New Economics Papers
on Banking
Issue of 2009‒03‒28
ten papers chosen by
Roberto J. Santillán–Salgado, EGADE-ITESM

  1. Bank Loan Announcements and Borrower Stock Returns: Does Bank Origin Matter? By Steven Ongena; Viorel Roscovan
  2. Dynamic Model of Credit Risk in Relationship Lending: A Game- theoretic Real Options Approach By Takashi Shibata; Tetsuya Yamada
  3. Asset Liability Management for Banks By Giandomenico, Rossano
  4. How Do Bank Lending Rates and the Supply of Loans React to Shifts in Loan Demand in the U.K.? By Johann Burgstaller; Johann Scharler
  5. Norwegian banks in a recession: Procyclical implications of Basel II By Henrik Andersen
  6. Bank Efficiency in Sub-Saharan African Middle Income Countries By Chuling Chen
  7. Distress in European Banks: An Analysis Based on a New Dataset By Martin Cihák; Tigran Poghosyan
  8. Financial (In)stability, Supervision and Liquidity Injections: A Dynamic General Equilibrium Approach By de Walque, Gregory; Pierrard, Olivier; Rouabah, Abdelaziz
  9. Exigences européennes et internationales concernant la prudence dans l’activitée bancaire By Troaca, Victor
  10. The Determinants of Commercial Bank Profitability in Sub-Saharan Africa By Valentina Flamini; Calvin A. McDonald; Liliana Schumacher

  1. By: Steven Ongena (CentER – Tilburg University and CEPR, Department of Finance PO Box 90153, NL -5000 LE Tilburg, The Netherlands.); Viorel Roscovan (RSM – Erasmus University, Department of Finance, PO Box 1738, NL 3062 PA Rotterdam, The Netherlands.)
    Abstract: Banks play a special role as providers of informative signals about the quality and value of their borrowers. Such signals, however, may have a quality of their own as the banks’ selection and monitoring abilities may differ. Using an event study methodology, we study the importance of the geographical origin and organization of the banks for the investors’ assessments of firms’ credit quality and economic worth following loan announcements. Our sample comprises 986 announcements of bank loans to U.S. firms over the period of 1980-2003. We find that investors react positively to such announcements if the loans are made by foreign or local banks, but not if the loans are made by banks that are located outside the firm’s headquarters state. Investor reaction is, in fact, the largest when the bank is foreign. Our evidence suggest that investors value relationships with more competitive and skilled banks rather than banks that have easier access to private information about the firms. These results are applicable also to the European markets where regulatory and economic borders do not coincide and bank identities and reputation seem to matter a great deal. JEL Classification: G21, G32, H11, D80.
    Keywords: relationship banking, bank organization, bank origin, loan announcement return.
    Date: 2009–03
  2. By: Takashi Shibata (Associate Professor, Tokyo metropolitan University (E-mail:; Tetsuya Yamada (Associate Director, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: We develop a dynamic credit risk model for the case that banks compete to collect their loans from a firm falling in danger of bankruptcy. We apply a game-theoretic real options approach to investigate bankfs optimal strategies. Our model reveals that the bank with the larger loan amount, namely the main bank, provides an additional loan to support the deteriorating firm when the other bank collects its loan. This suggests that there exists rational forbearance lending by the main bank. Comparative statics show that as the liquidation value is lower, the optimal exit timing for the non-main bank comes at an earlier stage of business downturn and the optimal liquidation timing by the main bank is delayed further. As the interest rate of the loan is lower, the optimal exit timing for the non-main bank comes earlier. These analyses are consistent with the forbearance lending and exposure concentration of main banks observed in Japan.
    Keywords: Credit risk, Relationship lending, Real option, Game theory, Concentration risk
    JEL: G21 G32 G33 D81 D92
    Date: 2009–03
  3. By: Giandomenico, Rossano
    Abstract: The model, by using a contingent claim approach, determines the fair value of the banks liabilities accounting for the protection and the surrender possibility. Furthermore, it determines the implied duration of banks liabilities so to show that the surrender possibility will reduce the effective duration of banks liabilities. Implications for the immunization are also treated.
    Keywords: Contingent Claim; Duration
    JEL: G13 G21
    Date: 2008–07–05
  4. By: Johann Burgstaller; Johann Scharler
    Abstract: This paper examines the pass-through from the market interest to the rate charged on bank loans using aggregate data for the U.K. Thereby, we explicitly disentangle credit supply and demand and allow the interest rate charged on loans to depend on the volume of loans. We find that, although banks adjust the lending rate to some extent, they largely accommodate shifts in demand. Overall, our results are consistent with the idea that banks provide insurance against liquidity shocks.
    Keywords: Interest Rate Pass-Through, Relationship Banking
    JEL: E43 G21
    Date: 2009–03
  5. By: Henrik Andersen (Norges Bank (Central Bank of Norway))
    Abstract: While the new capital adequacy framework, Basel II, aims to make the banks’ capital requirements more sensitive to the underlying risk of the assets, it may also introduce an additional source of procyclicality in the banking sector. A growing share of the literature has assessed the potential cyclicality of Basel II. However, only parts of the banks’ assets have been considered. In addition, the cyclicality of the capital positions is usually left out of the calculations. This paper applies the stress testing framework of Norges Bank to analyse the cyclicality of capital positions and the cyclicality of Basel II capital requirements for the entire bank portfolio of Norwegian banks. We find a substantial increase in the calculated Basel II capital requirements in a recession scenario for the Norwegian economy. We also find a negative co-movement between capital positions and Basel II capital requirements. Hence, our analysis demonstrates that Basel II may introduce an additional source of procyclicality.
    Keywords: Basel II, procyclicality, capital positions
    JEL: E32 G21 G28 G33
    Date: 2009–03–13
  6. By: Chuling Chen
    Abstract: We use bank level data to study the efficiency of banks in Sub-Saharan African middle-income countries and provide possible explanations for the difference in the efficiency levels of banks. We find that banks, on average, could save 20-30 percent of their total costs if they were operating efficiently, and that foreign banks are more efficient than public banks and domestic private banks. Among the factors that could affect the efficiency levels are macroeconomic stability, depth of financial development, the degree of market competition, strong legal rights and contract laws, and better governance, including political stability and government effectiveness. Our findings point to the importance of policies that aim to build stronger institutions, promote more competition, and improve governance.
    Keywords: Banks , Africa , Developing countries , Economic conditions , Political economy , Banking sector , Profits , Cross country analysis ,
    Date: 2009–01–28
  7. By: Martin Cihák; Tigran Poghosyan
    Abstract: The global financial crisis has highlighted the importance of early identification of weak banks: when problems are identified late, solutions are much more costly. Until recently, Europe has seen only a small number of outright bank failures, which made the estimation of early warning models for bank supervision very difficult. This paper presents a unique database of individual bank distress across the European Union from mid-1990s to 2008. Using this data set, we analyze the causes of banking distress in Europe. We identify a set of indicators and thresholds that can help to distinguish sound banks from those vulnerable to financial distress.
    Keywords: Banks , Europe , Bank soundness , Bank supervision , Financial stability , Databases , Forecasting models , Data analysis , Cross country analysis , Economic integration ,
    Date: 2009–01–21
  8. By: de Walque, Gregory; Pierrard, Olivier; Rouabah, Abdelaziz
    Abstract: We develop a dynamic stochastic general equilibrium model with an heterogeneous banking sector. We introduce endogenous default probabilities for both firms and banks, and allow for bank regulation and liquidity injection into the interbank market. Our aim is to understand the interactions between the banking sector and the rest of the economy, as well as the importance of supervisory and monetary authorities to restore financial stability. The model is calibrated against real US data and used for simulations. We show that Basel regulation reduces the steady state but improves the resilience of the economy to shocks, and that moving from Basel I to Basel II is procyclical. We also show that liquidity injections relieve financial instability but have ambiguous effects on output fluctuations.
    Keywords: banking sector; central bank; default risk; DSGE; supervision
    JEL: E13 E20 G21 G28
    Date: 2009–03
  9. By: Troaca, Victor
    Abstract: One of the fundamental principles of the bank activity is prudence. This principle manifest on one hand in substance of the reglementations regarding bank activity at national, european and international level and, on the other hand, in operational activity of each bank institution and, implicit in the actions of the competent authorities to supervise bank activities. The operational activity of the bank societies must conform to regular demands by prudence nature. The evolution of the international banking activity, its complexity and its globality, corroborate with the use by bank institutions of the most sofisticated bank technologies and techniques, had imposed the necessity that the european competent authorities, a series of international institutions and the academical and scientifical comunity to manifest an intense preoccupation to find and implement the most proper formulas of prudence in bank activity.
    Keywords: Financial market/ Bank/ Prudence/ Own funds/ Solvency/
    JEL: G15 G38 G32 G24
    Date: 2008–11–14
  10. By: Valentina Flamini; Calvin A. McDonald; Liliana Schumacher
    Abstract: Bank profits are high in Sub-Saharan Africa (SSA) compared to other regions. This paper uses a sample of 389 banks in 41 SSA countries to study the determinants of bank profitability. We find that apart from credit risk, higher returns on assets are associated with larger bank size, activity diversification, and private ownership. Bank returns are affected by macroeconomic variables, suggesting that macroeconomic policies that promote low inflation and stable output growth does boost credit expansion. The results also indicate moderate persistence in profitability. Causation in the Granger sense from returns on assets to capital occurs with a considerable lag, implying that high returns are not immediately retained in the form of equity increases. Thus, the paper gives some support to a policy of imposing higher capital requirements in the region in order to strengthen financial stability.
    Keywords: Commercial banks , Africa , Profits , Profit margins , Economic policy , Financial stability , Economic models , Time series , Cross country analysis ,
    Date: 2009–01–28

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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