New Economics Papers
on Banking
Issue of 2008‒03‒25
eight papers chosen by
Roberto J. Santillán–Salgado, EGADE-ITESM

  1. Regulation and Supervision: An Ethical Perspective By Edward J. Kane
  2. The Democratic Banker By Javier Santiso
  3. Banking Environment, Agency Costs, and Loan Syndication : A Cross-Country Analysis By Christophe J. Godlewski
  4. Analysis of the Efficiency and Profitability of the Japanese Banking System By Elena Loukoianova
  5. "Subordinated debt, uninsured deposits, and market discipline: evidence from U.S. bank holding companies" By Fatma Cebenoyan; A. Sinan Cebenoyan
  7. The Role of the Local Business Environment in Banking Consolidation By Luca Colombo; Gilberto Turati
  8. Mutual Loan-Guarantee Societies, Small Firms and Banks: An Empirical Investigation By Busetta, Giovanni; Presbitero, Andrea F.

  1. By: Edward J. Kane
    Abstract: This essay shows that government credit-allocation schemes generate incentive conflicts that undermine the quality of bank supervision and eventually produce banking crisis. For political reasons, most countries establish a regulatory culture that embraces three economically contradictory elements: politically directed subsidies to selected bank borrowers; subsidized provision of explicit or implicit repayment guarantees for the creditors of banks that participate in the credit-allocation scheme; and defective government monitoring and control of the subsidies to leveraged risk-taking that the other two elements produce. In 2007-2008, technological change and regulatory competition simultaneously encouraged incentive-conflicted supervisors to outsource much of their due discipline to credit-rating firms and encouraged banks to securitize their loans in ways that pushed credit risks on poorly underwritten loans into corners of the universe where supervisors and credit-ratings firms would not see them.
    JEL: G28
    Date: 2008–03
  2. By: Javier Santiso
    Abstract: The Democratic Banker (03/2007) (Other Languages : FR / ES) Policy Insights No.38 by Javier Santiso Banks contribute not only to the economic development of emerging countries but also to political development. International bank flows in an emerging country tend to grow during the three years immediately following transition to a democratic regime. New instruments are needed to continue to confirm bank preference for democratic regimes. For instance, it would be useful to have an indicator to measure the level of banking activity in countries that respect human rights.
    Date: 2007–03
  3. By: Christophe J. Godlewski (Laboratoire de Recherche en Gestion et Economie, Université Louis Pasteur)
    Abstract: Bank loan syndicate structure can be considered as an organizational response to agency problems stemming from the syndication process. The banking environment also influences the syndication process. We investigate how syndicate structure is influenced by the characteristics of the banking environment, such as banking market structure, financial development, banking regulation and supervision, and legal risk. The results of a cross-country analysis performed on a sample of 15,586 syndicated loan facilities from 24 countries over a period of 15 years confirm that syndicate structure is influenced by banking environments consistent with agency costs minimization and efficient re-contracting objectives.
    Keywords: Banking environment, Agency costs, Loan syndication, Syndicate structure.
    JEL: C31 F30 G21 G32
    Date: 2008
  4. By: Elena Loukoianova
    Abstract: The paper analyzes the efficiency and profitability of Japanese banks from 2000-06. It uses a non-parametric approach, the data envelopment analysis (DEA) to analyze banks' cost and revenue efficiency. The results show that the performance of Japanese banks has steadily improved since 2001, but there are significant differences within the banking sector, with regional banks being less cost and revenue efficient relative to both City and Trust banks. While Japanese bank profitability is low compared to that in other advanced countries, there is considerable potential for efficiency gains, particularly through increased cost-sharing arrangements among regional banks, consolidation of regional banks with major or other regional banks, and the creation of bank consortia to pool resources for asset and risk management.
    Date: 2008–03–19
  5. By: Fatma Cebenoyan (Hunter College); A. Sinan Cebenoyan (Hofstra University)
    Abstract: We investigate market discipline in banking through uninsured depositors and subordinated debt holders, using U.S. bank holding companies data from 1996 to 2005. We test to see both the monitoring and influencing aspects of market discipline. Although our results overall support the presence of monitoring through uninsured deposits, the evidence of influencing is mixed at best. We find some disciplining effect of changes in uninsured deposit levels and prices on bank fundamentals. We find no evidence of any disciplinary influences by subordinated debt holders. JEL Classification: G21, G28, G32 Key Words: Subordinated debt; Uninsured deposits; Market discipline; Banks.
    Date: 2008
  6. By: Badulescu, Daniel; Bac, Dorin
    Abstract: The paper deals with the foreign penetration in the capital of bank sector in the countries in Central and Eastern Europe. We start with some methodological issues regarding the real measure of foreign penetration, including both the physical presence of foreign banks in the region and cross-border operations of foreign banks. Then we analyze the foreign, international and local claims of all banks reporting to Bank for International Settlements in relation with Central and Eastern Europe, as well as the distribution of these claims: by the currency of claims denomination (local vs. foreign), by country of capital origin, by sector of destination (public sector, private sector, banks), by destination country. The paper ends with some considerations on the foreign banks’ presence in Central and Eastern Europe countries: evolution and present penetration level.
    Keywords: foreign capital; bank sector; Central and Eastern Europe
    JEL: G32 G21
    Date: 2007–09–15
  7. By: Luca Colombo (DISCE, Università Cattolica); Gilberto Turati (DISCE, Università Cattolica)
    Abstract: We study whether local economic conditions in different areas have an impact on the magnitude and direction of the concentration process of a banking industry. By using probit and count data (ZIP) models to study the consolidation of the Italian banking sector in the second half of the 1990s, we document a significant direct impact of the local ‘business environment’ on the concentration of the industry at the regional level. This effect complements the well known indirect effect of macroeconomic characteristics on the profitability and efficiency of banks. We also show that institutional and organizational variables affect the likelihood and number of M&A deals, and help explaining differences in performance. Our results appear to be robust to different specifications, and to a number of robustness checks, including alternative sets of variables defining local ‘business environment conditions’.
    Keywords: Banking M&As, local business environment, profitability, efficiency, credit policies, count data models
    JEL: G21 G34 L16
    Date: 2007–11
  8. By: Busetta, Giovanni; Presbitero, Andrea F.
    Abstract: The paper analyzes the relationships between mutual loan-guarantee societies (MLGS), small firms and banks trying to evaluate the role played by the guarantees granted by MLGSs and by different banks on the availability and the cost of credit. We focus on a sample of firms member of a specific MLGS and we run different econometric exercises in order to identify the effects of the interaction between local firms, banks and MLGS on credit rationing, on the cost of credit, and on the time and the number of guarantees required to obtain a line of credit. Our findings suggest a critical relevance of the MLGS guarantees on the local firms’ credit access and conditions. Finally, while the existing evidence points out a reduction in the cost of credit due to MLGSs intermediation, our analysis stresses the heterogeneity of the benefits for local firms, which depends substantially by the guarantees provided by the MLGS and by the reference banks.
    Keywords: Mutual Loan Guarantee Societies (MLGS); Guarantee; Small business lending; Local banks
    JEL: G21
    Date: 2008–03

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