New Economics Papers
on Banking
Issue of 2009‒01‒24
six papers chosen by
Roberto J. Santillán–Salgado, EGADE-ITESM

  1. Banking on Democracy: The Political Economy of International Private Bank Lending in Emerging Markets By Rodríguez, Javier; Santiso, Javier
  2. The Impact of Banking Deregulation on Canadian Banks Returns By Christian Calmès; Raymond Théoret
  3. Capital Market Regimes and Bank Structure in Europe By Ronald E. Shrieves; Drew Dahl; Michael F. Spivey
  4. Risk-taking by Russian banks: Do location, ownership and size matter? By Fungácová , Zuzana; Solanko, Laura
  5. Do better institutions improve bank efficiency? Evidence from a transitional economy By Hasan, Iftekhar; Wang, Haizhi; Zhou, Mingming
  6. Community Reinvestment Act Enforcement and Targeted Mortgage Lending By Drew Dahl; Douglas D. Evanoff; Michael F. Spivey

  1. By: Rodríguez, Javier; Santiso, Javier
    Abstract: Clearly, a new agenda is emerging for private international banks. Political issues such as human rights seem to be a current concern. But what about democracy? What about political regimes? Are they taken into account by private banks when they decide whether to invest in a country? Put another way, do private banks have democratic political preferences? In this article, we focus on cross-border lending from international bank(er)s. The questions asked are as follows. Do bank(er)s react positively (that is by increasing their lending) when an emerging democracy appears? Do we witness increased bank lending after democratic transitions? Lastly, is there any relation between democratic consolidation and bank lending?
    Keywords: Banks;Capital flows;Democracy;Emerging markets
    JEL: G2
    Date: 2008
  2. 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: This paper revisits the impact of OBS activities on Canadian banks risk-return trade-off. Recent studies (Stiroh and Rumble 2006, Calmès and Liu 2007) suggest that increasing OBS activities do not necessarily yield straightforward diversification benefits. However, adding a risk premium to earlier accounting returns models by resorting to an ARCH-M procedure, an updated sample reveals that the Canadian banks risk-return trade-off displays a structural break, around 1997. In the second subperiod (1997-2007) of our sample, we find that the share of noninterest income no longer negatively impacts banks returns. Relatedly, we find that a risk premium emerges while, in the first period (1988-1996), the volatility variable is not significant in any returns equations. Our results are thus consistent with a maturation process story.
    Keywords: Regulatory changes; Noninterest income; Diversification; Structural break; Risk premium.
    JEL: G20 G21
    Date: 2009–01–12
  3. By: Ronald E. Shrieves (University of Tennessee); Drew Dahl (Department of Economics and Finance, Utah State University); Michael F. Spivey (Clemson University)
    Abstract: We hypothesize that features of European capital markets used to distinguish market reliance and investor protection have predictably influenced emerging national differences in bank capitalization, growth, and choice of income-producing activities. We characterize countries' capital regimes as more or less "equity-friendly" or "debt-friendly" based upon their reliance on equity and credit markets and the extent to which their legal frameworks protect shareholders and creditors. Using bank-level data from 13 European countries, 1998 to 2004, we find evidence of positive associations between “equity-friendly” market features and, respectively, bank capitalization, bank asset growth and the relative emphasis on bank lending to its customers. Support is also provided for hypotheses that “credit-friendly” capital regimes convey advantages reflected in higher rates of growth in assets and greater emphasis on lending to customers. Our results suggests that integration of European banking markets is mitigated by other, relatively static, features of the equity and debt markets on which banks rely.
    Keywords: international banking, market integration, shareholder protection
    JEL: F33 F36 G21 G28 G32 G38
    Date: 2009–01–14
  4. By: Fungácová , Zuzana (BOFIT); Solanko, Laura (BOFIT)
    Abstract: The Russian banking sector has experienced enormous growth rates during the last 6-7 years. The rapid growth of assets has, however, contributed to a decrease in the capital adequacy ratio, thus influencing the ability of banks to cope with risk. Using quarterly data spanning from 1999 to 2007 on all Russian banks, we investigate the relationship between bank characteristics and risk-taking by Russian banks. The analysis of financial ratios reveals that, on average, the risk levels are still below those observed in Central and Eastern Europe. Combining the group-wise comparisons of financial ratios and the results of insolvency risk analysis based on fixed effects vector decomposition, three main conclusions emerge. First, controlling for bank characteristics, large banks have higher insolvency risk than small ones. Second, foreign-owned banks exhibit higher insolvency risk than domestic banks and large state-controlled banks are, unlike other state-controlled banks, more stable. Third, we find that the regional banks engage in significantly more risk-taking than their counterparts in Moscow.
    Keywords: bank risk-taking; banks in transition; Russia
    JEL: G21 G32 P34
    Date: 2009–01–13
  5. By: Hasan, Iftekhar (BOFIT); Wang, Haizhi (BOFIT); Zhou, Mingming (BOFIT)
    Abstract: The pace of transition in China over the last two decades has led to great variation across the country in terms of institutional and financial development. In this paper, using a panel of Chinese provinces during the period 1993–2006, we empirically investigate the determinants of the efficiency of the banking sector from an institutional perspective. The most important institutional developments in China are the emergence and gradual dominance of the market economy, financial deepening, the growth of a private sector, the establishment of secure property rights, and rule of law. We find that institutional variables play an important role in affecting banking efficiencies, and that banks tend to operate more efficiently in those regions with a greater private sector presence and more property rights awareness, while the role of financial deepening and rule of law is less straightforward.
    Keywords: institutional development; bank efficiency; Chinese banks
    JEL: G21 O43
    Date: 2009–01–13
  6. By: Drew Dahl (Department of Economics and Finance, Utah State University); Douglas D. Evanoff (Federal Reserve Bank of Chicago); Michael F. Spivey (Clemson University)
    Abstract: Significant disagreement exists as to whether the Community Reinvestment Act (CRA) influences the lending behavior of financial institutions. We conduct empirical tests on the lending of banks directly affected by regulatory enforcement of the CRA—those experiencing upgrades or downgrades in their CRA ratings— to evaluate whether the ratings changes were associated with lending behavior. Results indicate that: 1) upgraded banks had higher relative levels of lending than did downgraded banks, which is consistent with a hypothesis that banks adjust lending to satisfy CRA requirements; 2) downgraded banks show little evidence of increased lending following a downgrade despite apparent incentives for them to do so in an attempt to improve their CRA ratings; and 3) both downgraded and upgraded banks increased lending following implementation of new CRA regulations intended to more closely align CRA ratings with actual lending outcomes.
    Date: 2009–01–14

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