New Economics Papers
on Banking
Issue of 2010‒12‒23
thirteen papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. Perspectives on the securitization of assets: the spanish case By Pilar Girldez Puig; Jose Luis Martn
  2. How related are interbank and lending interest rates? Evidence on selected EU countries By Heryan, Tomas; Stavarek, Daniel
  3. "Choice of Collateral Currency" By Masaaki Fujii; Akihiko Takahashi
  4. Bad loans in the meltdown: micro analysis of credit union performance versus banks, an initial investigation By Klinedinst, Mark
  5. A tool for scrutinizing bank bailouts based on multi-period peer benchmarking By N. Avkiran
  6. Minimising Risks from Imbalances in European Banking By Sebastian Barnes; Philip R. Lane; Artur Radziwill
  7. Macroprudential policy - a literature review By Gabriele Galati; Richhild Moessner
  8. Why does the Interest Rate Decline Over the Day? Evidence from the Liquidity Crisis By Angelo Baglioni; Andrea Monticini
  9. American Step-Up and Step-Down Credit Default Swaps under Levy Models By Tim Siu-Tang Leung; Kazutoshi Yamazaki
  10. Some preliminary but troubling evidence on group credits in microfinance programmes By Helke Waelde
  11. Bankruptcy and the size effect By Lu, Ching-Chih; Chollete, Loran
  12. Sensitivity analysis of network DEA illustrated in branch banking By N. Avkiran
  13. The Change of the Financial System and Developmental State in Korea By Kang-Kook Lee

  1. By: Pilar Girldez Puig (Department of Business Administration, Universidad Pablo de Olavide); Jose Luis Martn (Department of Business Administration, Universidad Pablo de Olavide)
    Abstract: In this paper, we analyze the current status of securitization in Spain within a global context, and taking in account certain factors that have had or may have impact on its recent development and its future. After explaining the historical and legislative evolution, the paper highlights the substantial change that securitization has undergone since the beginnings of the financial crisis, changing from a model of "originate, securitize and distribute" to another model of "originate, securitize and hold".Finally, some related factors that may affect the future of securitization are analyzed, stressing the perception of an increasing Spanish sovereign risk, and concluding with the need to improve the control that supervisors must exercise on banks and rating agencies in order to transmit credibility to investors.
    Keywords: Mobile-shopping
    Date: 2010–12
  2. By: Heryan, Tomas; Stavarek, Daniel
    Abstract: This paper investigates the nature of the causal relationships among interbank market interest rates and corporate loans interest rates in four countries from the euro area (Austria, Belgium, France and Italy), and in the Czech Republic. The paper also estimates a development of bank credit margin in banking industries of these countries in period from January 2004 to March 2010. Using Johansen cointegration and Granger causality tests on monthly data we investigate long-term as well as short-term causalities between the interest rates. The results suggest that interest rate relationships differ in all selected countries, and also that foreign majority owners of the Czech banks could affect interest rate policy of the subsidiaries to offset losses realized by the parent banks.
    Keywords: Cointegration; Granger Causality; Interbank Interest Rates; Lending Interest Rates; European Union
    JEL: E43 C32 E40 F36
    Date: 2010–11–19
  3. By: Masaaki Fujii (Graduate School of Economics, University of Tokyo); Akihiko Takahashi (Faculty of Economics, University of Tokyo)
    Abstract: Collateral has been used for a long time in the cash market and we have also experienced significant increase of its use as an important credit risk mitigation tool in the derivatives market for this decade. Despite its long history in the financial market, its importance for funding has been recognized relatively recently following the explosion of basis spreads in the crisis. This paper has demonstrated the impact of collateralization on derivatives pricing through its funding effects based on the actual data of swap markets. It has also shown the importance of the "choice" of collateral currency. In particular, when a contract allows multiple currencies as eligible collateral as well as its free replacement, the paper has found that the embedded "cheapest-todeliver" option can be quite valuable and significantly change the fair value of a trade. The implications of these findings for risk management have been also discussed.
    Date: 2010–12
  4. By: Klinedinst, Mark
    Abstract: The current economic crisis has had a devastating impact in the credit markets as evidenced by bank failures, large bailouts and foreclosures. Trillions of dollars have been spent to prop up the financial sector in the U.S. alone. Credit unions, commercial banks and thrifts are where Americans go for home loans, but credit unions have a very different track record when it has come to bailouts from the government. Credit unions instead of taking trillions may ultimately not take a dime from the taxpayer. This paper will try to discern this advantage that credit unions have by focusing on the direct impact felt by financial institutions in the United States through net charge-offs from 1994 through 2009 using an exceptional data set that combines information on credit unions and banks in the U.S. from 1994 through 2009.
    Keywords: credit unions; banks; cooperative; defaults; net charge-offs
    JEL: G14 P0 P13 L21 G21
    Date: 2010–12–11
  5. By: N. Avkiran (CEPA - School of Economics, The University of Queensland)
    Abstract: In the wake of the recent global financial crisis central banks and regulators are concerned about redirection of bailout funds into dividends. Yet, we do not know much about the extent banks follow dividend policies and funding decisions optimal to generating shareholders? wealth because banks have been mostly absent from an otherwise expansive literature on dividend policy. A relative, multi-period analysis of the troubled Japanese regional banks for the period 1998-2007 identifies inefficiencies in the levels of dividends, retained earnings, external funding and share performance. The study unfolds further by investigating associations between inefficiencies and non-performing loans, followed by a comparison of efficient versus inefficient banks across good and bad economic times. The methodology captures linkages among yearly financial decisions over multiple periods, thus summarizing long-term performance. The new approach can guide continuous benchmarking of bank financial performance, as well as help policy-makers monitoring potential misappropriation of bailout funds during financial crises. The findings indicate a potential to adjust levels of debt and equity funding, and substantial room for improvement in share performance. Associations between non-performing loans and technical inefficiencies are generally statistically significant.
    JEL: G21 L25
    Date: 2010–12
  6. By: Sebastian Barnes; Philip R. Lane; Artur Radziwill
    Abstract: The euro area financial system took excessive risks during the global credit boom, which in some countries led to an unsustainable increase in credit, higher asset prices and housing booms. This process helped to fuel large imbalances within the euro area. Banks played a key role in channelling funds from economies with large surpluses to deficit countries, leading in some cases to the accumulation of considerable risks for borrowers and lenders. Weaknesses in the regulatory and supervisory architecture contributed to these problems in the euro area, as in other OECD economies. Gaps in microprudential regulation created an environment prone to excessive risk-taking: capital buffers were too small; the quality of capital was inadequate; banks’ models underestimated risks; and risks were shifted off-balance sheet and beyond supervisory oversight. Liquidity risks were not adequately monitored. Systemic risks were allowed to build up as the authorities largely failed to counter the credit cycle. Some large systemic banks contributed to growing imbalances and vulnerability. The decentralised European supervisory architecture was not sufficiently effective in supervising large cross-border institutions. When the financial crisis hit, the co-ordination of cross-border rescues proved problematic and complicated efficient resolution. Stronger regulations are needed to improve financial stability. Effective microprudential regulation is the first line of defence. This should be upgraded by implementing the Basel III capital accord, as has been announced by the EU authorities, and a range of related measures. Some consideration should be given to an accelerated phasing-in. Macroprudential regulation should be significantly developed to mitigate pro-cyclicality and reduce systemic risks posed by large cross-border banks. The creation of the European Systemic Risk Board is welcome. To improve cross-border supervision, the European Banking Authority should have sufficient powers and resources to ensure that a system based on national supervision leads to coherent regulation and effective supervision. In addition, a cross-border crisis-management framework for Europe is needed. Overall, significant steps have already been taken by the EU authorities to address these issues and further reforms are under way. This working paper relates to the 2010 OECD Economic Survey of the Euro area. (<P>Minimiser les risques de déséquilibre au sein du système bancaire européen<BR>Durant la phase d’explosion du crédit à l'échelle mondiale, le système financier de la zone euro a pris des risques excessifs qui ont abouti, dans quelques pays, à une augmentation insoutenable du crédit et à une flambée des prix des actifs et de l'immobilier. Ce processus a contribué au creusement d'importants déséquilibres au sein de la zone euro. Les banques ont joué un rôle majeur dans la transmission des ressources financières des économies affichant des excédents importants vers les pays déficitaires, ce qui a conduit, dans certains cas, à l'accumulation de risques considérables pour les emprunteurs comme pour les prêteurs. Les lacunes du dispositif de réglementation et de surveillance ont contribué à ces problèmes dans la zone euro, comme dans les autres économies de l’OCDE. Les failles de la réglementation microprudentielle ont favorisé la propension à prendre des risques excessifs : les volants de fonds propres des banques étaient trop faibles, la qualité des capitaux n'était pas adaptée, les modèles utilisés par les banques sous-estimaient les risques et ces risques étaient sortis des bilans et échappaient ainsi à la surveillance des autorités de contrôle. De plus, il n’y a pas eu de suivi convenable des risques de liquidité. Comme les autorités n’ont guère su s’opposer à l’expansion du crédit, des risques systémiques ont pu s'accumuler. Certaines grandes banques d'importance systémique ont contribué à l'aggravation des déséquilibres et de la vulnérabilité du système. Le dispositif européen de surveillance décentralisé n’était pas assez efficace pour contrôler les grandes institutions financières transnationales. Lorsque la crise financière a éclaté, la coordination des différents plans de sauvetage nationaux s'est avérée problématique et a contrarié le règlement efficient des faillites des établissements. Il convient de renforcer la réglementation de façon à améliorer la stabilité financière. La première ligne de défense réside dans une réglementation microprudentielle efficace. Cette réglementation doit être améliorée en appliquant l'Accord de Bâle III sur les fonds propres, comme l’ont annoncé les autorités de l’UE, ainsi qu'une série de mesures connexes. Il conviendrait d’envisager une accélération de leur mise en oeuvre. La réglementation macroprudentielle doit être nettement développée de façon à atténuer le caractère procyclique du dispositif et à réduire les risques systémiques que présentent les grands établissements transnationaux. La création du Comité européen du risque systémique est bienvenue. Pour améliorer la surveillance transnationale, l'Autorité bancaire européenne doit être dotée de prérogatives et de ressources suffisantes pour qu’un système fondé sur une surveillance exercée à l’échelle nationale donne naissance à une réglementation cohérente et un contrôle efficace. En outre, il convient de mettre en place un dispositif transfrontalier de gestion des crises à l'échelle de l'Europe. En résumé, les autorités européennes ont déjà pris des mesures substantielles pour s’attaquer à ces questions, et d’autres réformes sont en cours. Ce document de travail porte sur l'Étude économique du Zone euro. (
    Keywords: euro area, financial stability, zone Euro, stabilité financière
    JEL: G15 G21 G28
    Date: 2010–12–09
  7. By: Gabriele Galati; Richhild Moessner
    Abstract: The recent financial crisis has highlighted the need to go beyond a purely micro approach to financial regulation and supervision. In recent months, the number of policy speeches, research papers and conferences that discuss a macro perspective on financial regulation has grown considerably. The policy debate is focusing in particular on macroprudential tools and their usage, their relationship with monetary policy, their implementation and their effectiveness. Macroprudential policy has recently also attracted considerable attention among researchers. This paper provides an overview of research on this topic. We also identify important future research questions that emerge from both the literature and the current policy debate.
    Keywords: Macroprudential policy
    JEL: E58 G28
    Date: 2010–12
  8. By: Angelo Baglioni; Andrea Monticini (Catholic University, Milan, Italy)
    Abstract: We provide a simple model, able to explain why the overnight (ON) rate follows a downward intraday pattern, implicitly creating a positive intraday interest rate. While this normally reflects only some frictions, a liquidity crisis introduces a new component: the chance of an upward jump of the ON rate, which must be compensated by an intraday decline of the ON rate. By analyzing real time data for the e-MID interbank market, we show that the intraday rate has increased from a negligible level to a significant one after the start of the liquidity crisis in August 2007, and even more so since September 2008. The intraday rate is affected by the likelihood of a dry-up of the ON market, proxied by the 3M Euribor - Eonia swap spread. This evidence supports our model and it shows that a liquidity crisis impairs the ability of central banks to curb the market price of intraday liquidity, even by providing free daylight overdrafts. Such results have implications for the efficiency of the money market and of payment systems, as well as for the operational framework of central banks.
    Keywords: : interbank market, intraday interest rate, financial crisis, liquidity risk
    JEL: E4 E5 G21
    Date: 2010–11
  9. By: Tim Siu-Tang Leung; Kazutoshi Yamazaki
    Abstract: This paper studies the valuation of a class of credit default swaps (CDSs) with the embedded option to switch to a different premium and notional principal anytime prior to a credit event. These are early exercisable contracts that give the protection buyer or seller the right to step-up, step-down, or cancel the CDS position. The pricing problem is formulated under a structural credit risk model based on Levy processes. This leads to the analytic and numerical studies of an optimal stopping problem subject to early termination due to default. In a general spectrally negative Levy model, we rigorously derive an analytic solution for the investor's optimal exercise strategy. This allows for instant computation of the credit spread under various specifications. Numerical examples are provided to examine the impacts of default risk and contractual features on the credit spread and exercise strategy.
    Date: 2010–12
  10. By: Helke Waelde (Department of Economics, Johannes Gutenberg-Universitaet Mainz, Germany)
    Abstract: Group lending programs are said to be the key factor of success of microÂ…nance. They are said to reduce information asymmetries in credit contracts and to increase repayment rates. Despite that, in recent years more and more individual credits without collateral are given, even if there is no mutual monitoring of the borrowers. We use basic descriptive statistics on individual- and group panel data, which we construct out of a World Bank data set. We provide Â…rst evidence that individuals that are not participating in group credits accumulate wealth more quickly than participants of group credit programs.
    JEL: E43 E52 E58 D44
    Date: 2010–12–07
  11. By: Lu, Ching-Chih (National Chegchi University, Taiwan); Chollete, Loran (UiS)
    Abstract: .
    Keywords: Bankruptcy; Distress Risk; Financial Firms; Regime Shifts; Size Effect
    JEL: G11 G12
    Date: 2010–11–09
  12. By: N. Avkiran (CEPA - School of Economics, The University of Queensland)
    Abstract: Users of data envelopment analysis (DEA) often presume efficiency estimates to be robust. While traditional DEA has been exposed to various sensitivity studies, network DEA (NDEA) has so far escaped similar scrutiny. Thus, there is a need to investigate the sensitivity of NDEA, further compounded by the recent attention it has been receiving in literature. NDEA captures the underlying performance information found in a firm?s interacting divisions or sub-processes that would otherwise remain unknown. Furthermore, network efficiency estimates that account for divisional interactions are more representative of a dynamic business. Following various data perturbations overall findings indicate positive and significant rank correlations when new results are compared against baseline results - suggesting resilience. Key findings show that, (a) as in traditional DEA, greater sample size brings greater discrimination, (b) removing a relevant input improves discrimination, (c) introducing an extraneous input leads to a moderate loss of discrimination, (d) simultaneously adjusting data in opposite directions for inefficient versus efficient branches shows a mostly stable NDEA, (e) swapping divisional weights produces a substantial drop in discrimination, (f) stacking perturbations has the greatest impact on efficiency estimates with substantial loss of discrimination, and (g) layering suggests that the core inefficient cohort is resilient against omission of benchmark branches. Various managerial implications that follow from empirical findings are discussed in conclusions.
    Date: 2010–12
  13. By: Kang-Kook Lee
    Abstract: This study examines the role of institutions and their change related to the rapid economic development and the 1997 Korean financial crisis. In Korea, the government built a state- led financial system through the 1960s and 1970s and a specific government-bank-business relationship based on it. It promoted economic growth by allocating financial resources controlled by it to targeted industries or firms, with discipline over business achieved through these institutions. [Research in Progress 19]
    Keywords: institutions, rapid economic development, Korea, financial system, firms
    Date: 2010

This issue is ©2010 by Christian Calmès. 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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