New Economics Papers
on Banking
Issue of 2009‒08‒30
nine papers chosen by
Roberto J. Santillán–Salgado, EGADE-ITESM

  1. U.S. Commercial Bank Lending through 2008:Q4: New Evidence from Gross Credit Flows By Silvio Contessi; Johanna Francis
  2. Determinants of International Bank Lending from the Developed World to East Asia By Siregar, Reza Yamora; Choy, KM
  3. Modeling non performing loans probability in the commercial banking system: efficiency and effectiveness related to credit risk in Italy By Bernardo Maggi; Marco Guida
  4. Blanket guarantee and restructuring decisions for multinational banks in a bargaining model By Niinimäki, Juha-Pekka; Mälkönen, Ville
  5. The Emergence of the Regulatory State: The Political Economy of Turkish Banking Reforms in the Age of Post-Washington Consensus By Caner Bakir; Ziya Onis
  6. Why are banks holding so many excess reserves? By Todd Keister; James McAndrews
  7. The shadow banking system: implications for financial regulation By Tobias Adrian; Hyun Song Shin
  8. Early intervention and prompt corrective action in Europe By Mayes, David G
  9. Finance in Africa - Achievements and Challenges By Beck, Thorsten; Fuchs, Michael; Uy, Marilou

  1. By: Silvio Contessi (Federal Reserve Bank of St. Louis); Johanna Francis (Fordham University, Department of Economics)
    Abstract: What was hiding behind the aggregate commercial bank loans through the end of 2008? We use balance sheet data for every insured U.S. commercial bank from 1999:Q1 to 2008:Q4 to construct credit expansion and credit contraction series and provide new evidence on changes in lending. Until 2008:Q3 net credit growth was not dissimilar to the 1980 and 2001 recessions. However, between the third and fourth quarter credit contraction grew larger than credit expansion across all types of loans and for the largest banks. With the inclusion of 2008:Q4 data our series most resemble the intensification of the Savings and Loan crisis.
    Keywords: Credit Market, Reallocation, Aggregate Restructuring, Business Cycle, Financial crisis
    JEL: E44 E51 G21
    Date: 2009
  2. By: Siregar, Reza Yamora; Choy, KM
    Abstract: The reversal of capital flows from the banking sector, rather than portfolio equity investment, has long been considered a main reason for the severity of the East Asian financial crisis of the late 1990s. This study analyzes the factors behind the boom and bust of bank lending, focusing on loans from private banks in seven OECD countries to nine East Asian economies during the 1990–2004 period. Our findings suggest that political instability and weaknesses in the legal, judicial, and bureaucratic systems help explain the continued stagnation in lending after the financial crisis. Thus, institutional reforms are critical for East Asia to successfully compete for international bank financing.
    Keywords: Foreign Bank Loans; East Asia; Gravity Model; Trade Intensity; Financial Risk; Law and Order; Bureaucratic Quality
    JEL: F34 F11 C23 G21
    Date: 2009–03–30
  3. By: Bernardo Maggi; Marco Guida (Dipartimento di Economia, Sapienza University of Rome Italy)
    Abstract: In this paper we model the effect of the non performing loans on the cost structure of the commercial banking system. With this aim, we comment on an increase in the non performing loans by studying the consequences of such a change on the cost function and compute the probability of failure of maintaining a performing loan as such. In so doing we are convinced that geography does matter and evaluate the risk propensity of the bank towards the non performing loans accordingly. We finally stress that traditional efficiency indicators of cost elasticity do not fit properly with such a problem and propose a measure based on the costs for managing and monitoring the loans which, according to the related density function, will reveal effectively as non performing.
    Keywords: Non performing loans probability, Bank management, Cost function, Efficiency and effectiveness indicators, Flexible forms
    JEL: G21 D24 C33 C51 L23
    Date: 2009–04
  4. By: Niinimäki, Juha-Pekka (Bank of Finland Research); Mälkönen, Ville (Government Institute for Economic Research)
    Abstract: This paper examines blanket guarantee and restructuring decisions in respect of a multinational bank (MNB) using Nash bargaining, when the threat of a panic motivates countries to take decisions quickly. The failure of the bank would cause unevenly distributed externalities between the countries concerned, which influences restructuring incentives. In equilibrium, the bank is either liquidated or one – or both of the countries – recapitalizes it. The partition of the recapitalisation costs is sensitive to the country-specific benefits and costs from recapitalisation, panics and liquidation. The home regulator benefits from the privilege of being the only entity that can legally liquidate the MNB. Rational expectations regarding the bargaining result affect the incentives to declare a blanket guarantee.
    Keywords: banking crises; bank restructuring; blanket guarantee; bargaining; deposit insurance
    JEL: G21 G22 G28
    Date: 2009–08–03
  5. By: Caner Bakir (Koc University); Ziya Onis
    Abstract: The new era of Post-Washington Consensus (PWC) promoted under the auspices of multilateral organizations such as IMF and the World Bank centres on the need to develop strong regulatory institutions, especially the realm of banking and finance in developing countries. By focusing on the Turkish experience in the aftermath of the 2001 crisis, the article identifies the positive features of the new era the PWC in terms of the banking sector which as a result has become much more robust in terms of its ability to withstand external shocks and to avert future financial crises. At the same time, however, the article highlights some of the limitations of the new era. Important limitations are identified in terms of the distributional impact of the regulatory reforms with the banking sector and notably the foreign banks emerging as the major beneficiaries of this process. Additional limitations are observed in the areas of consumer protection and competition regulation. These weaknesses, in turn, highlight the limits of the emerging regulatory state in the era of the PWC. Similarly, significant weaknesses are evident in terms of the ability of the banking system to finance the real economy, and notably the small and medium sized businesses.
    Keywords: Regulatory state; post-Washington consensus; banking; Turkey
    JEL: G21 G28
    Date: 2009–08
  6. By: Todd Keister; James McAndrews
    Abstract: The quantity of reserves in the U.S. banking system has risen dramatically since September 2008. Some commentators have expressed concern that this pattern indicates that the Federal Reserve’s liquidity facilities have been ineffective in promoting the flow of credit to firms and households. Others have argued that the high level of reserves will be inflationary. We explain, through a series of examples, why banks are currently holding so many reserves. The examples show how the quantity of bank reserves is determined by the size of the Federal Reserve’s policy initiatives and in no way reflects the initiatives’ effects on bank lending. We also argue that a large increase in bank reserves need not be inflationary, because the payment of interest on reserves allows the Federal Reserve to adjust short-term interest rates independently of the level of reserves.
    Date: 2009
  7. By: Tobias Adrian; Hyun Song Shin
    Abstract: The current financial crisis has highlighted the growing importance of the “shadow banking system,” which grew out of the securitization of assets and the integration of banking with capital market developments. This trend has been most pronounced in the United States, but it has had a profound influence on the global financial system. In a market-based financial system, banking and capital market developments are inseparable: Funding conditions are closely tied to fluctuations in the leverage of market-based financial intermediaries. Growth in the balance sheets of these intermediaries provides a sense of the availability of credit, while contractions of their balance sheets have tended to precede the onset of financial crises. Securitization was intended as a way to transfer credit risk to those better able to absorb losses, but instead it increased the fragility of the entire financial system by allowing banks and other intermediaries to “leverage up” by buying one another’s securities. In the new, post-crisis financial system, the role of securitization will likely be held in check by more stringent financial regulation and by the recognition that it is important to prevent excessive leverage and maturity mismatch, both of which can undermine financial stability.
    Date: 2009
  8. By: Mayes, David G (Bank of Finland and University of Auckland)
    Abstract: The present crisis has revealed that, as expected, much of the safety net for handling failures in the banking system is deficient, particularly for cross-border banks, and the present problems had to be handled by a range of ad hoc measures. The principal new measure that needs to be undertaken in most countries is the implementation of a satisfactory special resolution regime for banks. This paper, however, deals with two further steps that could assist the operation of the safety net. The first is to ensure earlier intervention so there is more time to put a satisfactory rescue or resolution in place. The second is to implement a regime of prompt corrective action (structured early intervention and resolution, SEIR) so that both supervisors and banks know that a regime of increasing intensity will take place according to a strict timetable that will end in the authorities stepping into the bank while it still has positive capital, if the earlier stages are not effective. The paper evaluates the means of doing this in a European environment making use of the experience in the United States. It concludes that, while a lot can be done even within the current framework of national supervision, particularly through pre-positioning, cross-border banks can be better treated either by revising the home-host responsibilities or by moving to a supranational level of responsibility for SEIR for those banks whose continued operation is considered necessary for financial stability in any member state.
    Keywords: early intervention; prompt corrective action; cross-border banks; pre-positioning; bank resolution
    JEL: E58 F15 F23 G21 G28 G33
    Date: 2009–08–11
  9. By: Beck, Thorsten; Fuchs, Michael; Uy, Marilou
    Abstract: In spite of shallow financial markets, Sub-Saharan Africa will not escape the repercussions of the global financial crisis. The global turmoil threatens the progress Sub-Saharan Africa has made in financial sector deepening and broadening over the recent years and underlines the importance of continuing and deepening the necessary institutional reforms. In this context it is important to define the role of government in expanding financial sectors in a sustainable and market-friendly manner. Foreign banks have brought more benefits than risks for their host economies in Sub-Saharan Africa, but are certainly not a panacea and not a substitute for institutional and policy reform. The profile of foreign banks, however, has changed, with more and more regional banks emerging. This trend toward regional integration is promising as it might allow the small African financial system to reap benefits from scale economies, but it also requires regulatory and supervisory improvements and coordination across the region.
    Keywords: Banks&Banking Reform,Debt Markets,Access to Finance,,Emerging Markets
    Date: 2009–08–01

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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