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on Banking |
| By: | De Haas, Ralph; van Lelyveld, Iman |
| Abstract: | We use new panel data on the intra-group ownership structure and the balance sheets of 45 of the largest multinational bank holdings to analyze what determines the credit growth of their subsidiaries. We find evidence for the existence of internal capital markets through which multinational banks manage the credit growth of their subsidiaries. Multinational bank subsidiaries with financially strong parent banks are able to expand their lending faster. As a result of parental support, foreign bank subsidiaries also do not need to rein in their credit supply during a financial crisis, while domestic banks need to do so. |
| Keywords: | multinational banks; credit supply; internal capital markets; financial crisis |
| JEL: | F15 F23 F36 G21 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:13164&r=ban |
| By: | Kiefer, Nicholas M. (Cornell U and US Department of the Treasury) |
| Abstract: | Banks using either the Foundation or Advanced option of the Internal Ratings Based approach to credit risk under Basel II must estimate long-run annual average default probabilities for buckets of homogeneous assets. The one-factor model underlying the capital calculations in Basel II has implications for the distribution of average (across assets) default rates over time. One of these implications is that the average default rate in any period is probably smaller than the overall average default rate (over time and assets). The lesson for practioners is that the short-term default experience of new, very safe assets is likely to underpredict the true long-run default rate for these assets. |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:corcae:08-03&r=ban |
| By: | Kiefer, Nicholas M. (Cornell U and US Department of the Treasury) |
| Abstract: | Capital allocation decisions are made on the basis of an assessment of creditworthiness. Default is a rare event for most segments of a bank's portfolio and data information can be minimal. Inference about default rates is essential for efficient capital allocation, for risk management and for compliance with the requirements of the Basel II rules on capital standards for banks. Expert information is crucial in inference about defaults. A Bayesian approach is proposed and illustrated using prior distributions assessed from industry experts. A maximum entropy approach is used to represent expert information. The binomial model, most common in applications, is extended to allow correlated defaults yet remain consistent with Basel II. The application shows that probabilistic information can be elicited from experts and econometric methods can be useful even when data information is sparse. |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:corcae:08-02&r=ban |
| By: | Gabriel Jiménez (Banco de España); Steven Ongena (Center–Tilburg University); José Luis Peydró (European Central Bank); Jesús Saurina (Banco de España) |
| Abstract: | We identify the impact of short-term interest rates on credit risk-taking by analyzing a comprehensive credit register from Spain, a country where for the last twenty years monetary policy was mostly decided abroad. Discrete choice, within borrower comparison and duration analyses show that lower overnight rates prior to loan origination lead banks to lend more to borrowers with a worse credit history and to grant more loans with a higher per period probability of default. Lower overnight rates during the life of the loan reduce this probability. Bank, borrower and market characteristics determine the impact of overnight rates on credit risk-taking. |
| Keywords: | monetary policy, low interest rates, financial stability, lending standards, credit risk-taking, credit composition, business cycle, liquidity risk |
| JEL: | E44 E5 G21 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:0833&r=ban |
| By: | Gabriel Jiménez; Jose A. Lopez; Jesús Saurina |
| Abstract: | Managing the credit risk inherent to a corporate credit line is similar to that of a term loan, but with one key difference. For both instruments, the bank should know the borrower's probability of default (PD) and the facility's loss given default (LGD). However, since a credit line allows the borrowers to draw down the committed funds according to their own needs, the bank must also have a measure of the line's exposure at default (EAD). Our study, which is based on a census of all corporate lending within Spain over the last 20 years, provides the most comprehensive overview of corporate credit line use and EAD calculations to date. Our analysis shows that defaulting firms have significantly higher credit line usage rates and EAD values up to five years prior to their actual default. Furthermore, we find that there are important variations in EAD values due to credit line size, collateralization, and maturity. While our results are derived from data for a single country, they should provide useful benchmarks for further academic, business and policy research into this underdeveloped area of credit risk management. |
| Keywords: | Commercial loans ; Bank loans ; Credit |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2009-02&r=ban |
| By: | Knutsen, Sverre; Sjögren, Hans |
| Abstract: | There are mainly two types of theories explaining banking crisis, emanating from the monetarist school respectively institutional economics. Using an allegory, monetarists are discussing how much water in terms of liquidity that is needed to stop a fire escalating into a disaster, while institutionalists are occupied with the causes of the fire. Our study rejects the explanatory value of the monetarist view, but also criticizes the Kindleberger-Minsky model for not taking the legalisation and the sanctions in the hands of the authorities into account. We consider the institutional factor as a decisive part in the understanding of systemic risk and the process towards increasing debt in non-financial sectors and introduce the concept institutional clash. Not every recession has caused a banking crisis. But all banking crises have been preceded by an institutional clash. Consequently, an institutional clash is a prerequisite but not sufficient to cause a banking crisis: there must be a recession for a crisis to emerge. We also launch a stage-model for the evolution of banking crises. The stages in that model highlight decisive factors before, under and after a crisis. Our model has the capability to explain the occurrence of crises in a re-regulated economy. However, we only give few examples from Nordic banking crises how our model could be applied. Thus, the article is explorative. It is natural to make further empirical observation in order get a solid theory of driving forces behind banking crisis. The next step would be to empirically integrate all the Nordic banking crises between 1850 and 2000 in our analysis. |
| Keywords: | Banking history; banking crisis; finance; institutional theory; Denmark; Finland; Norway; Sweden; Scandinavia. |
| JEL: | N24 N84 G32 G21 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:13133&r=ban |
| By: | Killion, M. Ulric |
| Abstract: | The Article first presents a brief history or survey of the some of the earlier problems that associate with China’s banking and financial institutions. The Article then addresses specific problems, in the context of the rules, procedures, and practices of the banking and finance sector, which widely range from non-performing loans, to China’s money market and interbank lending business. These problems also directly associate with the liberalization of the banking and finance sector of the economy, and the requirements of both the WTO rules and China’s WTO Protocol on accession. The Article also briefly explores the US sub-prime mortgage crisis and its contagion effect throughout the world, including the Asian region. In the context of China and the subprime crisis, the Article summarizes some of the problems that associate with China banking and financial institutions, by focusing on the policy implications of the history of banking and finance in China, and what this means in terms of both WTO compliance and greater liberalization of banking and financial institutions, especially pursuant to the WTO GATS, as service industries. All of this, eventually, allows for the presentation of certain conclusions concerning China banking and finance in the new era of a global subprime crisis. |
| Keywords: | China; banking; finance; WTO; GATT; GATS; subprime crisis; Interbank lending |
| JEL: | F10 F30 G21 |
| Date: | 2009–01–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:13091&r=ban |