New Economics Papers
on Banking
Issue of 2008‒05‒05
six papers chosen by
Roberto J. Santillán–Salgado, EGADE-ITESM

  1. The Determinants of Capital Structure: Some Evidence from Banks By Gropp, Reint Eberhard; Heider, Florian
  2. Foreign bank entry, institutional development and credit access: firm-level evidence from 22 transition countries By Rueda Maurer, Maria Clara
  3. Impact of bank competition on the interest rate pass-through in the euro area. By Michiel van Leuvensteijn; Christoffer Kok Sørensen; Jacob A. Bikker; Adrian A.R.J.M. van Rixtel
  4. Financial Fragility, Systemic Risks and Informational Spillovers : Modelling Banking Contagion as State-Contingent Change in Cross-Bank Correlation By Moheeput, Ashwin
  5. The Geography of European Cross-Border Banking: The Impact of Cultural and Political Factors By Heuchemer Sylvia; Kleimeier Stefanie; Sander Harald
  6. A credit contagion model for the dynamics of the rating transitions in a SME bank loan portfolio By Antonella Basso; Riccardo Gusso

  1. By: Gropp, Reint Eberhard; Heider, Florian
    Abstract: This paper documents that standard cross-sectional determinants of firm leverage also apply to the capital structure of large banks in the United States and Europe. We find a remarkable consistency in sign, significance and economic magnitude. Like non-financial firms, banks appear to have stable capital structures at levels that are specific to each individual bank. The results suggest that capital requirements may only be of second-order importance for banks’ capital structures and confirm the robustness of current corporate finance findings in a holdout sample of banks.
    Keywords: capital structure, corporate finance, leverage, bank capital, banking regulation
    JEL: G21 G32
    Date: 2008
  2. By: Rueda Maurer, Maria Clara (Swiss National Bank)
    Abstract: In this paper I examine how the protection of creditors' rights influence the way in which foreign bank entry affects the access to credit of firms. Using a sample of more than 6000 firms in 22 transition countries I find that as bankruptcy proceedings become more inefficient foreign bank entry is more likely to crowd-out small and opaque firms. Conversely, as the protection of creditors' rights improve, the positive association between foreign banks and firms' credit constraints diminishes. These results are robust to controls for endogeneity of foreign banks. The interaction of foreign banks and the protection of creditors rights would explain the disparity of results obtained by previous studies: In countries with an adequate protection of creditor rights foreign bank entry may benefit all firms; By contrast, in countries with weak protection of creditor rights foreign bank entry is likely to result in a credit crunch.
    Keywords: Institutional development; Transition; Foreign Bank Entry; Information asymmetries; Small Business Lending.
    JEL: D82 G10 G21 G31
    Date: 2008–04–29
  3. By: Michiel van Leuvensteijn (CPB Netherlands Bureau for Economic Policy Analysis, P.O. Box 80510, 2508 GM The Hague, The Netherlands.); Christoffer Kok Sørensen (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Jacob A. Bikker (De Nederlandsche Bank (DNB), Supervisory Policy Division, Strategy Department, P.O. Box 98, 1000 AB Amsterdam, The Netherlands.); Adrian A.R.J.M. van Rixtel (Banco de España, International Economics and International Relations Department, Alcalá 48, 28014 Madrid, Spain.)
    Abstract: This paper analyses the impact of loan market competition on the interest rates applied by euro area banks to loans and deposits during the 1994-2004 period, using a novel measure of competition called the Boone indicator. We find evidence that stronger competition implies significantly lower spreads between bank and market interest rates for most loan market products. Using an error correction model(ECM) approach to measure the effect of competition on the pass-through of market rates to bank interest rates, we likewise find that banks tend to price their loans more in accordance with the market in countries where competitive pressures are stronger. Further, where loan market competition is stronger, we observe larger bank spreads (implying lower bank interest rates) on current account and time deposits. This would suggest that the competitive pressure is heavier in the loan market than in the deposit markets, so that banks compensate for their reduction in loan market income by lowering their deposit rates. We observe also that bank interest rates in more competitive markets respond more strongly to changes in market interest rates. These findings have important monetary policy implications, as they suggest that measures to enhance competition in the European banking sector will tend to render the monetary policy transmission mechanism more effective. JEL Classification: D4, E50, G21, L10.
    Keywords: Monetary transmission, banks, retail rates, competition, panel data.
    Date: 2008–03
  4. By: Moheeput, Ashwin (Department of Economics, University of Warwick)
    Abstract: We consider banking panic transmission in a two-bank setting, in which the main propagator of a shock across banks is the informational spillover channel. Banks are perceived to be positively connected to some unobserved macroeconomic fundamental. Depositors in each bank are assumed to noisily observe their bank's idiosyncratic fundamental. The game takes a dynamic bayesian setting with depositors of one bank, making their decision to withdraw after observing the event in the other bank. We show that, if this public event is used for bayesian inference about the state of the common macroeconomic fundamental, then, in the equilibrium profile of the game, contagion and correlation both occur with positive probability, with contagion modeled as a state-contingent change in the cross-bank correlation. Such endogenous characterisation of probabilistic assessments of contagion and correlation, has the appealing feature that it enables us to distill between these two concepts as equilibrium phenomena and to assess their relative importance in a given banking panic transmission setting. We show that contagion is characterised by public informational dominance in depositors.decision set.
    Keywords: Banking Panic Transmission ; Informational Spillover ; Contagion ; Correlation
    Date: 2008
  5. By: Heuchemer Sylvia; Kleimeier Stefanie; Sander Harald (METEOR)
    Abstract: We investigate the determinants of European banking market integration with a focus on the potentially limiting role of cultural and political factors. Employing a unique data set of European cross-border loans and deposits, the study uses various gravity models that are augmented by societal proxies. While trade-theoretic reasoning can explain part of the surge in cross-border banking, we demonstrate that distance and borders still matter in the geography of European cross-border banking. Moreover, we can identify cultural differences and different legal family origin as important barriers to integration.
    Keywords: Economics (Jel: A)
    Date: 2008
  6. By: Antonella Basso; Riccardo Gusso (Department of Applied Mathematics, University of Venice)
    Abstract: In this work we analyze the effects of credit contagion on the credit quality of a portfolio of bank loans issued to SMEs. To this aim we start from the discrete time model proposed in Barro and Basso (2005), that considers the counterparty risk generated by the business relations in a network of firms, and we modify it by introducing different rating classes in order to manage the case of firms with different credit qualities. The transitions from a rating class to another occurs when a proxy for the asset value of the firm crosses some rating specific thresholds. We assume that the initial rating transition matrix of the system is known, and compute the thresholds using the probability distribution of the steady state of the model. A wide Monte Carlo simulation analysis is carried out in order to study the dynamic behaviour of the model, and in particular to analyze how the default contagion present in the model affects the output rating transition matrix of the portfolio.
    JEL: G33 G21 C15
    Date: 2008–04

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