New Economics Papers
on Banking
Issue of 2009‒06‒17
eleven papers chosen by
Roberto J. Santillán–Salgado, EGADE-ITESM

  1. Does Corruption Hamper Bank Lending? Macro and Micro Evidence By Laurent Weill
  2. Asset Liability Management for Banks By Giandomenico, Rossano
  3. "'Enforced Indebtedness' and Capital Adequacy Requirements" By Jan Toporowski
  4. Aspetti del sistema economico e finanziario By Adalberto ALBERICI
  5. A New Capital Regulation For Large Financial Institutions By Hart, Oliver; Zingales, Luigi
  6. A Model of a Systemic Bank Run By Harald Uhlig
  7. Risk management by the Basel Committee: evaluating progress made from the 1988 Basel Accord to recent developments By Ojo, Marianne
  8. The role of the portfolio measurement in actual economic crisis By Covaci, Brindusa; Oprea, Cristian Constantin; Picu, Alina; Rotaru, Alina
  9. Reallocating Profits in Restructuring Industries: Evidence from European and US Banking By Jaap W.B. Bos; P.C. van Santen; P. Schilp
  10. Determinantes del crecimiento económico e intermediación bancaria: un análisis empírico para países latinoamericanos By Carton, Christine; Ronquillo , Cely
  11. Leverage Bubbles. By Fares Triki

  1. By: Laurent Weill (Laboratoire de Recherche en Gestion et Economie, Université de Strasbourg)
    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 pronounced 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 assumptions. 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 aversion 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 O5
    Date: 2009
  2. 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
  3. By: Jan Toporowski
    Abstract: The capital adequacy requirements for banks, enshrined in international banking regulations, are based on a fallacy of composition--namely, the notion that an individual firm can choose the structure of its financial liabilities without affecting the financial liabilities of other firms. In practice, says author Jan Toporowski, capital adequacy regulations for banks are a way of forcing nonfinancial companies into debt. "Enforced indebtedness" then reduces the quality of credit in the economy. In an international context, the present system of capital adequacy regulation reinforces this indebtedness. Proposals for "dynamic provisioning" to increase capital requirements during an economic boom would simply accelerate the boom's collapse. Contingent commitments to lend to governments in the event of private-sector lending withdrawals, alongside lending to foreign private-sector borrowers, are a much more viable alternative.
    Date: 2009–05
  4. By: Adalberto ALBERICI
    Abstract: The challenges that our economic and financial system are going to face are tremendous. Some of these are not yet taken with the appropriate extension: SEPA, MiFID and Compliance, for instance, will respectively change the banking activity business model, state that the reputation issue is crucial for each bank, that the customer satisfaction in this contest, must be able to ensure the best execution rules and transparency
    Keywords: Compliance, Banks, Governor, Final considerations, Sepa, Mifid
    JEL: G21 G28
    Date: 2007–10–12
  5. By: Hart, Oliver; Zingales, Luigi
    Abstract: We design a new, implementable capital requirement for large financial institutions (LFIs) that are too big to fail. Our mechanism mimics the operation of margin accounts. To ensure that LFIs do not default on either their deposits or their derivative contracts, we require that they maintain a capital cushion sufficiently great that their own credit default swap price stays below a threshold level. If this level is violated the LFI regulator forces the LFI to issue equity until the CDS price moves back below the threshold. If this does not happen within a predetermined period of time, the regulator intervenes. We show that this mechanism ensures that LFIs are solvent with probability one, while preserving the disciplinary effects of debt.
    Keywords: banks; Capital requirement; too big to fail
    JEL: G21 G28
    Date: 2009–06
  6. By: Harald Uhlig
    Abstract: The 2008 financial crisis is reminiscent of a bank run, but not quite. In particular, it is financial institutions withdrawing deposits from some core financial institutions, rather than depositors running on their local bank. These core financial institutions have invested the funds in asset-backed securities rather than committed to long-term projects. These securities can potentially be sold to a large pool of outside investors. The question arises, why these investors require steep discounts to do so. I therefore set out to provide a model of a systemic bank run delivering six stylized key features of this crisis. I consider two different motives for outside investors and their interaction with banks trading asset-backed securities: uncertainty aversion versus adverse selection. I shall argue that the version with uncertainty averse investors is more consistent with the stylized facts than the adverse selection perspective: in the former, the crisis deepens, the larger the market share of distressed core banks, while a run becomes less likely instead as a result in the adverse selection version. I conclude from that that the variant with uncertainty averse investors is more suitable to analyze policy implications. This paper therefore provides a model, in which the outright purchase of troubled assets by the government at prices above current market prices may both alleviate the financial crises as well as provide tax payers with returns above those for safe securities.
    JEL: E44 G21 G28
    Date: 2009–06
  7. By: Ojo, Marianne
    Abstract: This paper traces developments from the inception of the 1988 Basel Capital Accord to its present form (Basel II). In highlighting the flaws of the 1988 Accord, an evaluation is made of the Basel Committee’s efforts to address such weaknesses through Basel II. Whilst considerable progress has been achieved, the paper concludes, based on one of the principal aims of these Accords, namely the management of risk, that more work is still required particularly in relation to hedge funds and those risks attributed to non bank financial institutions.
    Keywords: risk;management;regulation;banks;Basel;Committee
    JEL: K2
    Date: 2008–08
  8. By: Covaci, Brindusa (Universitatea Spiru Haret, Facultatea de Finante si Banci); Oprea, Cristian Constantin (Universitatea Spiru Haret, Facultatea de Finante si Banci); Picu, Alina (Universitatea Spiru Haret, Facultatea de Finante si Banci); Rotaru, Alina (Universitatea Spiru Haret, Facultatea de Finante si Banci)
    Abstract: The main banking operation is lending. Indeed, between banks investments at the first place are credits. For good credits bank have to be visible, especially at stock exchange. In the study of capital markets, the temptation of yield is a forecast great. Many studies and models have tried to discover which is the future trend of banking activity on stock exchange and the interest rates, starting from a set of information from the past that many behavior often includes prices, the PER, capitalization, etc. An interesting theory in this field theory is walking randomly (the random walk hypothesis). The most dificile to manage is the portofolio in crisis conditions. In this sense we propose ARCH models to manage the portofolio quality in crisis conditions for some banks at BSE (Bucharest Stock Exchange).
    Keywords: portofolio quality; economic crisis; ARCH model
    JEL: C19 C59
    Date: 2009–06–01
  9. By: Jaap W.B. Bos; P.C. van Santen; P. Schilp
    Abstract: We examine the reallocation of profits in the European and US banking sectors in the period of 1995 to 2004. Specifically, we ask whether the restructuring of both industries has contributed to an efficient reallocation of assets. Using a revised decomposition framework, we find that US banks are more flexible in the reallocation of profits than their European counterparts. In the US, efficient banks that appropriate assets decrease industry profitability, as expected in a market characterized by a sufficiently high level of competition. In addition, economies of scale are exploited more in the US than in Europe. Regulatory reforms in the EU, in particular in response to the current crisis, should therefore foster a more closely integrated European market.
    Keywords: market structure, efficiency, restructuring, stochastic frontier, banking
    JEL: O47 O30 D24 C24
    Date: 2009–05
  10. By: Carton, Christine; Ronquillo , Cely
    Abstract: The aim of this article is to evaluate the contribution of the banking sector to the economic growth of 16 Latin American countries, from 1979 to 2006. The econometric procedure is based on a panel data technique with fixed effects, classifying the countries in two samples according to their income level. Findings tend to corroborate the positive effects of banking expansion on growth rates, according to the predictions of endogenous growth models. However, they also indicate that credit activity could have a negative impact on growth while credits are directed essentially to consumers and the public sector, at the expense of the productive sector.
    Keywords: Crecimiento económico;América Latina;Sistema bancario;Datos en panel
    JEL: O47 O54 C33 G21
    Date: 2008–09–23
  11. By: Fares Triki (Centre d'Economie de la Sorbonne - Paris School of Economics)
    Abstract: This paper investigates the relation between liquidity and asset prices. It shows that, when banks balance sheets are marked to market and banks are targeting a financial leverage level - a situation similar to current environment - formation of Leverage Bubble phenomenon and suggests a new regulation rule based on a Dynamic Leverage Ratio (DLR) rule.
    Keywords: Financial crises, rational bubbles, dynamic leverage ratio, mark to market accounting, asset pricing, macroprudential regulation, market liquidity.
    JEL: G14 G18 G20 G28
    Date: 2009–05

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