New Economics Papers
on Banking
Issue of 2009‒01‒31
fifteen papers chosen by
Roberto J. Santillán–Salgado, EGADE-ITESM

  1. Banking Stability Measures By Miguel A. Segoviano Basurto; C. A. E. Goodhart
  2. How, if at all, should Credit Ratings Agencies (CRAs) be Regulated? By Charles Goodhart
  3. Does Deposit Insurance Improve Financial Intermediation? Evidence from the Russian Experiment By Chernykh, Lucy; Rebel, Cole
  4. Asymmetric Information and Loan Spreads in Russia: Evidence from Syndicated Loans By Zuzana Fungacova; Christophe J. Godlewski; Laurent Weill
  5. Going “de novo”: Tapping into emerging markets at the branch level By Vivian Pacheco
  6. Bank Competition Efficiency in Europe: A Frontier Approach By Wilko Bolt; David Humphrey
  7. Composition of Supervisory Boards in Germany: Inside or Outside Control of Banks? By Ettore Andreani; Kathrin Dummann; Doris Neuberger
  8. Bank Ties and Firm Performance in Japan: Some Evidence since FY2002 By Patrick McGuire
  9. Payday Loans and Credit Cards: New Liquidity and Credit Scoring Puzzles? By Sumit Agarwal; Paige M. Skiba; Jeremy Tobacman
  10. Financial Reforms in the MENA Region, a Comparative Approach: The Case of Tunisia, Algeria, Morocco and Egypt By Ahmed Alouani
  11. The Topology of Danish Interbank Money Flows By Kirsten Bonde Rørdam; Morten Linnemann Bech
  12. Lending in low- and moderate-income neighborhoods in California: the performance of CRA lending during the subprime meltdown By Elizabeth Laderman; Carolina Reid
  13. Consumer Choice and Merchant Acceptance of Payment Media By Wilko Bolt; Sujit Chakravorti
  14. Computing Skills in the Market Risk Management in the G-Sec Portfolio by the Banks in India By Das, Rituparna
  15. Simulations in the Dutch interbank payment system: A sensitivity analysis By Ronald Heijmans

  1. By: Miguel A. Segoviano Basurto; C. A. E. Goodhart
    Abstract: This paper defines a set of banking stability measures which take account of distress dependence among the banks in a system, thereby providing a set of tools to analyze stability from complementary perspectives by allowing the measurement of (i) common distress of the banks in a system, (ii) distress between specific banks, and (iii) distress in the system associated with a specific bank. Our approach defines the banking system as a portfolio of banks and infers the system's multivariate density (BSMD) from which the proposed measures are estimated. The BSMD embeds the banks' default inter-dependence structure that captures linear and non-linear distress dependencies among the banks in the system, and its changes at different times of the economic cycle. The BSMD is recovered using the CIMDO-approach, a new approach that in the presence of restricted data, improves density specification without explicitly imposing parametric forms that, under restricted data sets, are difficult to model. Thus, the proposed measures can be constructed from a very limited set of publicly available data and can be provided for a wide range of both developing and developed countries.
    Keywords: Financial stability , Financial risk , Banking systems , Data analysis , Economic models ,
    Date: 2009–01–12
  2. By: Charles Goodhart
    Date: 2008–06
  3. By: Chernykh, Lucy; Rebel, Cole
    Abstract: This study examines how the introduction of deposit insurance affects a banking system, using the deposit-insurance scheme introduced into the Russian banking system as a natural experiment. The fundamental research question is whether the introduction of deposit insurance leads to a more effective banking system as evidenced by increased deposit-taking and decreased reliance upon State-owned banks as custodians of retail deposits. We find that banks entering the new deposit-insurance system increased both their level of retail deposits and their ratios of retail deposits to total assets relative to banks that did not enter the new deposit insurance system. We also find that these results hold up in a multivariate panel-data analysis that controls for bank and time random effects. The longer a bank was entered into the deposit insurance system, the greater was its level of deposits and its ratio of deposits to assets. Moreover, this effect was stronger for regional banks and for smaller banks. Finally, we find that implementation of the new deposit-insurance system had the effect of “leveling the playing field” between State-owned banks and privately owned banks.
    Keywords: bank; deposit insurance; moral hazard; Russia; State-owned bank
    JEL: E58 G28 G21
    Date: 2009–01–15
  4. By: Zuzana Fungacova; Christophe J. Godlewski (Laboratoire de Recherche en Gestion et Economie, Université de Strasbourg); Laurent Weill (Laboratoire de Recherche en Gestion et Economie, Université de Strasbourg)
    Abstract: The objective of this paper is to investigate whether the participation of local banks exerts an impact on the spreads of syndicated loans in Russia. Following Berger, Klapper and Udell (2001), we aim to test whether local banks possess a superior ability to solve information asymmetries. In this aim, we use a sample of 528 syndicated loans to Russian borrowers. We perform regressions of the spread on a set of variables including information on the participation of local banks, loan and borrower characteristics. Unlike former papers, we consider separately foreign banks with and without a local presence, as this presence may influence their monitoring ability and their information. We observe no significant impact of the participation of local banks in syndicated loans on the spread. We also do not find any significant influence of the presence of domestic-owned banks or foreign-owned banks on the spread. Additional estimations considering subsamples for which information asymmetries are exacerbated provide similar results. Therefore our conclusion is that local banks do not benefit from an advantage in monitoring ability and in information in Russia.
    Keywords: Bank, Information asymmetry, Loan, Syndication, Russia.
    JEL: G21 P34
    Date: 2009
  5. By: Vivian Pacheco
    Keywords: Branch banks ; Bank loans ; Community Reinvestment Act of 1977
    Date: 2008
  6. By: Wilko Bolt; David Humphrey
    Abstract: There are numerous ways to indicate the degree of banking competition across countries. Antitrust authorities rely on the structure-conduct-performance paradigm while academics prefer price mark-ups (Lerner index) or correlations of input costs with output prices (H-statistic). These measures are not always strongly correlated when contrasted across countries or positively correlated within countries over time. Frontier efficiency analysis is used to devise an alternative indicator of competition and rank European countries by their dispersion from a \competition frontier". The frontier is determined by how well payment and other costs explain variations in loan-deposit rate spread and non-interestactivity revenues.
    Keywords: Banking competition; frontier analysis; European banks
    JEL: C31 F21 F23 F43 O47
    Date: 2009–01
  7. By: Ettore Andreani (University of Rostock); Kathrin Dummann (University of Rostock); Doris Neuberger (University of Rostock)
    Abstract: This paper examines the composition of supervisory boards of German banks for a sample of 41 large banks in the period 1999-2006. We find that the supervisory board structure reflects both outside control by shareholders and inside control by stakeholders. Most of the non-employee board members are representatives of other banks and industrial companies. The high presence of former executives and German board members indicates inside control. In banks controlled by other banks or insurance companies it is less likely that the chairperson of the supervisory board is a former executive of the same bank. Over time, inside networking through the supervisory board decreased.
    Keywords: corporate governance, dual board system, principal agent theory, stakeholder theory, banks
    JEL: G21 G34
    Date: 2009
  8. By: Patrick McGuire (Senior economist, Monetary and Economic Department, Bank for International Settlements (E-mail:
    Abstract: Since the mid-1990s, major Japanese banks have sold off a significant portion of their holdings of corporate equity. Using information on the identity of Japanese firmsf top 10 shareholders, this paper explores the process of banksf equity disposal. There is some evidence that, after FY2001, banksf sales of equity accelerated, even holdings in firms for which the bank served as the main bank. However, affiliation with a main bank - proxied by firm-bank loan and shareholding ties - continues to be negatively associated with firm performance through FY2004. Regression estimates suggest that firms with strong bank ties are less profitable, face higher interest payments, and yet do not seem to enjoy lower stock price volatility than other firms. These effects are strongest for firms with a history of outside financing options, consistent with earlier arguments that the benefits of main bank relationships accrue to the banks themselves.
    Keywords: Cross-Shareholding, Main Bank, Japanese Banks, Firm Performance
    JEL: G21 G32 L25
    Date: 2009–01
  9. By: Sumit Agarwal; Paige M. Skiba; Jeremy Tobacman
    Abstract: Using a unique dataset matched at the individual level from two administrative sources, we examine household choices between liabilities and assess the informational content of prime and subprime credit scores in the consumer credit market. First, more specifically, we assess consumers' effectiveness at prioritizing use of their lowest-cost credit option. We find that most borrowers from one payday lender who also have a credit card from a major credit card issuer have substantial credit card liquidity on the days they take out their payday loans. This is costly because payday loans have annualized interest rates of at least several hundred percent, though perhaps partly explained by the fact that borrowers have experienced substantial declines in credit card liquidity in the year leading up to the payday loan. Second, we show that FICO scores and Teletrack scores have independent information and are specialized for the types of lending where they are used. Teletrack scores have eight times the predictive power for payday loan default as FICO scores. We also show that prime lenders should value information about their borrowers' subprime activity. Taking out a payday loan predicts nearly a doubling in the probability of serious credit card delinquency over the next year.
    JEL: D14 D82
    Date: 2009–01
  10. By: Ahmed Alouani (Universit 0064e Nice-Sophia Antipolis, CEMAFI, France)
    Abstract: The financial reform is one of the most important reforms prescribed by the Washington Consensus. With its internal and external components, it occurs in the final stages of the process of economic liberalization. In this work, and after listing, briefly, the causes of financial liberalization, we are going to study in a second section financial development and bank performance in four countries of the MENA region: Tunisia, Algeria, Morocco and Egypt. In this context, we will explore some criteria for determining if the banking sector is performing as the level of intermediation margins, the state of the banking service, and so on. The third section will be subject to an assessment of financial liberalization since the start of reforms to the present day, while focusing on the impact of liberalization on the investment, savings, capital entry, and so on. Our conclusion will be in the form of recommendations aimed at showing that overall reforms, significant progress have been made in recent years but much remains to be done.
    Keywords: Financial reforms, Causes, Banking performance, MENA, Liberalization effects
    JEL: G28
    Date: 2008–04
  11. By: Kirsten Bonde Rørdam (Department of Economics, University of Copenhagen); Morten Linnemann Bech (Federal Reserve Bank of New York)
    Abstract: This paper presents the first topological analysis of Danish money market flows. We analyze the structure of two networks with different types of transactions. The first network is the money market network, which is driven by banks' behaviour on the interbank market, the second is the network of customer driven transactions, which is driven by banks' customers' transactions demand. We show that the structure of these networks differ. This paper adds to the new and growing literature on network topological analysis of payment systems.
    Keywords: network; topology; payment system; money market
    Date: 2008–12
  12. By: Elizabeth Laderman; Carolina Reid
    Keywords: Bank loans ; Community development
    Date: 2008
  13. By: Wilko Bolt; Sujit Chakravorti
    Abstract: We study the ability of banks and merchants to influence the consumer's payment instrument choice. Consumers participate in payment card networks to insure themselves against three types of shocks| income, theft, and their merchant match. Merchants choose which payment instruments to accept based on their production costs and increased profit opportunities. Our key results can be summarized as follows. The structure of prices is determined by the level of the bank's cost to provide payment services including the level of aggregate credit loss, the probability of theft, and the timing of income flows. We also identify equilibria where the bank finds it profitable to offer one or both payment cards. Our model predicts that when merchants are restricted to charging a uniform price for goods that they sell, the bank benefits while consumers and merchants are worse off. Finally, we compare welfare-maximizing price structures to those that result from the bank's profit-maximizing price structure.
    Keywords: Retail Financial Services; Network Effects; Social Welfare; Multihoming; Payment Card Networks
    JEL: L11 G21 D53
    Date: 2009–01
  14. By: Das, Rituparna
    Abstract: Market Risk Management Process in India is in an evolving process since the Banks in India are still in an early stage of development in the sense that they are lacking statistical database, equipped MIS and adequate supply of trained personnel. Many a good number of banks are suffering from breaches of VaR calculated following internal models. Further they are also finding difficulty in validation with small sizes of sample. Firstly in India the maximum traded security during the first quarter of 2008-09 is the 10 year benchmark G-Sec but the return figures on a security of 10 year maturity are not available since the particular benchmark security has no more a maturity of 10 years after a single day elapsed. The security market is very thin with unutilized arbitrage opportunities and absence of pricing of the characters like convexity. Secondly liquidity in Indian money and G-Sec markets is not sufficient to induce active trading in all instruments of all maturities such as to get an idea of yield movement in every maturity. Thirdly using discreet compounding and discounting is not appropriate in valuation. Fourthly asset returns in reality follow other distributions like beta and log-logistics where the simple and probability weighted measures of average and standard deviation are different and hence 99% VaR estimate is well above the estimate based on the assumption of Normal Distribution. Finally it is not mandatory in India to compute VaR but Duration does not provide risk measurement across the categories of assets and, hence, aggregation of risk for the entire trading book.
    Keywords: Value at Risk; Fixed Income; G-Sec; Modified Duration; Capital Charge; Vertical Disallowance; Horizontal Disallowance; Portfolio; Zero Coupon; Term Structure; Yield Curve; YTM; Nelson-Siegel; CCIL; RBI
    JEL: D81
    Date: 2009–01–25
  15. By: Ronald Heijmans
    Abstract: This paper presents an analysis on the sensitivity of the Dutch interbank payment system with respect to the value transferred and the amount of available collateral. The Dutch system can be characterised as a system with a few large and many relatively small participants.Historical data has been used and modified to create a stress scenario. The changes with respect to the historical data are either an increase or a decrease of payment values of one of the large participants. This change of the payment value has been applied to the three large banks in the Dutch system. The collateral level has also been modified between the different stress scenarios. In total four levels of collateral are investigated of which 2 are based on historical data and 2 on theoretical calculated values, the upper and lower bound. The results of this paper are both in terms of number of banks affected and the amount of unsettled values by the end of the day.
    Keywords: interbank; payment system; operational disruption; liquidity; stress simulations; TOP; TARGET
    JEL: C88 E58 G21
    Date: 2009–01

This issue is ©2009 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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