New Economics Papers
on Banking
Issue of 2009‒05‒16
eight papers chosen by
Roberto J. Santillán–Salgado, EGADE-ITESM

  1. Unstable Banking By Andrei Shleifer; Robert W. Vishny
  2. Access to Banking Services and Poverty Reduction: A State-wise Assessment in India By Bhandari, Amit Kumar
  3. Breeding Ones' Own Subprime Crisis: The effects of labour market on financial system stability By Daras, Tomasz; Tyrowicz, Joanna
  4. Forecasting bank loans loss-given-default By Joao A. Bastos
  5. Banking Sector Performance in Latin America: Market Power versus Efficiency By Georgios E. Chortareas; Jesus G. Garza-Garcia; Claudia Girardone
  6. Bank Lending Channel during the Quantitative Monetary Easing Policy Period By Hitoshi Inoue
  7. Is Government Ownership of Banks Really Harmful to Growth? By Panicos Demetriades; Svetlana Andrianova; Anja Shortland
  8. Divari territoriali e limiti nell’accesso al credito per le PMI meridionali: quale ruolo per i Confidi? By Petraglia, Carmelo; Amaturo, Francesca; Giordano, Luca

  1. By: Andrei Shleifer; Robert W. Vishny
    Abstract: We propose a theory of financial intermediaries operating in markets influenced by investor sentiment. In our model, banks make loans, securitize these loans, trade in them, or hold cash. They can also borrow money, using their security holdings as collateral. We embed such banks in a stylized financial market, in which securitized loans may be mispriced, and investigate how banks allocate limited capital among the various activities, as well as how they choose their capital structure. Banks maximize profits, and there are no conflicts of interest between bank shareholders and creditors. The theory explains the cyclical behavior of credit and investment, but also accounts for the fundamental instability of banks operating in financial markets, especially when banks use leverage.
    JEL: E32 G21 G33
    Date: 2009–05
  2. By: Bhandari, Amit Kumar (Indian Institute of Social Welfare and Business Management)
    Abstract: Financial inclusion is the broad based delivery of banking and other financial services at affordable cost to the poorest sections of society. In India, financial inclusion emphasizes to include maximum number of people under formal financial systems. The most important part of financial services in a region is typically measured by number of people who have access to bank accounts. The present study investigates the drive to financial inclusion in the form of the growth in bank accounts of scheduled commercial banks and the changes in below poverty line population. The result suggests that the growth in bank accounts is not significantly associated with the reduction in below poverty line population across states. Providing banking services to maximum number of people is unsuccessful as a poverty reduction strategy. As a poverty reduction strategy, developing inclusive financial systems should give priority, which is financially and socially sustainable.
    Keywords: banking, financial inclusion, poverty
    JEL: G24 G21 I32
    Date: 2009–04
  3. By: Daras, Tomasz; Tyrowicz, Joanna
    Abstract: n this paper we take a simulation approach towards household budgets survey, analysing the impact of changes in labour market status of household members on the ability of this household to service the mortgage payments. Using the current status as benchmark, we performed simulations using stylised facts about labour market evolutions. Households with mortgage are characterised by higher activity rates and lower unemployment rates than demographically comparable households without a credit. While these are typical preconditions for the credit approval decision, this state of matters may not necessarily persist throughout the entire mortgage service period. Firstly, labour market conditions may worsen in general, comprising the credit takers together with the rest of the population. Alternatively, credit takers may undergo employment experience in the \emph{same way} as other labour market participants. Consequently, we performed analyses along two scenarios: (i) households with mortgages will gradually become alike the demographically comparable group in terms of employment performance; and (ii) recognising the fact that debtor households members may exert potentially higher effort in maintaining labour market status we model the effects of general employment outlooks deterioration. We use labour force survey data to obtain the probabilities of changing the individual labour market status, while we resort to propensity score matching techniques to provide adequate benchmark for the changes among creditors with relation to general population. In the simulations we find the share of creditors loosing liquidity with the change in the labour market status and the implied burden to the financial sector stability.
    Keywords: financial sector stability; mortgages; labour market
    JEL: C15 R20 G21
    Date: 2009
  4. By: Joao A. Bastos (CEMAPRE, School of Economics and Management (ISEG), Technical University of Lisbon)
    Abstract: With the advent of the new Basel Capital Accord, banking organizations are invited to estimate credit risk capital requirements using an internal ratings based approach. In order to be compliant with this approach, institutions must estimate the expected loss-given-default, the fraction of the credit exposure that is lost if the borrower defaults. This study evaluates the ability of a parametric fractional response regression and a nonparametric regression tree model to forecast bank loan credit losses. The out-of-sample predictive ability of these models is evaluated at several recovery horizons after the default event. The out-of-time predictive ability is also measured for a recovery horizon of one year. The performance of the models is benchmarked against recovery estimates given by a naive model in which predicted recoveries are given by historical averages.
    Keywords: Forecasting, bank loans, loss-given-default, fractional response regression, regression trees
    JEL: G21
    Date: 2009–05
  5. By: Georgios E. Chortareas (University of Athens); Jesus G. Garza-Garcia (UWE, Bristol); Claudia Girardone (University of Essex)
    Abstract: TSince the mid-1990s the banking sector in the Latin American emerging markets has experienced profound changes due to financial liberalisation, a significant increase in foreign investments and greater mergers activities often occurring following financial crises. The wave of consolidation and the rapid increase in market concentration that took place in most countries has generated concerns about the rise in banks’ market power and its potential effects on consumers. This paper advances the existing literature by testing the market power (Structure-Conduct-Performance and Relative Market Power) and efficient structure (X- and scale efficiency) hypotheses for a sample of over 2,500 bank observations in nine Latin American countries over 1997-2005. We use the Data Envelopment Analysis technique to obtain reliable efficiency measures. We produce evidence supporting the efficient structure hypotheses. The findings are particularly robust for the largest banking markets in the region, namely Brazil, Argentina and Chile. Finally, capital ratios and bank size seem to be among the most important factors in explaining higher than normal profits for Latin American banks.
    Keywords: Structure-Conduct-Performance; Efficient Structure; Latin American banking; Data Envelopment Analysis (DEA).
    JEL: G21 D24
    Date: 2009–04
  6. By: Hitoshi Inoue (Osaka School of International Public Policy (OSIPP),Osaka University)
    Abstract: This paper investigates an existence of the bank lending channel during the quantitative monetary easing policy (QMEP) period, using panel data of Japanese banks' balance sheets. We find that growth rates of lending of smaller banks and healthier banks responded well to the QMEP. We also find that the growth rate of lending of an average bank responded to the QMEP significantly. These results imply that the bank lending channel existed during the QMEP period.
    Keywords: Monetary policy, Bank of Japan, base money, system GMM
    JEL: E52 E58 G21
    Date: 2009–04
  7. By: Panicos Demetriades; Svetlana Andrianova; Anja Shortland
    Abstract: We show that previous results suggesting that government ownership of banks has a negative effect on economic growth are not robust to adding more “fundamental” determinants of economic growth, such as institutions. We also present regression results from a more recent period (1995-2007) which suggest that, if anything, government ownership of banks has been associated with higher long run growth rates, even after controlling for institutions and other variables suggested by the growth literature. Drawing on the current global financial crisis, we provide a conceptual framework which explains why under certain circumstances government owned banks could have a greater effect on economic growth than privately-owned banks.
    Date: 2009–05
  8. By: Petraglia, Carmelo; Amaturo, Francesca; Giordano, Luca
    Abstract: This paper focuses on the perspective role of Mutual Loan-Guarantee Consortia (MLGC) in mitigating credit constraints for SMEs located in the Italian Mezzogiorno. First, we argue how the functioning of MLGC fits into the theory of bank-firm relationships, also referring to the scarce empirical evidence on the issue. Second, we evaluate the weakness – in terms of size, volume of activity, patrimonial requirements and guaranteed loans – of the Southern MLGC system. We then provide insights on the impact of the novelties introduced by the New Basel Capital Accord (Basel II) on MLGC’s activity. Finally, we conclude for the need of public support to MLGC in the Mezzogiorno in order to enhance their function of facilitating the matching of demand and supply in the credit market.
    Keywords: Consorzi Fidi; razionamento del credito; Mezzogiorno; rapporto banca-impresa
    JEL: O16 H81 G21
    Date: 2009–02–01

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