly offset the lower specialization on small business financing induced by acquisitions.
    Keywords: mergers and acquisitions, small business lending, regional analysis
    JEL: G21 G34 O18
    Date: 2007–11
  6. By: Bruce Champ
    Abstract: The era of the National Banking System (1863–1913) has been a puzzling one for monetary theorists and economic historians for well over a century. The puzzles associated with this period take various forms. Despite calculations of high profit rates on note issue for certain periods of the era, national banks never fully utilized their note-issuing powers. Relatedly, the behavior of interest rates during the period is also puzzling given the regime of bank note issuance put in place by the National Bank Acts. On the surface, it appears that an arbitrage condition is broken. The observed inelasticity in aggregate national bank note issue also is puzzling, particularly given the behavior of interest rates. This paper examines many of the puzzles of the national banking era and provides a summary of the current attempts to explain those puzzles.
    Keywords: National banks (United States) ; National bank notes
    Date: 2007
  7. By: Wolfgang Härdle; Yuh-Jye Lee; Dorothea Schäfer; Yi-Ren Yeh
    Abstract: In the era of Basel II a powerful tool for bankruptcy prognosis is vital for banks. The tool must be precise but also easily adaptable to the bank's objections regarding the relation of false acceptances (Type I error) and false rejections (Type II error). We explore the suitabil- ity of Smooth Support Vector Machines (SSVM), and investigate how important factors such as selection of appropriate accounting ratios (predictors), length of training period and structure of the training sample in°uence the precision of prediction. Furthermore we show that oversampling can be employed to gear the tradeo® between error types. Finally, we illustrate graphically how di®erent variants of SSVM can be used jointly to support the decision task of loan o±cers.
    Keywords: Insolvency Prognosis, SVMs, Statistical Learning Theory, Non-parametric Classification models, local time-homogeneity
    JEL: G30 C14 G33 C45
    Date: 2008–01
  8. By: Enzo Dia
    Abstract: Banking intermediaries help to coordinate different agents’ plans, reducing the uncertainty that might otherwise hamper transactions because of disruptive “lemon” problems. By establishing trust relationships based on private information, banks allow risk pooling and provide insurance to different classes of agents, act as market makers, and provide services that save transaction and notary costs. “Lemon” problems are also important to understand the difference between market pricing of the risk of bonds and the banks’ pricing of the risk of loans. In the first case risk is priced on the basis of freely available information, relying heavily on the informational content of statistical time series. The resulting equilibria, though, are fragile, because they are subject to abrupt regime changes as new information becomes public. Banks, on the contrary, price loans on the basis of their private information, and they can thus provide insurance against different kinds of shocks. Given the opacity of their activities, and the huge externalities that their entrepreneurial choices imply, banks must be subject to an extensive regulation, imposing a transparent disclosure of their risk taking activities.
    Keywords: Banks; Credit; Uncertainty; Information Costs; Trust
    Date: 2007–11
  9. By: Salahuddin Ahmad; Dilli Raj Khanal (Uttara University)
    Abstract: This study assesses the strengths and weaknesses of reforms in the banking and insurance industries. Banking sector performance is analysed using various indicators as well as Principle Component Analysis techniques. A comparative case study of three banks with different ownership structures is presented. The study concludes with important conclusions and policy implications for future reforms based on the findings.
    Keywords: Service Trade, Bangladesh
    JEL: F1
    Date: 2007–07
  10. By: saleem, shahid
    Abstract: The purpose of this exploratory and to some extent descriptive analysis is to highlight the Islamic banking & finance theory, and to explain the practical disparity all over the Muslim Umma along with commonalities of Islamic banking in them. Islamic banking has been now become a value proposition which transcends cultures and will do speedily in next decades despite of cutting throat competition expected in global banking scenario. The size of Islamic Financial Industry has now reached size of US$ 250 Billion and its growing annually @ 15% per annum. Institutions like Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and Islamic Finance Services Board (IFSB) have been formed. Due to these collective efforts, Islamic banking is now recognized by IMF,World Bank and Basel Committee. While, 27 Muslim countries including Bahrain, UAE, Saudi Arabia, Malaysia, Brunei and Pakistan 15 non-Muslim countries including USA, UK, Canada, Switzerland, South Africa and Australia has already adopted it, but in all these countries a lot of diversities lie over theory “ Shariah Principles” and their implementation as bank products/services. In such context our effort is expected to be fruitful for not only local but international policymakers and scholars to overcome these disparities and to really make it a value proposition which transcends cultures……….
    Keywords: Islamic; Banking; Shahid; Finance; shariah; trade; international
    JEL: G2 P4
    Date: 2007–05–25

This issue is ©2008 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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