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on Banking |
| By: | Elijah Brewer, III; George G. Kaufman; Larry D. Wall |
| Abstract: | This paper extends the literature on bank capital structure by modeling capital structure as a function of important public policy and bank regulatory characteristics of the home country, as well as of bank-specific variables, country-level macroeconomic conditions, and country-level financial characteristics. The model is estimated with annual data from 1992 to 2005 for an unbalanced panel of the seventy-eight largest private banks in the world headquartered in twelve industrial countries. The results indicate that bank capital ratios are significantly affected in the hypothesized directions by most of the bank-specific variables. Several of the country characteristic and policy variables are also significant with the predicted sign: Banks maintain higher capital ratios in home countries in which the bank sector is relatively smaller and in countries that practice prompt corrective actions more actively, have more stringent capital requirements, and have more effective corporate governance structures. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2008-27&r=ban |
| By: | Issam Hallak (Department of Finance, Bocconi University); Paul Schure (Department of Economics, University of Victoria) |
| Abstract: | Lenders that fund larger shares of a syndicated loan typically receive larger percentage upfront fees than smaller lenders. This paper studies sovereign syndicated loan contracts in the period 1982-2006 to explore this fact. In our dataset of 288 contracts large lenders obtain on average an 8.5 percent higher return on their funds than small lenders who join the syndicate. Our analysis shows that the return premium large lenders receive is positively affected by anticipated future liquidity problems of the borrower and by the number of banks. Our analysis also reveals that the return premium is not used to control the number of banks that join the syndicate. We interpret our findings as indicating that the fee structure on syndicated loans incorporates anticipated costs associated with a borrower illiquidity, notably the costs of coordinating the workout and providing liquidity insurance, but that the fee structure does not serve the additional purpose of curbing these costs by reducing the number of lenders in the syndicate. |
| Keywords: | Financial Intermediation, Syndicated loans, Sovereign debt, Relationship Lending, Debt Renegotiation, Illiquidity, Number of Lenders |
| JEL: | F34 G21 |
| Date: | 2009–01–02 |
| URL: | http://d.repec.org/n?u=RePEc:vic:vicddp:0802&r=ban |
| By: | Una Okonkwo Osili; Anna Paulson |
| Abstract: | In addition to their direct effects, episodes of financial instability may decrease investor confidence. Measuring the impact of a crisis on investor confidence is complicated by the fact that it is difficult to disentangle the effect of investor confidence from coincident direct effects of the crisis. In order to isolate the effects of financial crises on investor confidence, we study the investment behavior of immigrants in the U.S. Our findings indicate that systemic banking crises have important effects on investor behavior. Immigrants who have experienced a banking crisis in their countries of origin are significantly less likely to have bank accounts in the U.S. This finding is robust to including important individual controls like wealth, education, income, and age. In addition, the effect of crises is robust to controlling for a variety of country of origin characteristics, including measures of financial and economic development and specifications with country of origin fixed effects. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-08-17&r=ban |
| By: | Shane M. Sherlund |
| Abstract: | This paper models the historical default and prepayment behavior for subprime mortgages using data on securitized mortgages originated from 2000 to 2007. I find that more recently originated subprime loans are more likely to default, well ahead of their first mortgage rate resets, and less likely to prepay (i.e., refinance). This rise in mortgage defaults stems largely from unprecedented declines in house prices, along with slack underwriting and tight credit market conditions. I estimate a competing hazards model to quantify the effects of (1) house price appreciation, (2) underwriting standards, (3) mortgage rate resets, and (4) household cash flow shocks, such as job loss and oil price increases, on the likelihood of borrowers with subprime mortgages to default or prepay. Ultimately, I find that borrower leverage is one of the most important factors explaining both default and prepayment for borrowers with subprime mortgages. Then, using several different assumptions about the future path of house prices, I simulate potential trajectories for subprime mortgage defaults between 2008 and 2010. Further, I explore the short-term sensitivities of default and prepayment to house prices and various mortgage characteristics. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2008-63&r=ban |
| By: | J. Christina Wang; Susanto Basu; John G. Fernald |
| Abstract: | This paper addresses the proper measurement of financial service output that is not priced explicitly. It shows how to impute nominal service output from financial intermediaries' interest income, and how to construct price indices for those financial services. We model financial intermediaries as providers of financial services which resolve asymmetric information between borrowers and lenders. We embed these intermediaries in a dynamic, stochastic, general-equilibrium model where assets are priced competitively according to their systematic risk, as in the standard consumption-based capital-asset-pricing model. In this environment, we show that it is critical to take risk into account in order to measure financial output accurately. We also show that even using a risk-adjusted reference rate does not solve all the problems associated with measuring nominal financial service output. Our model allows us to address important outstanding questions in output and productivity measurement for financial firms, such as: (1) What are the correct "reference rates" to use in calculating bank output? In particular, should they take account of risk? (2) If reference rates need to be risk-adjusted, should they be ex ante or ex post rates of return? (3) What is the right price deflator for the output of financial firms? Is it just the general price index? (4) When--if ever--should we count capital gains of financial firms as part of financial service output? |
| JEL: | E01 E44 G21 G32 |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14616&r=ban |
| By: | Ignacio Hernando; María J. Nieto; Larry D. Wall |
| Abstract: | This paper analyzes the determinants of bank acquisitions both within and across 25 members of the European Union (EU-25) during the period 1997–2004. Our results suggest that poorly managed banks (those with a high cost-to-income ratio) and larger banks are more likely to be acquired by other banks in the same country. The probability of being a target in a cross-border deal is larger for banks that are quoted in the stock market. Finally, banks operating in more concentrated markets are less likely to be acquired by other banks in the same country but are more likely to be acquired by banks in other EU-25 countries. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2008-26&r=ban |
| By: | Antonella Foglia (Banca d'Italia) |
| Abstract: | This paper reviews the quantitative methods used at selected central banks to stress testing credit risk, focusing in particular on the methods used to link macroeconomic drivers of stress with bank specific measures of credit risk (macro stress test). Stress testing credit risk is an essential element of the Basel II Framework; because of their financial stability perspective, central banks and supervisors are particularly interested in quantifying the macro-to-micro linkages and have developed a specific modeling expertise in this field. In assessing current macro stress testing practices, the paper highlights the more recent developments and a number of methodological challenges that may be useful for supervisors in their review process of the banks' stress test models as required by the Basel II Framework. It also contributes to the on-going macroprudential research efforts that aim to integrate macroeconomic oversight and prudential supervision, in the direction of early identification of key vulnerabilities and assessment of macro-financial linkages. |
| Keywords: | Macro stress testing, financial stability, macro-prudential analysis, credit risk,probability of default |
| JEL: | E32 E37 G21 |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_37_08&r=ban |
| By: | Susanto Basu; Robert Inklaar; J. Christina Wang |
| Abstract: | Rather than charging direct fees, banks often charge implicitly for their services via interest spreads. As a result, much of bank output has to be estimated indirectly. In contrast to current statistical practice, dynamic optimizing models of banks argue that compensation for bearing systematic risk is not part of bank output. We apply these models and find that between 1997 and 2007, in the U.S. National Accounts, on average, bank output is overestimated by 21 percent and GDP is overestimated by 0.3 percent. Moreover, compared with current methods, our new estimates imply more plausible estimates of the share of capital in income and the return on fixed capital. |
| JEL: | E01 E44 G21 G32 |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14615&r=ban |
| By: | Christoffer Kok Sørensen (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); David Marqués Ibáñez (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Carlotta Rossi (Corresponding author: Banca d’Italia, via Nazionale 91, I-00184 Roma, Italy.) |
| Abstract: | We model the determinants of loans to non-financial corporations in the euro area. Using the Johansen (1992) methodology, we identify three cointegrating relationships. These relationships are interpreted as the long-run loan demand, investment and loan supply equations. The short-run dynamics of loan demand for the euro area are subsequently modelled by means of a Vector Error Correction Model (VECM). We perform a number of specification tests, which suggest that developments in loans to non-financial corporations in the euro area can be reasonably explained by the model. We then use the estimated model to analyse the impact of permanent and temporary shocks to the policy rate on bank lending to nonfinancial corporations. JEL Classification: C32, C51. |
| Keywords: | Bank credit, euro area, non-financial corporations, cointegration, error-correction model. |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20090989&r=ban |