New Economics Papers
on Banking
Issue of 2008‒11‒25
eight papers chosen by
Roberto J. Santillán–Salgado, EGADE-ITESM

  1. Search cost and price dispersion in vertically related markets: the case of bank loans and deposits By Alfredo Martín-Oliver; Vicente Salas-Fumás; Jesús Saurina
  2. External support and bank behaviour in the international syndicated loan market By Blaise Gadanecz; Sahminan Kostas Tsatsaronis; Yener Altunbas
  3. To acquire, or to compete? An entry dilemna By GABSZEWICZ, Jean; LAUSSEL, Didier; TAROLA, Ornella
  4. Geographic Deregulation and Commerical Bank Performance in US State Banking Markets By YongDong Zou; Stephen M. Miller; Bernard Malamud
  5. Financial risks and factors affecting them on Finnish farms By Pyykkonen, P.; Yrjola, T.; Latukka, A.
  6. Does IT investment improve bank performance? Evidence from Europe By Elena Beccalli
  7. Credit Crunch: A Lesson from the Japanese Case By Daisuke Ishikawa; Yoshiro Tsutsui
  8. The ECB and IMF indicators for the macro-prudential analysis of the banking sector: a comparison of the two approaches By Anna Maria Agresti; Patrizia Baudino; Paolo Poloni

  1. By: Alfredo Martín-Oliver (Banco de España); Vicente Salas-Fumás (Universidad de Zaragoza); Jesús Saurina (Banco de España)
    Abstract: Using data on marginal interest rates of loan and deposit products by Spanish banks, we find that the level of interest rates on loans (deposits) across geographic markets decrease (increase) with the number of banks in each market, and that the level of interest rates on loans increases with the level of interest rates of deposits. We also find that the dispersion of interest rates of both loans and deposits increase with the number of banks. This evidence is interpreted as evidence of customer’s search costs in retail banking, consistent with predictions from the Carlson and McAfee (1983) model of market competition with search costs.
    Keywords: Interest rate dispersion, market structure, search costs
    JEL: D83 G21
    Date: 2008–11
  2. By: Blaise Gadanecz; Sahminan Kostas Tsatsaronis; Yener Altunbas
    Abstract: Banks that enjoyed generous external financial support tended to under-price risk in the international syndicated loan market and did not show signs of innovation in their loan participations. Loans arranged by such banks had on average lower spreads (controlling for risk and other characteristics) and these banks retained loans that were on average priced below market. When supported banks' investment strategy differed materially from that of the average bank it was in holding less specialised portfolios, in aligning more closely with market trends, and in exhibiting lower persistence in their sectoral allocations.
    Keywords: external support, portfolio choices, risk taking, banks, syndicated loans
    Date: 2008–11
  3. By: GABSZEWICZ, Jean (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE)); LAUSSEL, Didier; TAROLA, Ornella
    Abstract: In this paper we address the following question: is it more profitable, for an entrant in a differentiated market, to acquire an existing firm than to compete? We illustrate the answer by considering competition in the banking sector.
    Keywords: Vertical differentiation, entry, banking competition
    JEL: G34 L13 L22
    Date: 2008–05
  4. By: YongDong Zou (Sany Group, Changsha, Hunan, CHINA); Stephen M. Miller (Department of Economics, University of Nevada, Las Vegas); Bernard Malamud (Department of Economics, University of Nevada, Las Vegas)
    Abstract: This paper examines the effects of geographical deregulation on commercial bank performance across states. We reach some general conclusions. First, the process of deregulation on an intrastate and interstate basis generally improves bank profitability and performance. Second, the macroeconomic variables -- the unemployment rate and real personal income per capita – and the average interest rate affect bank performance as much, or more, than the process of deregulation. Finally, while deregulation toward full interstate banking and branching may produce more efficient banks and a healthier banking system, we find mixed results on this issue.
    Keywords: commercial banks, geographic deregulation, bank performance
    JEL: E5 G2
    Date: 2009–11
  5. By: Pyykkonen, P.; Yrjola, T.; Latukka, A.
    Abstract: As a consequence of rapid structural change and new investment support scheme agricultural debts have increased and concentrated heavily in Finland. In addition, New Basel Accord (Basel II) regulating the bank business requires more in-depth credit risk assessment from banks. Therefore, there are both endogenous and exogenous reasoning for researching the agricultural credit risks. The purpose of the study is to find out the factors that affect financial risks in agriculture as well as possible change in credit risks. Credit scores depicting the magnitude of financial risk for 664 Finnish FADN farms are calculated and an econometric model is applied to clarify which farm specific factors influence the credit score. According to the study increasing farm size decreases financial risks. Furthermore, higher yields that also reflect higher professional skills of the farmer decreases financial risks. In contrast, increasing debts also increase credit risks. In addition, cereal farms tend to have higher credit risks than animal farms. The latter is due to negative profitability development as a consequence of deteriorated grain prices. Even though credit risks in general have increased the number of farms facing substantial financial problems has not increased. However, given the perpetual economic development and structural change in Finnish farming industry the agricultural credit risks will increase. Hence, the lenders would be condemned to apply stricter criteria when granting loans and debt will not be granted to some smaller farms.
    Keywords: Credit risks, financing, Agricultural Finance,
    Date: 2008
  6. By: Elena Beccalli (Univesity of Macerata)
    Abstract: <p> </p><p> </p><p> </p><p align="left">This paper investigates whether investment in Information Technology (IT), hardware,</p><p align="left">software and other IT services influences the performance of banks. Using a sample of 737</p><p align="left">European banks over the period 1993-2000 we analyse whether IT investment is reflected</p><p align="left">in improved performance (measured using both standard accounting ratios and cost and</p><p align="left">alternative product efficiency measures). Despite banks being major investors in IT we found</p><p align="left">little relationship between total IT investment and improved bank profictability or efficiency</p><p align="left">indicating the existence of a profictability paradox. However, the impact of different types of</p><p align="left">IT investment (hardware, software and services) on banks' performance is heterogeneous.</p><p align="left">Investment in IT services from external providers (consulting services, implementation</p><p align="left">services, training and education, support services) appears to have a positive influence</p><p align="left">on accounting products and product efficiency, while the acquisition of hardware and software</p><p align="left">seems to reduce banks' performance.</p>
    JEL: O1 O11
    Date: 2006–10
  7. By: Daisuke Ishikawa (Kyoto University); Yoshiro Tsutsui (Osaka University)
    Abstract: The purpose of this paper is to elucidate whether the supply side played a crucial role in causing the credit crunch in Japan in the 1990s. To this end, we estimate the supply and demand functions using prefectural panel data from 1990 to 2001 and calculate the shifts of those functions. The results reveal that until 1996 the supply side was not the main cause of stagnant loans, and after 1996 the contraction of the supply side at best contributed as much as the demand side to the decrease in loans. Thus, the countermeasures on the banking sector were not adequate to increase the loans.
    Keywords: credit crunch, prefectural panel data, shift of functions, Japanese loan market
    JEL: G21 E51 R51
    Date: 2008–09
  8. By: Anna Maria Agresti (International Financial Corporation, World Bank Group, 2121 Pennsylvania Avenue, NW Washington, DC 20433 USA.); Patrizia Baudino (Financial Stability Forum, Bank for International Settlements, Basel, Switzerland.); Paolo Poloni (European Central Bank, Directorate General Statistics, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: In January 2007 the International Monetary Fund (IMF) published, on an ad hoc basis, a series of financial soundness indicators (FSIs) based on a common methodology (the IMF compilation Guide) for 62 countries, including all 27 European Union countries. The European Central Bank (ECB), jointly with the Banking Supervision Committee (BSC), has an interest in monitoring the development of this IMF initiative in the context of its own work on compiling macro-prudential indicators (MPIs). The aim of this paper is to identify the main similarities and differences between the FSIs and the MPIs for national banking sectors, as the overlap between MPIs and FSIs in this sub-set is greatest. As a result of the recently issued amendments to the IMF compilation Guide for FSIs, some key methodological differences between the two approaches have been eliminated and it is therefore expected that the figures published by the two institutions will soon converge. The paper concludes with an investigation of the few other areas where the remaining differences could potentially be narrowed. JEL Classification: C82, G20, G21, G28, G32
    Keywords: Macro-prudential indicators (MPIs), financial soundness indicators (FSIs), financial stability statistics
    Date: 2008–11

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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