New Economics Papers
on Banking
Issue of 2009‒05‒30
ten papers chosen by
Roberto J. Santillán–Salgado, EGADE-ITESM

  1. Financial Crisis and the Paradox of Under- and Over-Regulation By Joshua Aizenman
  2. Information Technology and Banking – A Continuing Agenda By D Subbarao
  3. The Macroeconomics of Money Market Freezes By Bruche, Max; Suarez, Javier
  4. L’évaluation des performances et le degré d’autonomie des acteurs locaux:le cas des banques de réseau - Performance measurement and allocation of decision rights:the case of retail banking By Christine Marsal
  5. An economic capital model integrating credit and interest rate risk in the banking book. By Piergiorgio Alessandri; Mathias Drehmann
  6. Testing for Financial Contagion with Applications to the Canadian Banking System By Fuchun Li
  7. Why Do Firms Switch Their Main Bank? : Theory and Evidence from Ukraine By Andreas Stephan; Andriy Tsapin; Oleksandr Talavera
  8. Vulnerabilities in Central and Eastern Europe : Credit Growth By Aleksandra Zdzienicka-Durand
  9. Mill, Tooke, McCulloch et la crise de 1825. By Alain Béraud
  10. Banking and Borrowing in the EU ETS: An Econometric Appraisal of the 2005-2007 Intertemporal Market By Julien Chevallier; Emilie Alberola

  1. By: Joshua Aizenman
    Abstract: This paper illustrates the paradox of prudential under-regulation in an economy that adopts financial reform, a reform which exposes the economy to future financial crises. There is individual-uncertainty about the crisis incidence, and the probability of the crisis is updated sequentially applying Bayesian inference. Costly regulation can mitigate the probability of the crisis. We identify conditions where the regulation level supported by the majority is positive after the reform, but below the socially optimal level. Tranquil time, when the crisis would not take place, reduces the regulation intensity. If the spell of no crisis is long enough, the regulation level may drop to zero, despite the fact that the socially optimal regulation level remains positive. The less informative is the prior regarding the probability of a crisis, the faster will be the drop in regulations induced by a no-crisis, good luck run. The challenges facing the regulator are aggravated by asymmetric information, as is the case when the public does not observe regulator’s effort. Higher regulator effort, while helping avoiding a crisis, may be confused as a signal that the environment is less risky, reducing the posterior probability of the crisis, eroding the support for costly future regulation. The other side of the regulation paradox is that crisis resulting with unanticipated high costs may induce over-regulation and stagnation, as the parties that would bear the cost of the over regulation are underrepresented in the decision making process. We also outline a regulatory structure that mitigates the above concerns, including information disclosure; increasing the independence of the regulatory agency from the political process; centralizing the regulatory process and increasing its transparency; and adopting global standards of minimum prudential regulations and information disclosure, enforced by the domestic regulator.
    JEL: F02 F15 F36 F42
    Date: 2009–05
  2. By: D Subbarao
    Abstract: Speech is about the role of IT in the Indian financial sector [Keynote address at the Banking Technology Awards 2008 of the Institute for Development & Research in Banking Technology, Hyderabad].
    Keywords: IT, information technology, financial sector, Indian, banking, ATMs, transaction, Payment, banks, electronic, RBI,
    Date: 2009
  3. By: Bruche, Max; Suarez, Javier
    Abstract: This paper develops a tractable general equilibrium model in which money markets provide structural funding to some banks. When bank default risk becomes significant, retail deposit insurance creates an asymmetry between banks that operate in savings-rich regions, which can remain financed at cheap risk-free rates, and in savings-poor regions, which have to pay either large spreads in money markets or high rates for the scarce regional savings. We show that this asymmetry can cause a severe distortion of the aggregate allocation of credit. When interdependencies across borrowers are large (e.g., via demand externalities), output and welfare losses are also large and can be dramatically reduced by an aggressive subsidization of money market borrowing. The analysis offers some insights on the rationale for responding to a money markets freeze with full-allotment fixed-rate lending policies by central banks or the extension of government guarantees on non-deposit liabilities.
    Keywords: deposit insurance; financial crisis; money markets; spreads
    JEL: E44 G15 G21
    Date: 2009–05
  4. By: Christine Marsal (Université de Bourgogne)
    Abstract: (VF)Le système d’évaluation des performances dans le secteur bancaire est encore peu étudié en France. Il existe peu d’informations sur l’Architecture Organisationnelle des banques de réseaux qui aujourd’hui, se targuent de pouvoir compter sur de solides réseaux bancaires pour garantir la solidité de leurs revenus. Comment sont pilotées les agences bancaires ? Existe-t-il des spécificités en fonction des droits décisionnels alloués au niveau local ? Cette étude empirique se propose de répondre à ces questions tout en tentant d’établir une typologie entre les banques mutualistes et les banques dites commerciales.(VA)The structure of the system to evaluate the performance in the banking sector is poorly studied in France. We don’t have a lot of informations about Organizational Architecture of retail banks although managers argue that branches are important to generate regular revenues. The questions are numerous: how are branches managed? Are the decision rights equally assigned in branches among the whole banking sector? And what’s about the specificity of mutual banks? The aim of this study is to answer these questions and try to elaborate a typology between mutual and commercial banks.
    Keywords: architecture organisationnelle;indicateurs de performance;décentralisation;banques;organizational architecture;performance standards;decentralization;mutual banks;mutuelles.
    JEL: D2 G2 G3 M4 M5 L3
    Date: 2009–04
  5. By: Piergiorgio Alessandri (Bank of England, Threadneedle Street, London, EC2R 8AH, UK.); Mathias Drehmann (Bank for International Settlements, Centralbahnplatz 2, CH-4002 Basel, Switzerland.)
    Abstract: Banks typically determine their capital levels by separately analysing credit and interest rate risk, but the interaction between the two is significant and potentially complex. We develop an integrated economic capital model for a banking book where all exposures are held to maturity. Our simulations show that capital is mismeasured if risk interdependencies are ignored: adding up economic capital against credit and interest rate risk derived separately provides an upper bound relative to the integrated capital level. The magnitude of the difference depends on the structure of the balance sheet and on the repricing characteristics of assets and liabilities. JEL Classification: G21, E47, C13.
    Keywords: Economic capital, risk management, credit risk, interest rate risk, asset and liability management.
    Date: 2009–04
  6. By: Fuchun Li
    Abstract: The author proposes a new test for financial contagion based on a non-parametric measure of the cross-market correlation. The test does not depend on the assumption that the data are drawn from a given probability distribution; therefore, it allows for maximal flexibility in fitting into the data. Simulation studies show that the test has reasonable size and good power to detect financial contagion, and that Forbes and Rigobon's test (2002) is conservative, suggesting that their test tends not to find evidence of contagion when it does exist. The author's new test is applied to investigate contagion from a variety of recent financial crises to the Canadian banking system. Three empirical results are obtained. First, compared to recent financial crises, including the 1987 U.S. stock market crash, 1994 Mexican peso crisis, and 1997 East Asian crisis, the ongoing 2007 subprime crisis has been having more persistent and stronger contagion impacts on the Canadian banking system. Second, the October 1997 East Asian crisis induced contagion in Asian countries, and it quickly spread to Latin American and G-7 countries. The contagion from the East Asian crisis to the Canadian banking system was not as strong or as persistent as that of the ongoing subprime crisis. However, it had a stronger impact on emerging markets. Third, there is no evidence of contagion from the 1994 Mexican peso crisis to the Canadian banking system. Contagion from that crisis occurred in Argentina, Brazil, and Chile, but the contagion effects of that crisis were limited to the Latin American region.
    Keywords: Financial stability; Central bank research; Econometric and statistical methods
    JEL: C12 G15
    Date: 2009
  7. By: Andreas Stephan; Andriy Tsapin; Oleksandr Talavera
    Abstract: We examine why firms change their main bank and how this affects loans, interest payments and firm performance after switching. Using unique firm-bank matched Ukrainian data, the treatment effect estimates suggest that more transparent and riskier companies are more likely to switch their main bank. Importantly, main bank power, measured by equity holdings, appears to be one of the main drivers of firm switching behavior. Furthermore, we find that firms have lower performance after changing their main bank as they have to contend with higher interest payments.
    Keywords: Financial constraints, switching, main bank power, firm performance, Ukraine
    JEL: G21 G30 G32
    Date: 2009
  8. By: Aleksandra Zdzienicka-Durand (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines)
    Abstract: In this work, we try to analyze the recent credit development in 11 Central and Eastern European countries and estimate the credit-to-GDP ratio equilibrium level using filtering methods and dynamic panel estimations. Our estimation findings corroborate previous fears about the rapid credit growth in the CEECs. Indeed, in many cases the credit expansion exceeds the level justified by their fundamentals or financial development. Under normal conditions, this rapid growth and even ''overshooting'' of banking credit could be considered as an adjustment to its long-term equilibrium level. However, in the actual crisis situation, this excessive credit growth can reinforce other existing disequilibria and lead to an increase in the financial vulnerability of these countries.
    Keywords: Bank Credit Growth; Dynamic Panel; CEECs
    Date: 2009
  9. By: Alain Béraud (THEMA - Théorie économique, modélisation et applications - CNRS : UMR8184 - Université de Cergy Pontoise)
    Abstract: Cet article étudie la crise qui, en 1825, tacha l'économie anglaise et les travaux que John Stuart Mill, Thomas Tooke et John Ramsay McCulloch consacrèrent à son analyse. Alors que McCulloch s'appuyait, pour comprendre, la crise sur la tradition ricardienne, Mill et Tooke s'en écartent et sans doute celui-là plus que celui-ci. McCulloch et Tooke soutiennent que l'organisation du système bancaire anglais a joué, sinon dans l'origine du moins dans le développement de la crise, un rôle remarquable. Mill, au contraire, pense que la crise est l'effet de spéculations hasardeuses et qu'elle se serait tout aussi bien développée dans un système où la monnaie aurait consisté en espèces. Il avance des idées qui seront reprises et développées par la Banking School.
    Keywords: Mill, Tooke, McCulloch, crise, spéculation, overtrading, Banking School
    Date: 2009–05–23
  10. By: Julien Chevallier (EconomiX - CNRS : UMR7166 - Université de Paris X - Nanterre); Emilie Alberola (Mission Climat Caisse des Dépôts - Université Panthéon-Sorbonne - Paris I)
    Abstract: This article critically examines the EU ETS intertemporal market during its Phase I (2005-2007). We test the Hotelling rule as a key element of a competitive equilibrium to validate whether allowance prices rise at the same rate as the interest rate. Including readily observable characteristics of the EU ETS such as the presence of one endogenous structural break and the influence of other energy markets shocks, we argue the inter-period ban on banking undermines the ability of the EU ETS to provide efficient price signalling. We also find a significant relationship between allowance price changes and the expected scarcity of allowances approximated by the Ellerman-Parsons ratio. Finally, our results show evidence of institutional learning by market participants.
    Keywords: Emissions trading; Banking; EU ETS; Hotelling rule; Ellerman-Parsons Ratio
    Date: 2009–05–26

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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