New Economics Papers
on Banking
Issue of 2008‒02‒02
eight papers chosen by
Roberto J. Santillán–Salgado, EGADE-ITESM

  1. What determines commercial banks’ demand for reserves in the interbank market By Kempa, Michal
  2. Designing and Implementing a Basel II Compliant PIT-TTC Ratings Framework By Aguais, Scott
  3. Competition versus Efficiency: What drives franchise values in European banking? By O. DE JONGHE; R. VANDER VENNET
  4. Bank financing to small and medium-sized enterprises (SMEs) in Colombia By Rodriguez, Camila; Stephanou, Constantinos
  5. Banche e Imprese nei Distretti Industriali By Pietro ALESSANDRINI; Alberto ZAZZARO; Andrea PRESBITERO
  6. Bond Markets and Banks in Inter-War Japan By Makoto Kasuya
  7. Change and continuity: the development of joint stock banking in the early nineteenth century By Lucy Newton
  8. Banking Market Integration in the SADC Countries: Evidence from Interest Rate Analyses By Aziakpono Meshach; Kleimeier Stefanie; Sander Harald

  1. By: Kempa, Michal (University of Helsinki)
    Abstract: In this paper I analyse the determinants of commercial banks’ demand for reserves in the interbank market. I first document the pattern in the Eurosystem, where banks deviate from the required reserves balance at the start of the maintenance period only to meet the requirements closer to the settlement day. Using my model I show that this behaviour can be explained by certain trade-related frictions and costs. Examples include potential extra expenses tied to large transactions or the asymmetry between the cost of borrowing and profits from lending. I also find that borrowing decisions can be largely unaffected by current liquidity, which has important implications for the implementation of central bank monetary policy: in order to influence the level of interest rates, the central bank must focus on controlling market expectations.
    Keywords: money markets; EONIA; liquidity effect
    JEL: E43 E52 E58
    Date: 2007–12–12
  2. By: Aguais, Scott
    Abstract: From 'The Basel Handbook' a description of a framework for calculating both "point-in-time" (PIT) and "through-the-cycle" (TTC) PDs, to enable banks to achieve Basel II compliance at an advanced level. The framework described here reflects broadly the one implemented globally in May 2005 at Barclays Capital.
    JEL: G32
    Date: 2008–01–27
    Abstract: This paper investigates how stock market investors perceive the impact of market structure and efficiency on the long-run performance potential of European banks. To that end, a modified Tobin’s Q ratio is introduced as a measure of bank franchise value. This measure is applied to discriminate between the Market Structure and Efficient-Structure hypotheses in a coherent forward-looking framework, in which differences in banks’ horizontal and vertical differentiation strategies are controlled for. The results show that banks with better management or production technologies possess a long-run competitive advantage. In addition, bank market concentration does not affect all banks equally. Only the banks with a large market share in a concentrated market are able to generate non-competitive rents. The paper further documents that the forward-looking, long-run perspective and the noise adjustment of the performance measure overcome most of the drawbacks associated with testing these hypotheses in a multi-country set-up. Finally, notwithstanding the international expansion of bank activities, the harmonization of regulation and the macroeconomic convergence in the European Union (EU15), we still find that country-specific macroeconomic variables have a significant impact on bank performance. The findings indicate that there is a trade-off between competition and stability that should be taken into account when assessing mergers or acquisitions.
    Keywords: charter value, market power, efficiency, Tobin’s Q, stochastic frontier
    JEL: G21 G28 G32 L11
    Date: 2007–12
  4. By: Rodriguez, Camila; Stephanou, Constantinos
    Abstract: The objective of this paper is to shed light on current trends and policy challenges in the financing of small- and medium-sized enterprises (SMEs) by banks in Colombia. The paper is motivated by the well-documented financing gap for SMEs, whose causes are complex and multi-dimensional. Based on data collection and interviews with the authorities, a representative sample of banks, and other relevant entities, the authors analyze the evolution and characterist ics of this market in recent years. Bank financing to SMEs is becoming a strategic segment for Colombian credit institutions. The current business and risk management models for SME lending are still relatively underdeveloped, but greater sophistication is expected as the market matures. Important institutional and policy constraints to SME lending remain, but are not yet binding. In order to address these constraints before they " begin to bite " , the authors identify and describe a potential policy reform agenda.
    Keywords: Access to Finance,Banks & Banking Reform,,Debt Markets,Bankruptcy and Resolution of Financial Distress
    Date: 2008–01–01
  5. By: Pietro ALESSANDRINI (Universita' Politecnica delle Marche, Dipartimento di Economia); Alberto ZAZZARO (Universita' Politecnica delle Marche, Dipartimento di Economia); Andrea PRESBITERO ([n.a.])
    Abstract: Given the changes that occurred in the organization and specialization of Italian industrial districts and the changing geography of the banking system, in this paper is we aim at reassessing the bank-firm relationship in industrial districts. Using firm-level data on a sample of Italian SME, we examine the determinants of credit rationing and relationship lending. Firstly, we test whether firms located in industrial district area have more access to banking credit and rely more on relationship lending. Secondly, we assess if being localized in industrial clusters have heterogeneous effects due to the structure of local credit markets. Our results point out the firms operating in industrial districts are less credit rationed, while their probability of relationship lending is not significantly different from the one of the average firm. Furthermore, a higher operational proximity of banks to local economies is associated with more access to banking credit and and to a lower probability of engaging in relationship lending, while a higher functional distance of the banking system from local communities is associated with tighter financing constraints and a lower probability of relationship lending. These effects are significantly intensified for firms located inside industrial districts.
    Keywords: banche, distanza funzionale, distretti, razionamento, relationaship lending
    JEL: G21 R51 R58
    Date: 2008–01
  6. By: Makoto Kasuya
    Abstract: Issues of bonds increased in inter-war Japan, the main investors in bonds being banks because demand for loans declined in this period. Banks that were more tolerant of risks (that is, whose capital ratio was higher) made a larger amount of loans, which were riskier than bonds. While national bonds were traded actively in secondary markets, local bonds, corporate bonds, and bank debentures were not traded actively during this period. After the formation of cartels of banks and securities firms for bond underwriting and trading during the Great Depression, bond trading in secondary markets diminished, except for national bonds.
    Keywords: Japanese Banks, bond markets, inter-war period, the Great Depression, national bonds, corporate bonds, cartels, capital.
    Date: 2007–08
  7. By: Lucy Newton (Department of Management, University of Reading)
    Date: 2007
  8. By: Aziakpono Meshach; Kleimeier Stefanie; Sander Harald (METEOR)
    Abstract: This paper investigates the state, development and drivers of banking market integration in the member countries of the Southern African Development Community (SADC) by employing interest rate data. We first conduct a principal component analysis and find evidence for both increasing monetary integration and banking integration in loan and deposit markets. These integration processes are not developing uniformly and we can identify a convergence club. As banking market integration can be a genuine process or simply be driven by monetary integration, we also investigate the interest rate pass through from national and South African Central bank interest rates onto national retail rates. With respect to the convergence club we find both, genuine and monetary-integration driven processes though the latter dominate. We conclude that a selective expansion of the Common Monetary Area is possible but needs to be complement by efficient financial development policies.
    Keywords: Economics (Jel: A)
    Date: 2007

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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