New Economics Papers
on Banking
Issue of 2009‒07‒17
ten papers chosen by
Roberto J. Santillán–Salgado, EGADE-ITESM

  1. The Banking Crisis - A Rational Interpretation By Minford, Patrick
  2. Financial crises and bank failures: a review of prediction methods By Yuliya Demyanyk; Iftekhar Hasan
  3. Deposit market competition, costs of funding and bank risk By Ben R Craig; Valeriya Dinger
  4. Asset Liability Management for Banks By Giandomenico, Rossano
  5. Universal Banks and Corporate Control - Evidence from the Global Syndicated Loan Market. By Miguel A. Ferreira; Pedro Matos
  6. Analýza efektívnosti slovenských bánk využitím Stochastic Frontier Approach By Stavarek, Daniel; Šulganová, Jana
  7. Who captures who? Long-lasting bank relationships and growth of firms By Alessandro GAMBINI; Alberto ZAZZARO
  8. Econometric Approach to Early Warnings of Vulnerability in the Banking System and Currency Markets for Hong Kong and Other EMEAP Economies By Matthew S. Yiu; Alex Ho; Lu Jin
  9. Labour and Trade Unions in the Financial Sector: Challenges and Perspectives in Contemporary Brazil By Jose Ricrado Goncalves
  10. Efficiency, Technical Change, and Returns to Scale in Large U.S. Banks: Panel Data Evidence from an Output Distance Function Satisfying Theoretical Regularity By Guohua Feng; Apostolos Serletis

  1. By: Minford, Patrick (Cardiff Business School)
    Abstract: Modern macroeconomic models have been widely criticised as relying too much on rationality and market efficiency. However, basically their predictions about this crisis are being borne out by events. 'Crashes' are an integral part of an 'efficient market' capitalism and are brought on by swings in the news about productivity growth; this time nearly two decades of strong computer-based productivity growth were brought to a crashing halt by raw material shortages. This presages a slow recovery until innovation in material use frees growth up again as it did in the 1990s after the shortages of the 1970s.
    Keywords: Macroeconomic models; Banking Crisis
    JEL: E0
    Date: 2009–07
  2. By: Yuliya Demyanyk; Iftekhar Hasan
    Abstract: In this article we analyze financial and economic circumstances associated with the U.S. subprime mortgage crisis and the global financial turmoil that has led to severe crises in many countries. We suggest that the level of cross-border holdings of long-term securities between the United States and the rest of the world may indicate a direct link between the turmoil in the securitized market originated in the United States and that in other countries. We provide a summary of empirical results obtained in several Economics and Operations Research papers that attempt to explain, predict, or suggest remedies for financial crises or banking defaults; we also extensively outline the methodologies used in them. The intent of this article is to promote future empirical research for preventing financial crises.
    Keywords: Subprime mortgage ; Financial crises
    Date: 2009
  3. By: Ben R Craig; Valeriya Dinger
    Abstract: This paper presents an empirical examination of the effects of both deposit market competition and of wholesale funding on bank risk simultaneously. The traditional view of the relation between competition and risk has focused on the disciplining role of the charter value. In this project we argue that if the structure of bank liabilities and the costs of retail and wholesale funding are jointly determined with bank risk, the omission of wholesale funding in the empirical analysis of the relation between deposit market competition and risk may give rise to a substantial bias in the estimated results. This will be especially the case where wholesale lenders “screen” their borrowers’ risk as argued by the market discipline literature. We propose a new approach to the estimation of the relation between deposit market competition and bank risk which accounts for the opportunity of banks to shift to wholesale funding when deposit market competition is intense. The analysis is based on a unique comprehensive dataset which combines retail deposit rates data with data on bank characteristics and with data on local deposit market features for a sample of 589 US banks. Our results support the notion of a risk-enhancing effect of deposit market competition.
    Keywords: Bank competition ; Bank deposits
    Date: 2009
  4. 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
  5. By: Miguel A. Ferreira (Faculdade de Economia,  Universidade Nova de Lisboa, Rua Marques da Fronteira 20, Lisboa, 1099-038, Portugal.); Pedro Matos (Marshall School of Business, University of Southern California, 3670 Trousdale Parkway, BRI 308, Los Angeles, CA 90089-0804, USA.)
    Abstract: Banks play a role in the corporate governance of firms as well as acting as debt financiers around the world. Universal banks can have control over borrowing firms by representation on the board of directors or by holding shares through direct stakes or institutional holdings. We investigate the effects of these bank-firm governance links on the global syndicated loan market. We find that banks are more likely to act as lead arrangers, charge higher interest rate spreads and face less credit risk after origination when they have some role in firm’s governance. This increase in interest rate spread is less pronounced for borrowers with access to international capital markets. Our results are robust to several methods to correct for the endogeneity of the bank-firm governance link. Our findings suggest that the benefits of bank involvement in firms’ governance accrue mostly to the banks. JEL Classification: G21, G32.
    Keywords: Universal banking, Syndicated loans, Corporate boards, Ownership.
    Date: 2009–07
  6. By: Stavarek, Daniel; Šulganová, Jana
    Abstract: This paper aims to estimate efficiency of the Slovak commercial banks in the period 2001-2005. The paper uses data obtained from annual reports of 13 Slovak banking institutions. For the practical estimation we applied the parametric Stochastic Frontier Approach and Cobb-Douglas production function. The results suggest that the initial hypothesis was confirmed as the average efficiency increased. This is also evident in results of individual banks as 11 banks recorded increase in efficiency. The results point out a better ability of Slovak banks to use the inputs in the production process.
    Keywords: Efficiency; Stochastic Frontier Approach; banks; Slovak Republic
    JEL: C20 D24 G21
    Date: 2009–03–16
  7. By: Alessandro GAMBINI (Universita' Politecnica delle Marche, Dipartimento di Economia); Alberto ZAZZARO (Universita' Politecnica delle Marche, Dipartimento di Economia)
    Abstract: The theoretical literature has identified potential benefits and costs of close bank-firm relationships for both parties, suggesting possible reasons for firms being captured by banks and vice versa. In this paper we empirically explore the effects of long-lasting credit relationships on employment and asset growth of a large sample of Italian manufacturing firms in the period 1998-2003. The main findings are that relationship lending hampers the efforts of small firms to increase their size (especially in terms of employees), while it mitigates the negative growth of troubled, medium-large enterprises, thus supporting the hypothesis that small firms are captured by banks which, in turn, are captured by large firms.
    Keywords: Capture effetcs, Firms' growth, Relationship lending
    JEL: G21 G34
    Date: 2009–07
  8. By: Matthew S. Yiu (Research Department, Hong Kong Monetary Authority); Alex Ho (Research Department, Hong Kong Monetary Authority); Lu Jin (Research Department, Hong Kong Monetary Authority)
    Abstract: This study adopts an econometric approach to develop an early warning system of the vulnerability in the banking system and currency markets for the 11 EMEAP economies over the period from1990 to 2008. We identify a set of leading indicators of banking distress and currency pressure and investigate the causal and contemporaneous linkages between them by using separate panel probit models and a simultaneous probit equation system. Asset-price misalignments, default risk of commercial banks and the non-financial corporate sector, and growth of real credit to the private sector are found to be significant leading indicators for both banking distress and currency pressure. Economic growth, inflation and the ratio of short-term external debt to international reserves are found to be important determinants of banking distress, whereas growth of M2 relative to international reserves, total trade balance over GDP, real effective exchange rate over-valuation and trade integration with China are identified to be crucial indicators of currency pressure. Currency market pressure is shown to have strong leading and contemporaneous impacts on banking distress for the EMEAP economies but not vice versa. These findings imply that the policy measures aimed at sustaining exchange rate stability will have the additional benefit of lowering the likelihood of banking distress in the region. Lastly, China is found to play a stabilising role in the region, i.e. the greater the trade with China, the lower the chance of experiencing currency pressure.
    Keywords: Banking distress, Currency crises, Twin crises, Asia Pacific economies, econometric model
    JEL: E44 F31 F42 F47 G21
    Date: 2009–06
  9. By: Jose Ricrado Goncalves
    Abstract: The configuration of the liquid wealth involved a reorganization of society and the financial system with on labour and trade union organization in Brazil. The changes involved the redefinition of the profile of the bank and regulation standards with implications for the collective bargaining. These changes involved the reorganization of work in the financial sector according to the new investment trends organized through financial holding companies that turned out to exceed their operations in the traditional banks branches. Thus, the organization of the workers in the financial system no longer fits within the bank workers category. In this framework, the trade unions developed strategies of adaptation and resistance in order to maintain and expand the ability to represent the workers effectively. As a result, we must rethink the boundaries of the concept of category of workers and the possibilities of the new forms of workers representation in the financial system that could now be articulated in organizations based on their branch of activity.
    Keywords: Labour; trade unions; financial sector; Brazil; banking industry; financial holdings; financialisation; bank employees;collective bargainig;
    Date: 2009
  10. By: Guohua Feng; Apostolos Serletis
    Abstract: This paper provides parametric estimates of technical change, efficiency change, economies of scale, and total factor productivity growth for large banks (those with assets in excess of $1 billion) in the United States, over the period from 2000 to 2005. This is done by estimating an output distance function subject to theoretical regularity within a Bayesian framework. We find that failure to incorporate theoretical regularity conditions results in mismeasured shadow revenue and/or cost shares, which in turn leads to perverse conclusions regarding productivity growth. Our results from the regularity-constrained model show that total factor productivity of the large U.S. banks grew at an average rate of 1.98% over the sample period. However, our estimates also show a clear downward trend in the growth rate of total factor productivity and our decomposition of the primal Divisia total factor productivity growth index into its three components - technical change, efficiency change, and economies of scale - indicates that technical change is the driving force behind this decline.
    Keywords: Productivity decomposition; Translog output distance function.
    JEL: C11 D24 G21
    Date: 2009–06–24

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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