New Economics Papers
on Banking
Issue of 2008‒04‒29
ten papers chosen by
Roberto J. Santillán–Salgado, EGADE-ITESM

  1. Are private banks more efficient than public banks? Evidence from Russia By Karas, Alexei; Schoors , Koen; Weill, Laurent
  2. Bank Borrowing and Financing of Medium-sized Firms in Indonesia By Hamada, Miki
  3. BankCaR (Bank Capital-at-Risk): a credit risk model for U.S. commercial bank charge-offs By Jon Frye; Eduard Pelz
  4. Cross-border bank acquisitions: Is there a performance effect? By Ricardo Correa
  5. How many banks does it take to lend? Empirical evidence from Europe By Christophe J. Godlewski; Ydriss Ziane
  6. Evaluating Productivity Change in Turkish Banking Industry: A Micro Approach By Elmas Yaldiz; Ertugrul Deliktas
  7. The Default Risk of Firms Examined with Smooth Support Vector Machines By Wolfgang Härdle; Yuh-Jye Lee; Dorothea Schäfer; Yi-Ren Yeh
  8. Bank mergers and the dynamics of deposit interest rates By Craig, Ben R.; Dinger, Valeriya
  9. Capital Adequacy Regime in India: An Overview By Mandira Sarma; Yuko Nikaido
  10. Bank integration and financial constraints: evidence from U.S. firms By Ricardo Correa

  1. By: Karas, Alexei (BOFIT); Schoors , Koen (BOFIT); Weill, Laurent (BOFIT)
    Abstract: We study whether bank efficiency is related to bank ownership in Russia. We find that foreign banks are more efficient than domestic private banks and – surprisingly – that domestic private banks are not more efficient than domestic public banks. These results are not driven by the choice of production process, the bank’s environment, management’s risk preferences, the bank’s activity mix or size, or the econometric approach. The evidence in fact suggests that domestic public banks are more efficient than domestic private banks and that the efficiency gap between these two ownership types did not narrow after the introduction of deposit insurance in 2004. This may be due to increased switching costs or to the moral hazard effects of deposit insurance. The policy conclusion is that the efficiency of the Russian banking system may benefit more from increased levels of competition and greater access of foreign banks than from bank privatization.
    Keywords: Bank Efficiency; State Ownership; Foreign ownership; Russia
    JEL: G21 P30 P34 P52
    Date: 2008–04–21
  2. By: Hamada, Miki
    Abstract: The improvement of financial intermediation functions is crucial for a robust banking system. When lending, banks have to cope with such problems as information asymmetry and adverse selection. In order to mitigate these problems, banks have to product information and improve their techniques of lending. During the 1998 financial crisis, Indonesia's banking system suffered severe damage and revealed that the country's banking intermediation functions did not work well. This paper examines the financial intermediation functions of banks in Indonesia and analyzes the importance of bank lending to firms. The focus is on medium-sized firms, and "relationship lending", one of the bank lending techniques, is used to examine financial intermediation in Indonesia. The results of logit regressions show that the relationship between a bank and a firm affects the probability of bank lending. The amount of borrowing and collateral are also affected by a firm's relationship with a bank. When viewed from the standpoint of relationship lending to medium-sized firms, Indonesian banks cannot be criticized for any malfunction of financial intermediation.
    Keywords: Relationship lending, Financial intermediation function, Medium-sized firms, Indonesia, Banks, Finance, Small and medium-scale enterprises
    JEL: G21 G30 N25
    Date: 2008–03
  3. By: Jon Frye; Eduard Pelz
    Abstract: BankCaR is a credit risk model that forecasts the distribution of a commercial bank's charge-offs. The distribution depends only on systematic factors; BankCaR takes each bank and projects its expected charge-off across a distribution of good years and bad years. Since most bank failures occur in bad years, this analysis has promise for both banks and bank supervisors. In BankCaR, charge-offs depend on the bank's loan balances and the charge-off rates of twelve categories of lending. A joint distribution of the twelve charge-off rates is calibrated to a long history of regulatory reporting data. Applied to the US banking system, BankCaR finds that credit risk is rising and is concentrated most significantly in construction lending. Applied to individual banks, BankCaR efficiently identifies those that have an adverse combination of credit risk and capital. BankCaR uses publicly available regulatory reporting data, the most common credit portfolio model, and standard quantitative techniques. These generic qualities can provide a standard of comparison between banks. They also can provide an individual commercial bank with a benchmark for more elaborate vended credit models.
    Date: 2008
  4. By: Ricardo Correa
    Abstract: This paper uses a unique database that includes deal and bank balance sheet information for 220 cross-border acquisitions between 1994 and 2003 to analyze the characteristics and performance effects of international takeovers on target banks. A discrete choice estimation shows that banks are more likely to get acquired in a cross-border deal if they are large, bad performers, in a small country, and when the banking sector is concentrated. Post-acquisition performance for target banks does not improve in the first two years relative to domestically-owned financial institutions. This result is explained by a decrease in the banks' net interest margin in developed countries and an increase in overhead costs in emerging economies.
    Date: 2008
  5. By: Christophe J. Godlewski (Laboratoire de Recherche en Gestion et Economie, Université Louis Pasteur); Ydriss Ziane (BETA, Université de Nancy)
    Abstract: We provide empirical evidence on the determinants of the number of bank lenders using a sample of more than 3000 loans to firms from 24 European countries. Our testable hypotheses are built upon different theoretical frameworks drawn from the existing literature, referring to firm characteristics, strategic considerations, geographical distances, bank market concentration, efficiency of legal system, and development of alternative sources of funds. Our main results show that the number and the international diversity of lenders is increased by loan and firm characteristics which reduce agency costs, and by financial structure and legal environment characteristics which mitigate expropriation risk.
    Keywords: Lending relationships, number of lenders, bank loans, financial governance, asymmetric information, Europe.
    JEL: G21 G32 G33
    Date: 2008
  6. By: Elmas Yaldiz (Department of Economics, Izmir University of Economics); Ertugrul Deliktas (Department of Economics, Ege University)
    Abstract: The main goal of this paper is to estimate the most appropriate production function for Turkish banking industry over the 1980–2006 period. The empirical analysis shows that Cobb-Douglas type production function and with credit dependent variable is the most appropriate model of the banking sector. This function indicates that constant return to scale is valid for Turkish banking sector. Accepting personnel and fixed assets as inputs, it is found that as personnel use increases in the production process, the output level increases more than the increase in personnel. Thus If the main purpose is to increase the credit amount, banks should employ much more personnel rather than fixed assets considering the substitution relationship between labor and capital and the parameters of the production function is found to be changed with restructuring program.
    Keywords: Turkish banking sector, production function, marginal and average productivity
    JEL: G21 D24
    Date: 2008–02
  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: Craig, Ben R.; Dinger, Valeriya
    Abstract: Despite extensive research interest in the last decade, the banking literature has not reached a consensus on the impact of bank mergers on deposit rates. In particular, results on the dynamics of deposit rates surrounding bank mergers vary substantially across studies. In this paper, we aim for a comprehensive empirical analysis of a bank merger’s impact on deposit rate dynamics. We base the analysis on a unique dataset comprising deposit rates of 624 US banks with a monthly frequency for the time period 1997-2006. These data are matched with individual bank and local market characteristics and the complete list of bank mergers in the US. The data allow us to track the dynamics of bank mergers while controlling for the rigidity of the deposit rates and for a range of merger, bank and local market features. An innovation of our work is the introduction of an econometric approach of estimating the change of the deposit rates given their rigidity.
    Keywords: Deposit rate dynamics, bank mergers, deposit rate rigidity
    JEL: G21 L11
    Date: 2008
  9. By: Mandira Sarma (Indian Council for Research on International Economic Relations); Yuko Nikaido (Indian Council for Research on International Economic Relations)
    Abstract: In this paper we present an analytical review of the capital adequacy regime and the present state of capital to risk-weighted asset ratio (CRAR) of the banking sector in India. In the current regime of Basel I, Indian banking system is performing reasonably well, with an average CRAR of about 12 per cent, which is higher than the internationally accepted level of 8 per cent as well as India's own minimum regulatory requirement of 9 per cent. As the revised capital adequacy norms, Basel II, are being implemented from March 2008, several issues emerge. We examine these issues from the Indian perspective.
    Keywords: Capital Adequacy Ratio, Basel I, Basel II, Reserve Bank of India, SMEs lending
    JEL: G20 G21 G28
    Date: 2007–07
  10. By: Ricardo Correa
    Abstract: This paper uses data on publicly-traded firms in the U.S. to analyze the effect of interstate bank integration on the financial constraints borrowers face. A firm-level investment equation is estimated in order to test if bank integration reduces the sensitivity of capital expenditures to the level of internal funds. The staggered deregulation of cross-state bank acquisitions that took place in the U.S. between 1978 and 1994 helps estimate the model. Integration decreases financing constraints for bank-dependent firms. The change in firms' access to external finance is explained by an increase in the share of locally headquartered geographically diversified banks.
    Date: 2008

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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