New Economics Papers
on Banking
Issue of 2008‒06‒27
eleven papers chosen by
Roberto J. Santillán–Salgado, EGADE-ITESM

  1. Banking Globalization: International Consolidation and Mergers in Banking By Claudia M. Buch; Gayle L. DeLong
  2. Corporate performance, board structure, and their determinants in the banking industry By Renée B. Adams; Hamid Mehran
  3. Bank Governance, Regulation, and Risk Taking By Luc Laeven; Ross Levine
  4. Banking Globalization, Monetary Transmission, and the Lending Channel By Nicola Cetorelli; Linda S. Goldberg
  5. International Bank Portfolios: Short- and Long-Run Responses to the Business Cycle By Sven Blank; Claudia M. Buch
  6. Credit Losses in Australasian Banking By Kurt Hess; Arthur Grimes; Mark J. Holmes
  7. Banking Market Concentration and Credit Availability to Small Businesses By Park, Yongjin
  8. Parsimonious Lenders: Bank Concentration and Credit Availability to Small Businesses By Yongjin, Park
  9. Bank Debt Restructuring under Belgian Court-Supervised Reorganization By B. LEYMAN; K. SCHOORS
  10. Foreign Banks' Entry and Departure: The Recent Brazilian Experience (1996-2006) By Pedro Fachada
  11. Bank lending, financing constraints and SME investment By Santiago Carbó Valverde; Francisco Rodríguez-Fernández; Gregory F. Udell

  1. By: Claudia M. Buch; Gayle L. DeLong
    Abstract: This paper surveys recent literature on international mergers and acquisitions in banking. We focus on three main questions. First, what are the determinants of cross-border mergers of commercial banks? Second, do cross-border mergers affect the efficiency of banks? Third, what are the risk effects of international bank mergers? We begin with a brief summary of the stylized facts, and we conclude with implications for policymakers.
    Keywords: mergers and acquisition, international banking, survey
    JEL: F23 G21
    Date: 2008–01
  2. By: Renée B. Adams; Hamid Mehran
    Abstract: The subprime crisis highlights how little we know about the governance of banks. This paper addresses a long-standing gap in the literature by analyzing board governance using a sample of banking firm data that spans forty years. We examine the relationship between board structure (size and composition) and bank performance, as well as some determinants of board structure. We document that mergers and acquisitions activity influences bank board composition, and we provide new evidence that organizational structure is significantly related to bank board size. We argue that these factors may explain why banking firms with larger boards do not underperform their peers in terms of Tobin's Q. Our findings suggest caution in applying regulations motivated by research on the governance of nonfinancial firms to banking firms. Since organizational structure is not specific to banks, our results suggest that it may be an important determinant for the boards of nonfinancial firms with complex organizational structures such as business groups.
    Keywords: Bank management ; Bank mergers ; Corporate governance ; Bank directors ; Competition
    Date: 2008
  3. By: Luc Laeven; Ross Levine
    Abstract: This paper conducts the first empirical assessment of theories concerning relationships among risk taking by banks, their ownership structures, and national bank regulations. We focus on conflicts between bank managers and owners over risk, and show that bank risk taking varies positively with the comparative power of shareholders within the corporate governance structure of each bank. Moreover, we show that the relation between bank risk and capital regulations, deposit insurance policies, and restrictions on bank activities depends critically on each bank's ownership structure, such that the actual sign of the marginal effect of regulation on risk varies with ownership concentration. These findings have important policy implications as they imply that the same regulation will have different effects on bank risk taking depending on the bank's corporate governance structure.
    JEL: G18 G2 G3
    Date: 2008–06
  4. By: Nicola Cetorelli; Linda S. Goldberg
    Abstract: The globalization of banking in the United States is influencing the monetary transmission mechanism both domestically and in foreign markets. Using quarterly information from all U.S. banks filing call reports between 1980 and 2005, we find evidence for the lending channel for monetary policy in large banks, but only those banks that are domestically-oriented and without international operations. We show that the large globally-oriented banks rely on internal capital markets with their foreign affiliates to help smooth domestic liquidity shocks. We also show that the existence of such internal capital markets contributes to an international propagation of domestic liquidity shocks to lending by affiliated banks abroad. While these results imply a substantially more active lending channel than documented in the seminal work of Kashyap and Stein (2000), the lending channel within the United States is declining in strength as banking becomes more globalized.
    JEL: E5 F3 G20 G3
    Date: 2008–06
  5. By: Sven Blank; Claudia M. Buch
    Abstract: International bank portfolios constitute a large component of international country portfolios. Yet, their response to macroeconomic conditions and their impact on the international transmission of business cycles developments remains largely unexplored. We use a novel dataset on banks’ international portfolios to answer three questions. First, what are the long-run determinants of banks’ international portfolios? Second, how do banks’ international portfolios adjust to short-run macroeconomic developments? Third, does the speed of adjustment change with the degree of financial integration? We provide evidence of significant long-run cointegration relationships between cross-border assets and liabilities of banks and key macroeconomic variables. Both, the long-run determinants of banks’ international portfolios as well as the short-run dynamics show a significant degree of heterogeneity across countries and, to some extent, over time. Gravitytype variables help explaining differences in the speed of adjustment to new equilibria.
    Keywords: international bank portfolios, macroeconomic developments, transmission channels
    JEL: F32 F42 F34
    Date: 2007–03
  6. By: Kurt Hess (University of Waikato); Arthur Grimes (Motu Economic & Public Policy Research); Mark J. Holmes (University of Waikato)
    Abstract: We analyse determinants of bank credit losses in Australasia. Despite sizeable credit losses over the past two decades, ours is the first systematic study to do so. Analysis is based on a comprehensive dataset retrieved from original financial reports of 32 Australasian banks (1980-2005). Credit losses rise when the macro economy is weak. Asset markets, particularly the equity market, are also important. Larger banks provide more for credit losses while less efficient banks have greater asset quality problems. Strong loan growth translates into significantly higher credit losses with a lag of 2-4 years. Finally, the results show strong evidence of income smoothing activities by banks.
    Keywords: banking; credit risk; loan loss provisions; Australia; New Zealand
    JEL: G20 G21
    Date: 2008–06–18
  7. By: Park, Yongjin
    Abstract: This paper examines how banking market concentration affects small businesses finance. Using the Survey of Small Business Finance, the empirical model show that bank concentration may adversely affect the amount of credit supplied to small businesses. We find that bank concentration decreases the L/C limits of firms significantly, while there is no statistically significant difference in L/C balance across banking markets. We also show that bank concentration lowers the overall debt-to-asset ratio of small firms that includes loans from nonbank institutions, suggesting that credit from non-bank institutions do not fully make up the effect of bank concentration.
    Keywords: Small Business Finance; Banking Market Concentration
    JEL: G28 G21
    Date: 2008–03
  8. By: Yongjin, Park
    Abstract: This paper examines how bank competition affects the amount of credit provided to small businesses using both the loan turndown rate and the size of granted loans and L/Cs. Using 2003 National Survey of Small Business Finance data, we show that commercial banking in concentrated banking markets are more likely to reject loan applications. Moreover, the size of granted loans is found to be significantly smaller in concentrated markets. Finally, we show that the total limit of L/Cs that a firm has is also significantly smaller for firms in concentrated banking markets. Our finding challenges a notion that credit market competition may be inimical to the formation of mutually beneficial relationships between firms and specific creditors. We do not find any evidence that bank concentration is instrumental in building relationship banking and our results suggest the opposite.
    Keywords: Bank Competition; Credit Availability; Small Business; Relationship Banking
    JEL: G28 G21
    Date: 2008–04
    Abstract: We use a unique dataset to analyze the contract renegotiation between a debtor and its secured bank creditors during Belgian court-supervised reorganization. We find that secured banks with higher collateralization succeed in renegotiating higher debt repayments during the court-supervised post-confirmation stage. There is also mild evidence that secured bank creditors renegotiate higher loan repayments during the court-supervised post-confirmation stage if the debtor’s assets are more redeployable. The proceeds of asset sales are used to generously repay secured banks and there is some evidence that secured banks push for those sales. Our findings are consistent with theory suggesting that secured creditors prefer liquidation above court-supervised reorganization.
    Keywords: Bankruptcy, bank lending, collateral, liquidation rights
    JEL: G10 G20
    Date: 2008–04
  10. By: Pedro Fachada
    Abstract: There is a broad literature documenting the recent trend towards a larger foreign banking presence in both mature and emerging markets. Less documented are the few situations where banking internationalization has contracted. Brazil is one such case. After a large-scale entry in the late 90s, foreign banks have retreated, being absorbed by their domestic competitors. This paper examines these opposite trends and associates de-internationalization mainly with lower relative profitability of foreign firms. Bank-level panel data investigates the determinants of earnings and costs according to ownership, providing evidence that greater foreign presence contributed to curb domestic banks’ costs, but not their profitability. This assessment is consistent with widespread evidence that internationalization forces local banks to operate more efficiently.
    Date: 2008–06
  11. By: Santiago Carbó Valverde; Francisco Rodríguez-Fernández; Gregory F. Udell
    Abstract: SME investment opportunities depend on the level of financing constraints that firms face. Earlier research has mainly focused on the controversial argument that cash flow-investment correlations increase with the level of these constraints. We focus on bank loans rather than cash flow. Our results show that investment is sensitive to bank loans for unconstrained firms but not for constrained firms, and trade credit predicts investment, but only for constrained firms. We also find that unconstrained firms use bank loans to finance trade credit provided to other firms. Our results illustrate alternative mechanisms that firms employ both as borrowers and lenders.
    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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.