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on Banking |
| By: | Judit Montoriol-Garriga (Federal Reserve Bank of Boston, 600 Atlantic Avenue, Boston, MA 02210, USA.) |
| Abstract: | This paper analyzes the effects of bank mergers on bank-firm relationships. Using matched bank-firm level data, I find that mergers disrupt lending relationships, specially to small borrowers of target banks. However, I find significant positive effects of mergers for borrowers that continue the lending relationship with the consolidated bank. On average, consolidated banks reduce loan interest rates. The most beneficial mergers from the borrower point of view are those involving two large banks and commercial banks. While the reduction in interest rates is larger when the acquirer and the target have some market overlap, the decline is much smaller when there is a significant increase in local banking market concentration. JEL Classification: G21, G34. |
| Keywords: | Banking consolidation, Lending relationships, Small business lending. |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20080934&r=ban |
| By: | Hans Gersbach (CER-ETH - Center of Economic Research at ETH Zurich, Switzerland) |
| Abstract: | We examine banking competition when deposit or loan contracts contingent on macroeconomic shocks become feasible. We show that the risk allocation is efficient, provided that banks are not bailed out. In this case, banks may shift part of the risk to depositors. The private sector insures the banking sector and banking crises are avoided. In contrast, when banks are bailed out, depositors receive non-contingent contracts with high interest rates, while entrepreneurs obtain loan contracts that demand high repayment in good times and low repayment in bad times. As a result, the present generation overinvests, and banks create large macroeconomic risks for future generations, even if the underlying risk is small or zero. |
| Keywords: | Financial intermediation, macroeconomic risks, state contingent contracts, banking regulation |
| JEL: | D41 E4 G2 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:eth:wpswif:08-93&r=ban |
| By: | Ben R Craig; Valeriya Dinger |
| 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 U.S. 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 United States. 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 for estimating the change of the deposit rates given their rigidity. |
| Keywords: | Bank mergers ; Bank deposits |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwp:0806&r=ban |
| By: | van den Hauwe, Ludwig |
| Abstract: | The author of this article draws special attention to two particular claims of the free bankers concerning the supposed working characteristics of a fractional-reserve free banking system which may strike the reader as questionable. The first of these relates to the alleged absence of a real-balance effect under free banking. The second relates to the free bankers´ reference to Walras´ Law as providing a rationale for the free banking system´s “offsetting” actions when confronted with changes in the public´ s demand to hold bank liabilities. This rationale is defective since it is based on an erroneous interpretation of Walras´ Law. The author´s conclusion does not imply that it is not at all possible, from a rational viewpoint, to make a plausible case for this variant of free banking, only that the argument should be freed from certain questionable tenets. |
| Keywords: | E0; E32; E42; E5; E51; E52 |
| JEL: | E32 E42 E31 E51 E52 E50 E00 |
| Date: | 2008–09–17 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:8765&r=ban |
| By: | Hans Degryse; Olena Havrylchyk; Emilia Jurzyk; Sylwester Kozak |
| Abstract: | We employ a unique dataset to study the impact of foreign bank ownership and mode of entry on banks’ lending rates to transparent and opaque borrowers. We find that greenfield banks charge lower lending rates on average and we test for two hypotheses that can explain the lower cost of credit of these institutions: (1) superior performance or (2) different portfolio composition with a focus on more transparent borrowers. Our analysis shows that bank ownership and mode of entry have a large impact on banks’ portfolio composition in terms of borrowers, maturity, and currency. After controlling for these differences, we do not find any impact of foreign bank ownership and mode of entry on lending rates, which is in line with the "portfolio composition hypothesis". |
| Keywords: | Banks; ownership; loan pricing |
| JEL: | G21 G28 G34 L11 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2008-15&r=ban |
| By: | Kamaruddin, Badrul Hisham; Safa, Mohammad Samaun; Mohd, Rohani |
| Abstract: | This study presents new perspectives on performance evaluation of Islamic banking operations in Malaysia, by investigating for the first time, both cost and profit efficiency of full-fledged Islamic banks and Islamic window operations of domestic and foreign banks. The application of Data Envelopment Analysis (DEA) technique has provided several efficiency measures such as allocative, pure technical and scale efficiency that explain cost and profit efficiency differentials among banks. The findings of the study show that Islamic banking operators are relatively more efficient at controlling costs than at generating profits. The main contributor for cost efficiency of domestic and foreign banks comes from resource management and economies of scale respectively. These findings have implications on the reform process carried out in the aftermath of Asian financial crisis, particularly the Financial Sector Master Plan (FSMP). |
| Keywords: | Data Envelopment Analysis; allocative efficiency; technical efficiency; foreign banks |
| JEL: | D2 |
| Date: | 2008–03–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:10670&r=ban |
| By: | Yao, Shujie; Han, Zhongwei; Feng, Genfu |
| Abstract: | Since China joined the WTO in 2001, the pressure for bank reforms has mounted as China ought to fully open up its financial market to foreign competition by 2006. Efficiency is key for domestic banks to survive in a liberalised environment, but it appears that the last hope for raising bank efficiency is through ownership reform. Whether ownership reform and foreign competition can solve China?s banking problem remains to be tested. This paper aims to answer this question through using a non-parametric approach to analyse the efficiency changes of 15 large commercial banks during 1998-2005. We find that ownership reform and foreign competition have forced the Chinese commercial banks to improve performance, as their total factor productivity rose by 5.6 per cent per annum. This coincides with the recent bullish Chinese stock markets led by three listed state-owned commercial banks. Despite such encouraging results, we remain cautious about the future of the Chinese banks, as the good results may have been artificially created with massive government support and the fundamentals of the banks may be still weak. |
| Keywords: | data envelopment analysis (DEA), efficiency, banking, China |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:rp2008-38&r=ban |
| By: | Maximilian J. B. Hall (Dept of Economics, Loughborough University) |
| Abstract: | Since fiscal 2003, the 'performance' of the Japanese banking sector, in terms of profitability, asset quality, and capital adequacy, has improved markedly as the real economy has recovered, suggesting that the widespread pessimism (see, for example, Hall, 2006 and IMF, 2003) expressed earlier concerning the fragility of the sector was somewhat overdone. Yet, despite these positive developments, a number of serious challenges still face the Japanese banking industry and their supervisors. Core profitability, for example, remains very weak, in part due to wafer thin lending margins at home and sluggish corporate loan demand. Asset quality has also widely suffered because of exposure to the re-regulated consumer finance industry and the US sub-prime market. And controversy still surrounds the issues of bank "under-reserving" and regulatory tolerance of "double gearing" on the capital adequacy front. These, and other, problems must be resolved if Japanese banks are to finally re-claim the ground lost to international competitors over the last 15 years or so and secure lasting improvement in their financial health. |
| Keywords: | Japanese Banking; Performance – Capital Adequacy and Profitability; Supervision; Financial Stability. |
| JEL: | G21 G28 G32 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:lbo:lbowps:2008_05&r=ban |
| By: | Maximilian J. B. Hall (Dept of Economics, Loughborough University); Mulinman D. Hadad (Bank Indonesia, Jakarta, Indonesia); Wimboh Santoso (Bank Indonesia, Jakarta, Indonesia); Ricky Satria (Bank Indonesia, Jakarta, Indonesia); Karligash Kenjegalieva (Dept of Economics, Loughborough University); Richard Simper (Dept of Economics, Loughborough University) |
| Abstract: | In this study we utilise a non-parametric, slacks-based model (SBM) approach to analyse efficiency and productivity changes for Indonesian banks over the period January 2006 to July 2007. Efficiency scores and Malmquist productivity indices are estimated using the approach for efficiency and super-efficiency estimation suggested by Tone (2001, 2002). Additionally, the Malmquist indices are decomposed into technical efficiency change and technological shift components. Using monthly supervisory data provided by Bank Indonesia we find that, under the intermediation approach to efficiency estimation, average bank efficiency was reasonably stable during the sample period, ranging between 70% and 82%, with 92 of the 130 banks in existence at that time having efficiency scores of over 70%, including 10 with (super)efficiency scores above unity. We also find that technical efficiencies under the Intermediation approach to describing the banking production process are relatively stable. Malmquist results for the industry suggest that the main driver of productivity growth is technological progress. A strategy based on the gradual adoption of newer technology, according to our results, thus seems to have the highest potential for boosting the productivity of the financial intermediary operations of Indonesian banks. |
| Keywords: | Indonesian Finance and Banking; Productivity; Efficiency. |
| JEL: | C23 C52 G21 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:lbo:lbowps:2008_08&r=ban |
| By: | Anastasia Koutsomanoli-Filippaki (Council of Economic Advisors, Ministry of Economy and Finance, Greece); Emmanuel Mamatzakis (Department of Economics, University of Macedonia) |
| Abstract: | This paper employs a specification of a quadratic loss function based on forward looking rational expectations to model the underlying dynamics of efficiency scores in the banking industry of eleven Central and Eastern European countries over the period 1998-2005. Results show that there is considerable variation in the adjustment speed to the long run equilibrium across banking systems and over time, while it also appears that the recent accession to the EU has not led to the expected increase in the speed of adjustment to the long run equilibrium. Moreover, banks’ ownership structure appears to assert an influence on the speed at which credit institutions correct their past-period inefficiency. |
| Keywords: | Speed of adjustment, long run equilibrium, rational expectations, banking inefficiency. |
| JEL: | D24 G21 L25 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:mcd:mcddps:2008_11&r=ban |
| By: | Olena Havrylchyk; Emilia Jurzyk |
| Abstract: | Using a combination of propensity score matching and difference-in-difference techniques we investigate the impact of foreign bank ownership on the performance and market power of acquired banks operating in Central and Eastern Europe. This approach allows us to control for selection bias as larger but less profitable banks were more likely to be acquired by foreign investors. We show that during three years after the takeover, banks have become more profitable due to cost minimization and better risk management. They have additionally gained market share, because they passed their lower cost of funds to borrowers in terms of lower lending rates. Previous studies failed to pick up the improvements in performance of takeover banks, because they did not account for the performance of financial institutions before acquisitions. |
| Keywords: | Foreign banks; foreign acquisition; propensity score matching |
| JEL: | G15 G21 G34 F36 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2008-16&r=ban |
| By: | David G. Mayes (Bank of Finland); María J. Nieto (Banco de España); Larry Wall (Federal Reserve Bank of Atlanta) |
| Abstract: | This paper presents a stylized mechanism aimed at dealing with the cross border agency problems that arise in supervising and resolving cross border banking groups in the European Union (EU). The authors assume that PCA policies have been implemented by the national supervisors and explore the institutional changes needed in Europe if PCA is to be effective as an incentive compatible mechanism. The paper identifies these changes starting with enhancements in the availability of information on banking groups to supervisors. Next, the paper considers the collective decision making by supervisors with authority to make discretionary decisions within the PCA framework as soon as a bank of a cross border banking group falls below the minimum capital standard. Finally, the paper analyzes the coordination measures that should be implemented if PCA requires the bank to be resolved. |
| Keywords: | banking supervision, European Union, Prompt Corrective Action |
| JEL: | G28 K23 F20 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:0819&r=ban |
| By: | Maximilian J. B. Hall (Dept of Economics, Loughborough University); Mulinman D. Hadad (Bank Indonesia, Jakarta, Indonesia); Wimboh Santoso (Bank Indonesia, Jakarta, Indonesia); Ricky Satria (Bank Indonesia, Jakarta, Indonesia); Karligash Kenjegalieva (Dept of Economics, Loughborough University); Richard Simper (Dept of Economics, Loughborough University) |
| Abstract: | This paper examines the monthly efficiency and productivity of listed Indonesian banks and their market performance through the prism of two modelling techniques, efficiency and super-efficiency, over the period January 2006 to July 2007. Within this research strategy we employ Tone’s (2001) non-parametric, Slacks-Based Model (SBM) and Tone’s (2002) super-efficiency SBM combining them with recent bootstrapping techniques, namely the non-parametric truncated regression analysis suggested by Simar and Wilson (2007). In the case of the SBM efficiency scores, the Simar and Wilson methodology was adapted to two truncations, whereas in the super-efficiency framework the original technique was utilised. As suggested by neo-classical theory, we find that the stock market values banks in accordance with their performance. Moreover, it is found that the JCI index of the Indonesian Stock Exchange is positively related to bank efficiency. Another interesting finding is that the coefficient for the share of foreign ownership is negative and statistically significant in the super-efficiency modelling. This suggests that Indonesian banks with foreign ownership tend to be less efficient than their domestic counterparts. Finally, Malmquist productivity results suggest that, over the study’s horizon, the sample banks displayed volatile productivity patterns in their profit-generating operations. |
| Keywords: | Indonesian Banking, Emerging Markets, Productivity, Efficiency. |
| JEL: | C23 C52 G21 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:lbo:lbowps:2008_07&r=ban |
| By: | Maximilian J. B. Hall (Dept of Economics, Loughborough University) |
| Abstract: | On 14 September 2007, after failing to find a 'White Knight' to take over its business, Northern Rock bank turned to the Bank of England ('the Bank') for a liquidity lifeline. This was duly provided but failed to quell the financial panic, which manifested itself in the first fully-blown nationwide deposit run on a UK bank for 140 years. Subsequent provision of a blanket deposit guarantee duly led to the (eventual) disappearance of the depositor queues from outside the bank's branches but only served to heighten the sense of panic in policymaking circles. Following the Government's failed attempt to find an appropriate private sector buyer, the bank was then nationalised in February 2008. Inevitably, post mortems ensued, the most transparent of which was that conducted by the all-party House of Commons' Treasury Select Committee. And a variety of reform proposals are currently being deliberated at fora around the globe with a view to patching up the global financial system to prevent a recurrence of the events which precipitated the bank's illiquidity. This article briefly explains the background to these extraordinary events before setting out, in some detail, the tensions and flaws in UK arrangements which allowed the Northern Rock spectacle to occur. None of the interested parties – the Bank, the Financial Services Authority (FSA) and the Treasury – emerges with their reputation intact, and the policy areas requiring immediate attention, at both the domestic and international level, are highlighted. Some reform recommendations are also provided for good measure, particularly in the area of formal deposit protection. |
| Keywords: | UK banks, banking regulation and supervision, central banking, deposit protection. |
| JEL: | E53 E58 G21 G28 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:lbo:lbowps:2008_09&r=ban |
| By: | Greta Falavigna (Ceris - Institute for Economic Research on Firms and Growth, Moncalieri (Turin), Italy) |
| Abstract: | On a wake of Basel II in 2004, banks and financial institutions had focused on the default analysis of firms. In this contribution, artificial neural networks are used for extracting balance-sheet variables determining the default of enterprises on a base of prospective vision. A manufacturing sample and a services one are introduced in the network and then analysed. In this way, the goal has been to show that artificial neural networks were good tools for classifying firms on a base of balance-sheet data. Moreover, these models are also able to underline indices determining the default risk of firm. |
| Keywords: | Artificial neural networks (ANN), Determinant variables, Default risk, Manufacturing industry, Service industry. |
| JEL: | C63 G33 L60 L63 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:csc:cerisp:200801&r=ban |