New Economics Papers
on Banking
Issue of 2009‒08‒08
fifteen papers chosen by
Roberto J. Santillán–Salgado, EGADE-ITESM

  1. Credit and economic recovery By Michael Biggs; Thomas Meyer; Andreas Pick
  2. Regulatory Competition and Bank Risk Taking By Itai Agur
  3. A Monetary Model of Banking Crises By KOBAYASHI Keiichiro
  4. Banking Deregulations, Financing Constraints and Firm Entry Size By William R. Kerr; Ramana Nanda
  5. An economic capital model integrating credit and interest rate risk in the banking book. By Piergiorgio Alessandri; Mathias Drehmann
  6. Bank Loan Announcements and Borrower Stock Returns: Does Bank Origin Matter? By Steven Ongena; Viorel Roscovan
  7. Universal Banks and Corporate Control - Evidence from the Global Syndicated Loan Market. By Miguel A. Ferreira; Pedro Matos
  8. The efficiency of Islamic and conventional banks in the Gulf Cooperation Council (GCC) countries: An analysis using financial ratios and data envelopment analysis By Jill Johnes; Marwan Izzeldin; Vasilleios Pappas
  9. Assessing portfolio credit risk changes in a sample of EU large and complex banking groups in reaction to macroeconomic shocks. By Olli Castrén; Trevor Fitzpatrick; Matthias Sydow
  10. Revisiting the Merger and Acquisition Performance of European Banks By Ioannis Asimakopoulos; Panayiotis Athanasoglou,
  11. Propositions d'indicateurs macroprudentiels pour le systeme bancaire de la CEMAC By KAMGNA, Severin Yves; TINANG, Nzesseu Jules; TSOMBOU, Kinfak Christian
  12. Corporate Governance and Corporate Social Responsibility in Bangladesh with special reference to Commercial Banks By Victoria Wise; Muhammad Mahboob Ali
  13. Performance Measure for the Commercial Banks in Bangladesh: An Application of Total Factor Productivity By A A Rushdi
  14. La tarification des retraits aux distributeurs automatiques bancaires, une revue de la littérature By Donze, Jocelyn; Dubec, Isabelle
  15. La privatización de bancos públicos provinciales en Argentina en 1993-2001 By Héctor G. González Padilla

  1. By: Michael Biggs; Thomas Meyer; Andreas Pick
    Abstract: It has become almost a stylized fact that after financial crises, economic activity recovers without a rebound in credit. We investigate the relationship between credit and economic activity over the business cycle. In a simple model we show that a rebound in the flow of credit has closer relationship with economic recovery than a rebound in the stock of credit. Using data from developed and emerging market countries we find that the flow of credit has a higher correlation with GDP than the stock of credit, in particular during recovery periods from financial crises.
    Date: 2009–07
  2. By: Itai Agur
    Abstract: How damaging is competition between bank regulators? This paper develops a model in which both banks' risk profile and their access to wholesale funding are endogenous. Regulators weigh not only welfare, but also the number of banks under their supervision. Simulations indicate that the gains from consolidating US regulation are moderate, roughly 0.5-1% of GDP. But retaining multiple regulators implies a choice for a financial system that is both more profitable and more fragile. The paper also shows how complex balance sheet items give rise to a gradual rise in bank risk, followed by a sudden interbank crisis.
    Keywords: regulatory competition; arbitrage; bank risk; liquidity risk; interbank market.
    JEL: G21 G28
    Date: 2009–07
  3. By: KOBAYASHI Keiichiro
    Abstract: We propose a new model for policy analysis of banking crises (or systemic bank runs) based on the monetary framework developed by Lagos and Wright (2005). If banks cannot enforce loan repayment and have to secure loans by collateral, a banking crisis due to coordination failure among depositors can occur in response to a sunspot shock, and the banks become insolvent as a result of the bank runs. The model is tractable and easily embedded into a standard business cycle model. The model naturally makes a distinction between money and goods, while most of the existing banking models do not. This distinction enables us to clarify further the workings of banking crises and crisis management policies. In particular, we may be able to use this framework to compare the efficacy of fiscal stimulus, monetary easing, and bank reforms as recovery efforts from the current global financial crisis.
    Date: 2009–07
  4. By: William R. Kerr (Harvard Business School, Entrepreneurial Management Unit); Ramana Nanda (Harvard Business School, Entrepreneurial Management Unit)
    Abstract: We examine the effect of US branch banking deregulations on the entry size of new firms using micro-data from the US Census Bureau. We find that the average entry size for startups did not change following the deregulations. However, this result masks the differences in entry size among startups that failed within three years of entry and those that survived for four years or more. Long-term entrants started at a 2% larger size relative to their size in their fourth year, while churning entrants were no larger. Our results suggest that the banking deregulations had two distinct effects on the product market. On the one hand, they allowed entrants to compete more effectively against incumbents by reducing financing constraints and facilitating their entry at larger firm sizes. On the other hand, the process of lowering financing constraints democratized entry and created a lot more churning among entrants, particularly at the low end of the size distribution. Our results highlight that this large-scale entry at the extensive margin can obscure the more subtle intensive margin effects of changes in financing constraints.
    Keywords: entrepreneurship, entry size, financial constraints, banking.
    JEL: E44 G21 L26 L43 M13
    Date: 2009–08
  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: Steven Ongena (CentER – Tilburg University and CEPR, Department of Finance PO Box 90153, NL -5000 LE Tilburg, The Netherlands.); Viorel Roscovan (RSM – Erasmus University, Department of Finance, PO Box 1738, NL 3062 PA Rotterdam, The Netherlands.)
    Abstract: Banks play a special role as providers of informative signals about the quality and value of their borrowers. Such signals, however, may have a quality of their own as the banks’ selection and monitoring abilities may differ. Using an event study methodology, we study the importance of the geographical origin and organization of the banks for the investors’ assessments of firms’ credit quality and economic worth following loan announcements. Our sample comprises 986 announcements of bank loans to U.S. firms over the period of 1980-2003. We find that investors react positively to such announcements if the loans are made by foreign or local banks, but not if the loans are made by banks that are located outside the firm’s headquarters state. Investor reaction is, in fact, the largest when the bank is foreign. Our evidence suggest that investors value relationships with more competitive and skilled banks rather than banks that have easier access to private information about the firms. These results are applicable also to the European markets where regulatory and economic borders do not coincide and bank identities and reputation seem to matter a great deal. JEL Classification: G21, G32, H11, D80.
    Keywords: relationship banking, bank organization, bank origin, loan announcement return.
    Date: 2009–03
  7. 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
  8. By: Jill Johnes; Marwan Izzeldin; Vasilleios Pappas
    Abstract: The purpose of this paper is to provide an in-depth analysis, using both financial ratio analysis and data envelopment analysis (DEA), of a consistent sample of Islamic and conventional banks located in the GCC region over the period 2004 to 2007. Results from the financial ratio analysis indicate that Islamic banks are less cost efficient but more revenue and profit efficient than conventional banks. Differences in performance between Islamic and conventional banks are significant in the case of four of the six ratios. The DEA results indicate that gross efficiency (i.e. the efficiency of each bank relative to the whole banking sector) is significantly higher, on average, amongst conventional compared to Islamic banks. Gross efficiency is decomposed into a component which reflects managerial inadequacies and a component which is a consequence of the constraints caused by bank type. When equity is included as an input into the DEA model (to reflect risk-taking attitudes of banks), there is evidence that the difference in gross performance is more a consequence of the latter than the former since net efficiency (which takes out the inefficiency caused by bank type) is not significantly different, on average, between the two groups. When equity is excluded from the model, however, the inferior performance by Islamic banks is caused by a mix of managerial inefficiency and the rules under which Islamic banks operate. A comparison of the rankings of banks based on DEA efficiencies and financial ratios finds a consistently significant positive relationship only in the case of the gross DEA efficiency scores and the cost ratios. The DEA and financial ratio measures (particularly the revenue and profit ratios) therefore offer different information, and the methods are complements rather than substitutes. Finally, productivity has grown only slightly over the four-year period. This is caused by a fall in efficiency combined with an increase in technology. The magnitude of the components of productivity change is particul
    Keywords: Banking sector, Efficiency, Output distance function, Data Envelopment Analysis, Financial ratio analysis, Gulf region
    Date: 2009
  9. By: Olli Castrén (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Trevor Fitzpatrick (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Matthias Sydow (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: In terms of regulatory and economic capital, credit risk is the most significant risk faced by banks. We implement a credit risk model - based on publicly available information - with the aim of developing a tool to monitor credit risk in a sample of large and complex banking groups (LCBGs) in the EU. The results indicate varying credit risk profiles across these LCBGs and over time. Furthermore, the results show that large negative shocks to real GDP have the largest impact on the credit risk profiles of banks in the sample. Notwithstanding some caveats, the results demonstrate the potential value of this approach for monitoring financial stability. JEL Classification: C02, C19, C52, C61, E32.
    Keywords: Portfolio credit risk measurement, stress testing, macroeconomic shock measurement.
    Date: 2009–02
  10. By: Ioannis Asimakopoulos (Bank of Greece); Panayiotis Athanasoglou, (Bank of Greece)
    Abstract: The study examines the value creation of Merger and Acquisition (M&A) deals in European Banking from 1990-2004. This is performed, first, by examining the stock price reaction of banks to the announcement of M&A deals and, second, by analysing the determinants of this reaction. The findings provide evidence of value creation in European banks as the shareholders of the targets have benefited from positive and (statistically) significant abnormal returns while those of the acquirers earn small negative but non-significant abnormal returns. In the case of the shareholders of the acquirers, domestic M&As and especially those between banks with shares listed on the stock market, seem to be more beneficial compared to cross-border ones or those when the target is unlisted. Shareholders of the targets earn in all cases positive abnormal returns. Finally, although the link between abnormal returns and fundamental characteristics of the banks is rather weak, it appears that the acquisition of smaller, less efficient banks generating more diversified income are more value creating, while acquisition of less efficient, liquid and characterised by higher credit risk banks is not a value creating option.
    Keywords: Bank mergers; mergers and acquisitions; abnormal returns
    JEL: G14 G21 G34
    Date: 2009–08
  11. By: KAMGNA, Severin Yves; TINANG, Nzesseu Jules; TSOMBOU, Kinfak Christian
    Abstract: The main purpose of this paper is to determine the macro-prudential indicators of financial strength that can be used under supervision of the banking system in CEMAC. More specifically, we start from a set of indicators listed in the literature on macro-prudential supervision, and identify those that are relevant to the announcement of a deterioration of the banking system in the subregion. We sought these indicators among the variables of micro-aggregated banking sector, macroeconomic variables and the combination of these two sets. At the end of this study, it appears that the claims on the private sector, foreign direct investment and the combination of exports and credits to the private sector, increase the risk of degradation of the banking system, while this risk is reduced by the exchange rate, the capital of the banking system and inflation. This set of indicators should therefore attract the attention of the regulator to allow a quick solve of any potential banking crisis in CEMAC.
    Keywords: Système Bancaire; Indicateurs Macro-Prudentiels; Fragilité; Dégradation; CEMAC; Cameroun; Congo; Guinée Equatoriale; Tchad; Banque
    JEL: C13 E58 C12 G38 G28 E47 G21
    Date: 2009–07
  12. By: Victoria Wise (University of Tasmania, Australia); Muhammad Mahboob Ali (Atish Dipankar University of Science and Technology; Bangladesh)
    Abstract: This is an exploratory paper with the aim of determining the nature and extent of corporate social responsibility reporting in the banking sector in Bangladesh, and to assess the need to improve corporate social responsibility by such firms. Corporate social responsibility is associated with corporate governance and ethical business procedure. Good corporate governance is expected to underpin effective and efficient corporate social responsibility within firms. We observe, from our content analysis of the annual reports of three cases studies within the Bangladesh banking industry, that the corporate social responsibility disclosures focus on initiatives undertaken to support two critical two sectors within Bangladesh’s economy: agriculture and the SME sector. Further disclosures address contributions and donations made by the banks to support underprivileged sections of Bangladesh society including destitute youth and women. Of the three cases examined in this study, two are relatively new entrants to the banking sector. We observed that the newest firm, incorporated in 1999, made no disclosures in regards to its corporate social responsibility and, as a consequence, conclude that the corporate governance mechanisms in this firm are likely to be unsophisticated.
    Date: 2009–06
  13. By: A A Rushdi (American International University-Bangladesh (AIUB))
    Abstract: The performance evaluation of business has taken high profile in the climate of micro-economic reform in the recent past. The real wealth of Bangladesh can be increased by increasing the inputs available to the country. That is by discovering new resources and using the existing resources more efficiently. Efficiency gains in the banking sector of the country will make the country domestically and internationally more competitive and capable of generating more income and employment opportunities in the country. An adequate assessment of efficiency gains requires a range of financial, operational and economic indicators to be applied including Partial Factor Productivity (PFP) and Total Factor Productivity (TFP). Productivity growth is considered to be the best way to measure international competitiveness and economic growth. Estimates of TFP measures will provide rates of growth in the productive efficiency of labour and capital. Relative growth rates will suggest whether TFP growth was predominantly biased towards saving labour or saving capital and other inputs. To date there has not been any serious study on TFP in the Banking sector of Bangladesh. The present study is an attempt to bridge this gap.
    Date: 2009–02
  14. By: Donze, Jocelyn; Dubec, Isabelle
    Abstract: We summarize the literature dealing with the pricing of ATM withdrawals. We highlight the effects of the pricing scheme on the network size, on banks’ profits and on consumer surplus. We also examine two recent reforms that took place in Australia and in the United Kingdom in order to increase the efficiency of ATM networks.
    Keywords: distributeurs automatiques bancaire; commission interbancaire; tarification; régulation
    JEL: G2 L1
    Date: 2009–07–15
  15. By: Héctor G. González Padilla
    Abstract: En este artículo se estudia la privatización de un grupo de bancos públicos provinciales en Argentina en 1993-2001. En contraste con la mayoría de los estudios previos sobre privatizaciones que analizaron principalmente sus efectos sobre la eficiencia económica, este estudio se enfoca en dos cuestioness: i) evaluar si la privatización de los bancos públicos provinciales produjo un incremento en el uso del poder de mercado por parte de aquellos bancos públicos provinciales privatizados y ii) verificar si los bancos públicos provinciales privatizados incrementaron su eficiencia económica despues de su privatización, medida por una re- ducción en sus costos operativos. La evidencia empírica permite sostener las dos cuestiones planteadas.
    Keywords: bancos, competencia monopolista, privatizaciones
    JEL: D43 G21 L13
    Date: 2009–07

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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