|
on Banking |
| By: | Caiazza, Stefano; Clare, Andrew; Pozzolo, Alberto Franco |
| Abstract: | Given the recent traumatic events in the world’s banking industry it is important to understand what drives bankers to create larger and larger, often multinational, banking groups. In this paper we investigate whether the targets in cross-border bank M&As are materially different from those banks targeted in domestic M&A deals. To address this question we use a sample of over 24,000 banks from more than 100 countries. We begin by estimating the probability that a bank will be a M&A target; this probability is based upon both bank specific and country specific characteristics. The sample also naturally includes banks that were not involved in any M&A deal, this set of banks acts as a control sample for the study. We then estimate a multinomial model that distinguishes between (i) targets in domestic operations, (ii) targets in cross-border operations and (iii) non-targets. The main message of the paper is that, with few exceptions, domestic and foreign investors target similar banks. In particular, contrary to what one might expect, bank size does not affect differently the probability of being a domestic or a cross-border target, but it has a positive and highly significant effect in both cases. What differs between national and international M&As are the characteristics of the countries where banks operate. On average, banking systems characterized by lower leverage, higher cost inefficiency and lower liquidity are more likely to be targets of cross-border acquisitions, while none of this characteristics affects the likelihood of being acquired domestically. |
| Keywords: | M&As, M&Asbank internationalisation |
| JEL: | G15 G21 G34 |
| Date: | 2011–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:mol:ecsdps:esdp11058&r=ban |
| By: | Arpad Abraham (Department of Economics, University of Rochester); Eva Carceles-Poveda (Department of Economics, Stony Brook University) |
| Abstract: | This paper studies a production economy with aggregate uncertainty where consumers have limited commitment on their financial liabilities. Markets are endogenously incomplete due to the fact that the borrowing constraints are determined endogenously. We first show that, if competitive financial intermediaries are allowed to set the borrowing limits, then the ones that prevent default will be an equilibrium outcome. The equilibrium allocations in this economy are not constrained efficient due to the fact that intermediaries do not internalize the adverse effects of capital on default incentives. We also isolate and quantifiy this new source of inefficiency by comparing the competitive equilibrium allocations to the constrained efficient ones both qualitatively and quantitatively. We tend to observe higher capital accumulation in the competitive equilibrium, implying that agents may enjoy higher (average) welfare in the long run than in the constrained efficient allocation. |
| Keywords: | Enforcement Constraints, Intermediation, Risk Sharing, Capital Accumulation. |
| JEL: | D52 E23 |
| Date: | 2010–10 |
| URL: | http://d.repec.org/n?u=RePEc:nys:sunysb:10-04&r=ban |
| By: | Xin Huang; Hao Zhou; Haibin Zhu |
| Abstract: | We adopt a systemic risk indicator measured by the price of insurance against systemic financial distress and assess individual banks' marginal contributions to the systemic risk. The methodology is applied using publicly available data to the 19 bank holding companies covered by the U.S. Supervisory Capital Assessment Program (SCAP), with the systemic risk indicator peaking around $1.1 trillion in March 2009. Our systemic risk contribution measure shows interesting similarity to and divergence from the SCAP expected loss measure. In general, we find that a bank's contribution to the systemic risk is roughly linear in its default probability but highly nonlinear with respect to institution size and asset correlation. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2011-08&r=ban |
| By: | Jason Allen; Robert Clark; Jean-François Houde |
| Abstract: | This paper studies discounting in mortgage markets. Using transaction-level data on Canadian mortgages, we document that over time there’s been an increase in the average discount, along with substantial dispersion. The standard explanation for dispersion in credit markets is that lenders engage in risk-based pricing. Our setting is unique since contracts are guaranteed by government-backed insurance, meaning risk cannot be the main driver of dispersion. We find that mortgage rates depend on individual, contractual, and shopping market characteristics. There is also an important amount of unobserved heterogeneity in rates, which could be attributed to search costs. |
| Keywords: | Financial institutions; Financial services |
| JEL: | D4 G21 L0 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:11-3&r=ban |
| 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 |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:337&r=ban |
| By: | Barba Navaretti, Giorgio; Calzolari, Giacomo; Pozzolo, Alberto Franco |
| Abstract: | This paper examines whether multinational banks have a stabilising or a destabilising role during times of financial distress. With a focus on Europe, it looks at how these banks’ foreign affiliates have been faring during the recent financial crisis. It finds that retail and corporate lending of these foreign affiliates has been stable and even increasing between 2007 and 2009. This pattern is related to the functioning of the internal capital market through which these banks funnel funds across their units. The internal capital market has been an effective tool to support foreign affiliates in distress and to isolate their lending from the local availability of financial resources, notwithstanding the systemic nature of the recent crisis. This effect has been particularly large within the EU integrated financial market and for the EMU countries, thus showing complementarity between economic integration and multinational banks’ internal capital markets. In light of these findings, this paper supports the call for an integration of the European supervisory and regulatory framework overseeing multinational banks. The analysis is based on an analytical framework which derives the main conditions under which the internal capital market can perform this support function under idiosyncratic and systemic stresses. The empirical evidence uses both aggregate evidence on foreign claims worldwide, and firm-level evidence on the behaviour of banking groups’ affiliates, compared to standing alone national banks. |
| Keywords: | Geographical diversification, Corporate diversification, Multinational banking, Foreign Direct Investment |
| JEL: | G2 |
| Date: | 2011–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:mol:ecsdps:esdp11056&r=ban |
| By: | Avadanei, Anamaria; Ghiba, Nicolae |
| Abstract: | The financial crisis has exposed the weaknesses in national and international economies, the disruption of the financial systems all over the world. The aim of this paper is to point out the importance of systemic risk management in the European Union (EU). Structured on two parts, the study presents the evaluation methods of the systemic risk in the mentioned area and the main proposals for the financial stability reconstruction. To conclude, deep reforms are needed: an adequate financial regulation and supervision, the evaluation of the performance over time, new rules for improving capital and liquidity and a better communication between institutions in order to prevent and neutralize possible distress. |
| Keywords: | Systemic risk; financial crisis; European Union |
| JEL: | G32 |
| Date: | 2010–10–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:28657&r=ban |
| By: | Gulamhussen, M. A.; Piheiro, Carlos; Pozzolo, Alberto Franco |
| Abstract: | Multinational banks are a distinctive feature of today’s globalized economy with some institutions now operating in more than 100 countries. Despite the thorough analyses of bank internationalization over the last decades, the literature has failed to provide clear evidence that cross-border expansion is a profitable process from a firm’s perspective. The analyses of the costs and benefits of focusing or diversifying the activities of a firm have a long tradition in the economic and business literatures. The overall evidence is mixed, due to the opposite effects of scale and scope economies on one side and agency costs on the other. In this paper, we study the value of internationally diversified commercial banks. In our analysis we construct a measure of banks’ excess value using a large sample of more than 500 large banks from 56 countries between 2001 and 2007, and relate it to different measures of the international diversification of their activities. We find robust evidence of a statistically and economically significant diversification premium, suggesting that, in banking, the benefits of geographic scale and scope economies more than offset the agency costs. |
| Keywords: | Geographical diversification, Corporate diversification, Multinational banking, Foreign Direct Investment |
| JEL: | G34 G21 G15 L22 F23 F36 |
| Date: | 2011–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:mol:ecsdps:esdp11057&r=ban |
| By: | Michael McAleer (University of Canterbury); Juan-Ángel Jiménez-Martín; Teodosio Pérez-Amaral |
| Abstract: | A risk management strategy that is designed to be robust to the Global Financial Crisis (GFC), in the sense of selecting a Value-at-Risk (VaR) forecast that combines the forecasts of different VaR models, was proposed in McAleer et al. (2010c). The robust forecast is based on the median of the point VaR forecasts of a set of conditional volatility models. Such a risk management strategy is robust to the GFC in the sense that, while maintaining the same risk management strategy before, during and after a financial crisis, it will lead to comparatively low daily capital charges and violation penalties for the entire period. This paper presents evidence to support the claim that the median point forecast of VaR is generally GFC-robust. We investigate the performance of a variety of single and combined VaR forecasts in terms of daily capital requirements and violation penalties under the Basel II Accord, as well as other criteria. In the empirical analysis, we choose several major indexes, namely French CAC, German DAX, US Dow Jones, UK FTSE100, Hong Kong Hang Seng, Spanish Ibex35, Japanese Nikkei, Swiss SMI and US S&P500. The GARCH, EGARCH, GJR and Riskmetrics models, as well as several other strategies, are used in the comparison. Backtesting is performed on each of these indexes using the Basel II Accord regulations for 2008-10 to examine the performance of the Median strategy in terms of the number of violations and daily capital charges, among other criteria. The Median is shown to be a profitable and safe strategy for risk management, both in calm and turbulent periods, as it provides a reasonable number of violations and daily capital charges. The Median also performs well when both total losses and the asymmetric linear tick loss function are considered. |
| Keywords: | Median strategy; Value-at-Risk (VaR); daily capital charges; robust forecasts; violation penalties; optimizing strategy; aggressive risk management; conservative risk management; Basel II Accord; global financial crisis (GFC) |
| JEL: | G32 G11 C53 C22 |
| Date: | 2011–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:cbt:econwp:11/05&r=ban |
| By: | Jean-Louis Arcand (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I) |
| Abstract: | In their celebrated contribution on credit rationing, Stiglitz and Weiss (1981) showed that the expected return to the borrower on a loan is increasing in the risk of the project it funds. In this paper, I show that their results do not necessarily carry over to the case where the agents' preferences can be described by rank-dependent expected utility (RDEU). In particular, a pessimistic probability distortion function for borrowers can yield sufficient concavity in returns for the latter to be decreasing in risk, thus eliminating adverse selection. Whether credit rationing can obtain or not is then shown to depend upon the interaction between borrower pessimism and lender optimism. |
| Keywords: | Keywords: rank-dependent expected utility;credit rationing |
| Date: | 2011–02–03 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00562645&r=ban |
| By: | Masaaki Fujii; Akihiko Takahashi |
| Abstract: | The importance of collateralization through the change of funding cost is now well recognized among practitioners. In this article, we have extended the previous studies of collateralized derivative pricing to more generic situation, that is asymmetric and imperfect collateralization as well as the associated CVA. We have presented approximate expressions for various cases using Gateaux derivative which allow straightforward numerical analysis. Numerical examples for CCS (cross currency swap) and IRS(interest rate swap) with asymmetric collateralization were also provided. They clearly show the practical relevance of sophisticated collateral management for financial firms. We have also discussed some generic implications of asymmetric collateralization for netting and resolution of information. |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1101.5849&r=ban |
| By: | Ralph de Haas; Neeltje van Horen |
| Abstract: | The global financial crisis has reignited the debate about the risks of financial globalization, in particular the international transmission of financial shocks. We use data on individual loans by the largest international banks to their various countries of operation to examine whether banks’ access to borrower information affected the transmission of the financial shock across borders. The simultaneous use of country and bank fixed effects allows us to disentangle credit supply and demand and to control for general bank characteristics. We find that during the crisis banks continued to lend more to countries that are geographically close, where they are integrated into a network of domestic co-lenders, and where they had gained experience by building relationships with (repeat) borrowers. |
| Keywords: | Crisis transmission; sudden stop; cross-border lending; syndicated loans |
| JEL: | F36 F42 F52 G15 G21 G28 |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:279&r=ban |
| By: | Olivier Armantier; Eric Ghysels; Asani Sarkar; Jeffrey Shrader |
| Abstract: | We provide empirical evidence for the existence, magnitude, and economic impact of stigma associated with banks borrowing from the Federal Reserve’s discount window facility. We find that, during the height of the financial crisis, banks were willing to pay an average premium of at least 37 basis points (and 150 basis points after Lehman’s bankruptcy) to borrow from the Term Auction Facility rather than from the discount window. The incidence of stigma varied according to bank characteristics and market conditions. Finally, we find that discount window stigma is economically relevant since it increased banks’ borrowing costs during the crisis. Our results have important implications for the provision of liquidity by central banks. |
| Keywords: | Discount window ; Financial crises ; Monetary policy ; Bank liquidity ; Banks and banking - Costs ; Auctions |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:483&r=ban |