New Economics Papers
on Banking
Issue of 2009‒01‒03
twelve papers chosen by
Roberto J. Santillán–Salgado, EGADE-ITESM

  1. Stress Testing Banks' Credit Risk Using Mixture Vector Autoregressive Models By Tom Pak-wing Fong; Chun-shan Wong
  2. Les Facteurs Explicatifs d'Efficience-X Dans Les Banques Tunisiennes : Une Approche De Frontière Stochastique By ZAGHLA, ABDESSALEM; BOUJELBENE, YOUNES
  3. Stress testing of real credit portfolios By Mager, Ferdinand; Schmieder, Christian
  4. 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 van Rixtel
  5. Concept of Customer Relationship Management as an example of innovation in banking sector By Monika Urbanowicz
  6. Multiple-Bank Lending, Creditor Rights and Information Sharing By Alberto Bennardo; Marco Pagano; Salvatore Piccolo
  7. Real estate markets and bank distress By Koetter, Michael; Poghosyan, Tigran
  8. Evidence of Improved Monitoring and Insolvency Resolution after FDICIA By Edward J. Kane; Rosalind Bennett; Robert Oshinsky
  9. Cross-Border Coordination Of Prudential Supervision And Deposit Guarantees By Daniel C. L. Hardy; María Nieto
  10. Labor adjustments in privatized firms: a Statis approach By Adelaide Maria Figueiredo; Fernanda Otília Figueiredo; Natália Pimenta Monteiro
  11. Banking Deregulation and Financial Stability : is it Time to re-regulate in Canada ? By Christian Calmès; Raymond Théoret
  12. Do Financial Sector Reforms Lead to Financial Development? Evidence from a New Dataset By Thierry Tressel; Enrica Detragiache

  1. By: Tom Pak-wing Fong (Research Department, Hong Kong Monetary Authority); Chun-shan Wong (Department of Finance, The Chinese University of Hong Kong)
    Abstract: This paper estimates macroeconomic credit risk of banks¡¦ loan portfolio based on a class of mixture vector autoregressive models. Such class of models can differentiate distributions of default rates and macroeconomic conditions for different market situations and can capture their dynamics evolving over time, including the feedback effect from an increase in fragility back to the macroeconomy. These extensions can facilitate the evaluation of credit risks of loan portfolio based on different credit loss distributions.
    Keywords: Stress test; Hong Kong Banking; Credit risk; Mixture autoregressive models; Macroeconomic shocks; Value-at-risk.
    JEL: C15 C32 C53 E37 G21
    Date: 2008–10
    Abstract: The Tunisian banks currently operate in a very competitive environment. Long-term viability of this sector depends on its degree of efficiency. Therefore a study relating to the determinants of X-Efficiency in Tunisian banks is of major interest. For that purpose, we made recourse to an extension of the stochastic frontier approach called " Improved SFA " which assumes a parameter of truncation specific to each bank. The empirical results reveal differences in efficiency pronounced according to the size and the structure of property of the banks. The average efficiency of the small and average sizes banks is significantly more significant than that of large banks. Moreover, the public banks are relatively more efficient than the private banks. Thereafter, we analyze the internal determinants of the level of the efficiency of the Tunisian banks. Within this framework, three results deserve to be underlined. Firstly, the improvement of the level of the efficiency of the Tunisian banks is related to the managerial capacity rather than with the size of the banks. Moreover, preponderance of the activity of credit, compared to other outputs represents a source of efficiency. Secondly, there is a negative relation between the ratio equity on total asset and the efficiency of banks, which seems to indicate that those are too committed in risk activities. Thirdly, the share of the non performants loans represents a source of inefficiency, insofar as it cost of a bank increases with these types of loans, especially for the banks of large sizes.
    Keywords: X-Efficiency; Stochastic Frontier Approach" SFA "; Trade banks; Translog Model; internal determinants .
    JEL: D21 C23 G32 G21
    Date: 2008–02
  3. By: Mager, Ferdinand; Schmieder, Christian
    Abstract: Stress testing has become a crucial point on the Basel II agenda, mainly as Pillar I estimates do not explicitly take portfolio concentration into account. We start from the credit portfolio of the German pension insurer being a cross-sectional representation of the German economy and subsequently compose three bank portfolios corresponding to a small, medium and large bank. We apply univariate and multivariate stress tests both by using the Internal Rating based (IRB) model and by a model that additionally allows for variation of correlation. In a severe multivariate stress scenario based on historical data for Germany IRB capital requirements increase by more than 80% with little differences between the credit portfolios. If stress testing is additionally applied to correlation, the Value-at-Risk increases by up to 300% and portfolio differences materialize.
    Keywords: Credit Portfolio, Exposure concentration, Stress Testing, Basel II, Economic Capital
    JEL: G21 G28
    Date: 2008
  4. By: Michiel van Leuvensteijn (CPB Netherlands Bureau for Economic Policy Analysis); Christoffer Kok Sørensen (European Central Bank); Jacob A. Bikker (Nederlandsche Bank); Adrian van Rixtel (Banco de España)
    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 ratesin 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.
    Keywords: Monetary transmission, banks, retail rates, competition, panel data
    JEL: D4 E50 G21 L10
    Date: 2008
  5. By: Monika Urbanowicz (IET, FCT-Universidade Nova de Lisboa)
    Abstract: Banks that has introduced CRM system had to make some difficult changes in their organization in order to become more customer oriented. Beside the pure CRM banks try to adopt other innovative tools related with the core CRM. Some of these solutions are constructed in such a way so that ensured could be also access to the information beside to bank’s organization.
    Keywords: CRM system; banking management; organisation
    Date: 2008–08
  6. By: Alberto Bennardo (Università di Salerno, CSEF, and CEPR); Marco Pagano (Università di Napoli Federico II, CSEF, EIEF and CEPR); Salvatore Piccolo (Università di Napoli Federico II, CSEF, and TSE)
    Abstract: When a customer can borrow from several competing banks, lending by each of them raises the customer’s default risk. If creditor rights are poorly protected, this contractual externality can generate equilibria with rationing, as well as others with excessive lending or non-competitive rates. Information sharing among banks about clients’ past indebtedness reduces interest and default rates, improves entrepreneurs’ access to credit (unless the value of collateral is very uncertain) and may act as a substitute for creditor rights protection. If information sharing also allows banks to monitor their clients’ subsequent indebtedness, the credit market may achieve full efficiency.
    Keywords: information sharing, multiple banks, creditor rights, seniority, non-exclusivity
    JEL: D73 K21 K42 L51
    Date: 2008–12–31
  7. By: Koetter, Michael; Poghosyan, Tigran
    Abstract: We investigate the relationship between real estate markets and bank distress among German universal and specialized mortgage banks between 1995 and 2004. Higher house prices increase the value of collateral, which reduces the probability of bank distress (PDs). But higher prices at given rents may also indicate excessive expectations regarding the present value of real estate assets, which can increase PDs. Increasing price-to-rent ratios are positively related to PDs and larger real estate exposures amplify this effect. Rising real estate price levels alone reduce bank PDs, but only for banks with large real estate market exposure. This suggests a positive, but relatively small 'collateral' eect for banks with more expertise in specialized mortgage lending. Likewise, lower price-to-rent ratios are estimated to reduce the riskiness of banks. The multilevel logit model used here further shows that real estate markets are regionally segmented and location-specific effects contribute significantly to predicted bank PDs.
    Keywords: Real estate, distress, universal vs. specialized banks
    JEL: C25 G21 G3
    Date: 2008
  8. By: Edward J. Kane; Rosalind Bennett; Robert Oshinsky
    Abstract: To realign supervisory and market incentives, the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) adjusts two principal features of federal banking supervision. First, it requires regulators to examine insured institutions more frequently and makes them accountable for exercising their supervisory powers. Second, the Act empowers regulators to wind up the affairs of troubled institutions before their accounting net worth is exhausted. Using 1984–2003 data on the outcome of individual bank examinations, this paper documents that the frequency of rating transitions and the character of insolvency resolutions have changed substantially under FDICIA. The average interval between bank examinations has dropped for low-rated banks in the post-FDICIA era. Examiner upgrades have become significantly more likely in the post-FDICIA era even after controlling for the state of the economy. However, in recessions managers are slower to correct problems that examiners identify. As a result, during downturns upgrades become less likely and absorptions become more likely. Giving the FDIC authority to wind up troubled banks before their tangible net worth is exhausted has reduced the role of government in the insolvency-resolution process. Consistent with an hypothesis that FDICIA has improved incentives, our data show that a markedly larger percentage of troubled banks now search for a merger partner rather than trying to stay in business until the regulators force them to fail. This greater reliance on quasi-voluntary mergers is observable both within and across various stages of the business cycle. These findings suggest that supervisory interventions became more effective at banks during the post-FDICIA era.
    JEL: G21 G28 P51
    Date: 2008–12
  9. By: Daniel C. L. Hardy; María Nieto
    Abstract: The scramble to expand deposit guarantees in Europe in response to recent financial turmoil confirms that the on-going integration of European financial markets requires closer coordination of prudential policies and financial safety nets. We study the optimal design of prudential supervision and deposit guarantee regulations in a multi-country, integrated banking market such as the European Union, where policy-makers have either similar or asymmetric preferences regarding profitability and stability of the banking sector. The paper concludes with recommendations on policy priorities in this area.
    Keywords: Deposit insurance , Europe , European Economic and Monetary Union , Economic integration , Bank supervision , Banking sector , Social safety nets , International cooperation ,
    Date: 2008–12–10
  10. By: Adelaide Maria Figueiredo (LIAAD/INESC-Porto and Faculdade de Economia, Universidade do Porto); Fernanda Otília Figueiredo (CEAUL and Faculdade de Economia, Universidade do Porto); Natália Pimenta Monteiro (NIPE and Departamento de Economia, Universidade do Minho)
    Abstract: This paper examines labor adjustments in ten Portuguese banks after the ownership transfer to the private sector. The results show that the restructuring process is a very complex phenomenon, with firms exhibiting diverse adjustments in terms of either speed or path. In addition, our findings also show that the pay level in the banking industry is by far the workforce attribute that changed more, reflecting substantial changes in terms of composition and not size of the workforce. In particular, firms tend to reduce the share of workers in managerial occupations and replace the most experienced employees with younger and more educated workers. Our empirical evidence also suggests that privatization is associated with a higher level of rent sharing.
    Keywords: Labor adjustments; Portuguese banking industry; privatization; Statis
    JEL: D21 J31 J51 L13
    Date: 2008–12
  11. By: Christian Calmès (Département des sciences administratives, Université du Québec (Outaouais), et LRSP); Raymond Théoret (Département de stratégie des affaires, Université du Québec (Montréal), et Chaire d'information financière et organisationnelle)
    Abstract: We provide new evidence of a worsening of the risk-return trade-off in Canadian banking. Surging OBS activities have led to increasingly volatile net operating revenues, and might have reduced well-known measures of bank profitability, like return on assets and return on equity. In this context, a natural question arises: should we re-regulate? On this matter, we confirm Calmès(2003) prediction: a maturation process took place after 1997. Using a new approach based on ARCH-M estimation, we find that an additional risk premium has emerged. In this sense, there is no need to re-regulate.
    Keywords: ARCH-M Models, risk premium, financial stability
    JEL: G20 G21
    Date: 2008–10–20
  12. By: Thierry Tressel; Enrica Detragiache
    Abstract: This paper studies whether the policies that, over the past decades, liberalized bankingsystems around the world have resulted in deeper credit markets. To measure banking sectorreforms we use a new index that tracks policy changes in five separate areas for 91 countriesover 1973-2005. We find that reforms have led to financial deepening, but only in countrieswith institutions that place checks and balances on political power. We interpret this asevidence of a complementarity between financial sector reforms and political institutions thatprotect property rights. Other country characteristics do not seem to significantly influencethe effect of banking reforms on financial development.
    Keywords: Economic reforms , Financial sector , Development , Banking systems , Political economy , Credit policy , Economic models ,
    Date: 2008–12–04

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