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on Banking |
| By: | Weill, Laurent (BOFIT) |
| Abstract: | The aim of this paper is to analyze the effect of corruption in bank lending. Corruption is expected to hamper bank lending, as it is closely related to legal enforcement, which has been shown to promote banks’ willingness to lend. Nevertheless the similarities between the consequences for bank lending of law enforcement and corruption are misleading, as they consider only judiciary corruption. Corruption can also occur in lending and may then be beneficial for bank lending via bribes given by borrowers to enhance their chances of receiving loans. This assumption may be validated particularly in the presence of pro-nounced risk aversion by banks, resulting in greater reluctance on the part of banks to grant loans. We perform country-level and bank-level estimations to investigate these assump-tions. Corruption reduces bank lending in both sets of estimations. However, bank-level estimations show that the detrimental effect of corruption is reduced when bank risk aver-sion increases, even leading at times to situations wherein corruption fosters bank lending. Additional controls show that corruption does not increase bank credit by favoring only bad loans. Therefore, our findings show that while the overall effect of corruption is to hamper bank lending, it can alleviate firm’s financing obstacles. |
| Keywords: | corruption; bank; financial development |
| JEL: | G20 O50 |
| Date: | 2009–04–20 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:2009_003&r=ban |
| By: | Giorgio Calcagnini (Dipartimento di Economia e Metodi Quantitativi, Università di Urbino (Italy)); Germana Giombini (Dipartimento di Economia e Metodi Quantitativi, Università di Urbino (Italy)) |
| Abstract: | This paper aims at analysing whether banking changes that occurred in Italy in the last fifteen years have mined the soundness of its financial system. We look for potential threats to financial stability as a result of the dynamic behaviour of Italian banks that progressively have been favouring consumer households at the expense of firms in the allocation of credit. The theme of financial instability is closely linked to the question of capital regulation, which is a centrepiece of government intervention because it affects banks’ soundness and risk taking incentives. After reviewing the literature on capital regulation, we first discuss the role of guarantees as a solution to banks’ potential instability in the case of credit default and, secondly, we estimate a bank interest rate model that explicitly includes collateral and personal guarantees as explanatory variables. We show that banks follow different lending policies according to the type of customer. In the case of firms banks seem to efficiently screen and monitor customers and guarantees (real and personal) are both used to reduce moral hazard problems. In the case of consumer households and sole proprietorships banks behave “lazily” by replacing screening and monitoring activities with personal guarantees; instead, collateral is used to separate good from bad customers (i.e., to mitigate adverse selection problems). These results, together with the large proportion of bad loans in case of unsecured loans, may indicate the existence of potential sources of financial instability because (a) personal guarantees are a small share of loans, especially in the case of consumer households, (b) a decline in the value of collateral held by banks in the event of a housing market weakening. |
| Keywords: | Banking Crisis; Household and Firm Credit Growth; Banking Regulation. |
| JEL: | E44 G21 G28 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:urb:wpaper:09_03&r=ban |
| By: | Nikola Tarashev |
| Abstract: | Why should risk management systems account for parameter uncertainty? In order to answer this question, this paper lets an investor in a credit portfolio face non-diversifiable estimation-driven uncertainty about two parameters: probability of default and asset-return correlation. Bayesian inference reveals that - for realistic assumptions about the portfolio's credit quality and the data underlying parameter estimates - this uncertainty substantially increases the tail risk perceived by the investor. Since incorporating parameter uncertainty in a measure of tail risk is computationally demanding, the paper also derives and analyzes a closed-form approximation to such a measure. |
| Keywords: | correlated defaults, estimation error, risk management |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:280&r=ban |
| By: | Galina Hale (Federal Reserve Bank of San Francisco); Assaf Razin (Tel-Aviv University); Hui Tong (International Monetary Fund) |
| Abstract: | In a Tobin's q model with productivity and liquidity shocks, we study the mechanism through which strong creditor protection increases the level and lowers the volatility of stock market prices. There are two channels at work: (1) the Tobin's q value under a credit crunch regime increases with creditor protection; and, (2) the probability of a credit crunch falls for given stochastic processes of underlying shocks when creditor protection improves. We test these predictions by using cross-country panel regressions of the stock market price level and volatility, in 40 countries, over the period from 1984 to 2004, at annual frequency. We create indicators for liquidity shocks based on quantity and price measures. Estimated probabilities of big shocks to liquidity are used as forecasts of credit crunch. We find broad empirical support for the hypothesis that creditor protection increases the stock market price level and reduces its volatility directly and via its negative effect on the probability of credit crunch. Our empirical findings are robust to multiple specifications. |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:hkm:wpaper:162008&r=ban |
| By: | Daniel Rosch (Leibniz University of Hannover); Harald Scheule (University of Melbourne) |
| Abstract: | Recent studies find a positive correlation between default and loss given default rates of credit portfolios. In response, financial regulators require financial institutions to base their capital on the 'Downturn' loss rate given default which is also known as Downturn LGD. This article proposes a concept for the Downturn LGD which incorporates econometric properties of credit risk as well as the information content of default and loss given default models. The concept is compared to an alternative proposal by the Department of the Treasury, the Federal Reserve System and the Federal Insurance Corporation. An empirical analysis is provided for Hong Kong mortgage loan portfolios. |
| Keywords: | Basel II, Business Cycle, Capital Adequacy, Correlation, Credit Risk, Economic Downturn, Expected Loss, Fixed Income, Loss Given Default, Probability of Default, Value-at-Risk |
| JEL: | G20 G28 C51 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:hkm:wpaper:152008&r=ban |
| By: | Covaci, Brindusa |
| Abstract: | Romania’s integration in the European Union brought about some major changes in our banking system. One of the direct consequences is the fierce competition between banks for supremacy on the market. According to this, the Romanian banks saw in the SMEs sector a true potential for reaching their goal and they proceeded to conquer it by conceiving unique products, specially designed to reach the financial needs of this segment. Moreover, banks often come up with new attractive offers and cost reductions for the SMEs (Small and Mediu Sized Enterprises) sector. In this context, some answers need to be done: the effective risk banks accept to take by providing the offers, specific risks in financing this sector, the problem of the balance between risk and profit return (or market share increase). |
| Keywords: | credit risk; risk management; financing SME; bank policies |
| JEL: | D53 E44 |
| Date: | 2008–11–23 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:14790&r=ban |
| By: | HOSONO Kaoru; XU Peng |
| Abstract: | This paper examines whether commercial banks screen loan applications based on private information on firms' future profitability, and consequently how banks' ex-ante private information and screening decisions affect firms' ex-post profitability. Using a dataset of banks' loan application screenings and the ex-post firm performance for Japanese SMEs, we obtained strong evidences suggesting that banks' ex-ante private information was related to firms' ex-post performance. We found this relationship to be especially strong for small, mature firms, which supports the relationship-lending hypothesis. |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:09016&r=ban |
| By: | Simon Deakin (University of Cambridge); Panicos Demetriades (University of Leicester); Gregory James (University of Leicester) |
| Abstract: | We use a new legal dataset tracking changes in creditor protection law over several decades to study the impact of legal reform on banking system development in India. Cointegration analysis is used to show that the strengthening of creditor rights in relation to the enforcement of security iterests in the 1990s and 2000s led to an increase in bank credit. We show that the change in the law was not endogenous to trends in stock market development and GDP per capita, and that the direction of causation ran from legal reform to banking development, rather than the reverse. |
| Keywords: | creditor rights, legal origin, banking development, India |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:wef:wpaper:0038&r=ban |
| By: | Giorgio Calcagnini (Dipartimento di Economia e Metodi Quantitativi, Università di Urbino (Italy)); Fabio Farabullini (Banca d'Italia (Italy)); Germana Giombini (Dipartimento di Economia e Metodi Quantitativi, Università di Urbino (Italy)) |
| Abstract: | This paper aims at shedding light on the influence of guarantees on the loan pricing. After reviewing the literature on the role of guarantees in bank lending decisions, we estimate a bank interest rate model that explicitly includes collateral and personal guarantees as explanatory variables. We show that banks follow different lending policies according to the type of customer. In the case of firms banks seem to efficiently screen and monitor customers, and guarantees (real and personal) are used to reduce moral hazard problems. In the case of consumer households and sole proprietorships banks behave “lazily” by replacing screening and monitoring activities with personal guarantees. Collateral, instead, is used to separate good from bad customers (i.e., to mitigate adverse selection problems). |
| Keywords: | Banking Crisis; Determination of Interest Rates, Banks, Asymmetric and Private Information. |
| JEL: | E43 G21 D82 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:urb:wpaper:09_04&r=ban |
| By: | Francesco Drudi (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Petra Köhler-Ulbrich (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Marco Protopapa (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Jiri Slacalek (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Christoffer Kok Sørensen (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Guido Wolswijk (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Ramón Gómez Salvador (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Ruth Magono (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Nico Valckx (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Elmar Stöss (Deutsche Bundesbank,Taunusanlage 5, D-60329 Frankfurt am Main, Germany.); Karin Wagner (Oesterreichische Nationalbank, Otto Wagner Platz 3, A-1011 Vienna, Austria.); Zoltan Walko (Oesterreichische Nationalbank, Otto Wagner Platz 3, A-1011 Vienna, Austria.); Marie Denise Zachary (Banque Nationale de Belgique, Boulevard de Berlaimont 14, B-1000 Brussels, Belgium.); Silvia Magri (Banca d'Italia, Via Nazionale 91, I - 00184 Rome, Italy.); Laura Bartiloro (Banca d'Italia, Via Nazionale 91, I - 00184 Rome, Italy.); Paolo Mistrulli (Banca d'Italia, Via Nazionale 91, I - 00184 Rome, Italy.); Yannis Asimakopoulos (Bank of Greece, 21, E. Venizelos Avenue, P. O. Box 3105, GR-10250 Athens, Greece.); Vasilis Georgakopoulos (Bank of Greece, 21, E. Venizelos Avenue, P. O. Box 3105, GR-10250 Athens, Greece.); Maria Kasselaki (Bank of Greece, 21, E. Venizelos Avenue, P. O. Box 3105, GR-10250 Athens, Greece.); Jorge Martínez Pagés (Banco de España, Alcalá 50, E-28014 Madrid, Spain.); Romain Weber (Banque centrale du Luxembourg, 2 boulevard Royal, L - 2983 Luxembourg, Luxembourg.); Christiana Argyridou (Central Bank of Cyprus, 80, Kennedy Avenue, CY-1076 Lekosia, Cyprus.); Wendy Zammit (Bank of Malta, Castille Place, Valetta, CMR 01, Malta.); Nuno Ribeiro (Banco de Portugal, 148, Rua do Comercio, P-1101 Lisbon, Codex, Portugal.); Daniel Gabrielli (Banque de France, 39, rue Croix-des-Petits-Champs, F-75049 Paris Cedex 01, France.); Nicola Doyle (Central Bank of Ireland, Dame Street, IE Dublin 2, Ireland.); Harri Hasko (Suomen Pankki, P. O. Box 160, FIN-00101 Helsinki, FI.); Vesna Lukovic (Banka Slovenije, Slovenska 35, SL-1505 Ljubljana, SL.) |
| Abstract: | This report analyses the main developments in housing finance in the euro area in the decade, covering the period from 1999 to 2007. It looks at mortgage indebtedness, various characteristics of loans for house purchase, the funding of such loans and the spreads between the interest rates on loans granted by banks and the interest rates banks had to pay on their funding, or the return they made on alternative investments. In addition, the report contains a comparison of key aspects of housing finance in the euro area with those in the United Kingdom and the United States. At the end, the report briefly discusses aspects of the transmission of monetary policy to the economy. JEL Classification: D14, E44, E5, G21, R21. |
| Keywords: | bank competition, bank funding, bankruptcy, banks, cost of funding (of banks), cost of housing loans, debt service, ECB monetary policy, foreclosure, household debt, household survey, housing finance, insolvency, loan maturity, loan-to-value ratio, monetary policy transmission, mortgage, mortgage covered bond, mortgage equity withdrawal, mortgage interest rate spread, redemption scheme, rental market, retail deposits, securitisation, taxation, US housing market crisis. |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:20090101&r=ban |