|
on Banking |
| By: | Stijn Claessens; Neeltje van Horen |
| Abstract: | Using a new, comprehensive database on bank ownership, identifying also the home country of foreign banks, for 137 countries over the period 1995-2009, this paper provides an overview of foreign bank activity and its impact of financial development and stability. We document substantial increases in foreign bank presence, especially in emerging markets and developing countries, but which slowed down dramatically with the onset of the global crisis. Over time, banks from many more home countries have become active as investors, with several emerging countries becoming important exporters. Investment, however, remains mostly regional. In terms of loans, deposits and profits, current market shares of foreign banks average 20 percent in OECD countries and close to 50 percent in developing countries and emerging markets. Foreign banks differ from domestic banks in key balance sheet variables, notably having higher capital and more liquidity, but lower profitability. Cross-country analysis shows that only in developing countries is foreign bank presence negatively correlated with domestic credit creation. Finally, using panel regressions, we show that during the global crisis foreign banks reduced credit more compared to domestic banks, but not when dominant in the host country. |
| Keywords: | foreign banks; foreign direct investment; cross-border banking; bilateral investment; financial globalization; financial sector development; financial stability; spillovers; financial crisis |
| JEL: | F21 F23 G21 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:330&r=ban |
| By: | Fungacova, Zuzana (BOFIT); Herrala, Risto (BOFIT); Weill, Laurent (BOFIT) |
| Abstract: | This study examines how bank ownership influenced the credit supply during the recent financial crisis in Russia, where the banking sector consists of a mix of state-controlled banks, foreign-owned banks, and domestic private banks. To estimate credit supply changes, we employ an exhaustive dataset for Russian banks that covers the crisis period and apply an original approach based on stochastic frontier analysis. Our findings suggest bank ownership affected credit supply during the financial crisis and that the crisis led to an overall decrease in the credit supply. Relative to domestic private banks foreign-owned banks reduced their credit supply more and state-controlled banks less. This supports the hypothesis that foreign banks have a “lack of loyalty” to domestic actors during a crisis, as well as the view that an objective function of state-controlled banks leads them to support the economy during economic downturns. |
| Keywords: | bank; credit policy; foreign ownership; state ownership; stochastic frontier analysis |
| JEL: | D14 G21 |
| Date: | 2011–12–16 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:2011_034&r=ban |
| By: | Acharya, Viral V.; Mora, Nada |
| Abstract: | Can banks maintain their advantage as liquidity providers when they are heavily exposed to a financial crisis? The standard argument - that banks can - hinges on deposit inflows that are seeking a safe haven and provide banks with a natural hedge to fund drawn credit lines and other commitments. We shed new light on this issue by studying the behavior of bank deposit rates and inflows during the 2007-09 crisis. Our results indicate that the role of the banking system as a stabilizing liquidity insurer is not one of the passive recipient, but of an active seeker, of deposits. We find that banks facing a funding squeeze sought to attract deposits by offering higher rates. Banks offering higher rates were also those most exposed to liquidity demand shocks (as measured by their unused commitments, wholesale funding dependence, and limited liquid assets), as well as with fundamentally weak balance-sheets (as measured by their non-performing loans or by subsequent failure). Such rate increases have a competitive effect in that they lead other banks to offer higher rates as well. Overall, the results present a nuanced view of deposit rates and flows to banks in a crisis, one that reflects banks not just as safety havens but also as stressed entities scrambling for deposits. |
| Keywords: | financial crisis; flight to safety; liquidity; liquidity risk; solvency risk |
| JEL: | E4 G01 G11 G21 G28 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8706&r=ban |
| By: | Jeong, Sangjun; Jung, Hueechae |
| Abstract: | Credit procyclicality has recently been the focus of considerable attention, but what fuels the often excessive credit growth is rarely questioned. We investigate the relationship between the composition of banks' liabilities and their credit procyclicality. After examining the macroeconomic context where banks rely increasingly on wholesale funding (WSF), we estimate the effect of WSF on the banks’ credit growth using panel data for the commercial banks of Korea between 2000:1 and 2011:2. We find that a higher sensitivity of banks' WSF to the business cycle leads to an excessive response of credit growth to the business cycle, even with a low share of WSF on bank liabilities. This finding suggests that the regulation of banks’ WSF mechanism may contribute to financial stability through a bank credit channel of monetary policy. On the other hand, we find that overseas WSF has a more marked effect on credit procyclicality, which may additionally exacerbate the financial fragility of export-led emerging economies. |
| Keywords: | credit procyclicality; wholesale funding; financial fragility |
| JEL: | E32 E44 G21 |
| Date: | 2011–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:35568&r=ban |
| By: | Christian Calmès (Chaire d'information financière et organisationnelle ESG-UQAM, Laboratory for Research in Statistics and Probability, Université du Québec (Outaouais)); Raymond Théoret (Chaire d'information financière et organisationnelle ESG-UQAM, Université du Québec (Montréal), Université du Québec (Outaouais)) |
| Abstract: | Since financial institutions are subjected to increasingly tighter requirements regarding the way they conduct their loan business, we could assume that built-in regulatory pressures induce them to adopt collective business strategies, with the unintended consequence of persistently weakening the banking system ability to cope with external shocks. Surprisingly, we find rather the opposite. This paper documents how banks, as a group, react to macroeconomic risk and uncertainty, and more specifically the way banks systemic behaviour evolves over the business cycle. Adopting the methodology of Beaudry et al. (2001), our results clearly indicate that the dispersion across banks traditional portfolios has actually increased through time. We introduce an estimation procedure based on EGARCH and re-fine Baum et al. (2002, 2004, 2009) and Quagliariello (2007, 2009) framework to analyze the question in the new industry context, i.e. shadow banking. Consistent with finance theory, we first confirm that banks tend to behave homogeneously vis-à-vis macroeconomic uncertainty. Additionally, we find that the cross-sectional dispersions of loans to assets and non-traditional activities shrink essentially during downturns, when the resilience of the banking system is at its lowest. Our results also indicate that banks herd-like behaviour remains predominantly a cyclical phenomenon, almost unaffected by the new banking environment. Most importantly however, the cross-sectional dispersion of market-oriented ac-tivities appears to be both more volatile and sensitive to the business cycle than the dispersion of the traditional banking business lines. |
| Keywords: | Basel III; Banking stability; Macroprudential policy; Herding; Macroeconomic uncertainty. |
| JEL: | C32 G20 G21 |
| Date: | 2011–12–19 |
| URL: | http://d.repec.org/n?u=RePEc:pqs:wpaper:322011&r=ban |
| By: | Ian Christensen; Césaire Meh; Kevin Moran |
| Abstract: | This paper assesses the merits of countercyclical bank balance sheet regulation for the stabilization of financial and economic cycles and examines its interaction with monetary policy. The framework used is a dynamic stochastic general equilibrium model with banks and bank capital, in which bank capital solves an asymmetric information problem between banks and their creditors. In this economy, the lending decisions of individual banks affect the riskiness of the whole banking sector, though banks do not internalize this impact. Regulation, in the form of a constraint on bank leverage, can mitigate the impact of this externality by inducing banks to alter the intensity of their monitoring efforts. We find that countercyclical bank leverage regulation can have desirable stabilization properties, particularly when financial shocks are an important source of economic fluctuations. However, the appropriate contribution of countercyclical capital requirements to stabilization after a technology shock depends on the size of the externality and on the conduct of the monetary authority. |
| Keywords: | Monetary policy framework; Transmission of monetary policy; Financial institutions; Financial system regulation and policies; Economic models |
| JEL: | E44 E52 G21 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:11-32&r=ban |
| By: | Martin Goetz; Luc Laeven; Ross Levine |
| Abstract: | This paper assesses the impact of the geographic diversification of bank holding company (BHC) assets across the United States on their market valuations. Using two novel identification strategies based on the dynamic process of interstate bank deregulation, we find that exogenous increases in geographic diversity reduce BHC valuations. These findings are consistent with the view that geographic diversity makes it more difficult for shareholders and creditors to monitor firm executives, allowing corporate insiders to extract larger private benefits from firms. |
| JEL: | G21 G34 L22 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17660&r=ban |
| By: | Eickmeier, Sandra; Ng, Tim |
| Abstract: | We study how credit supply shocks in the US, the euro area and Japan are transmitted to other economies. We use the recently-developed GVAR approach to model financial variables jointly with macroeconomic variables in 33 countries for the period 1983-2009. We experiment with inter-country links that distinguish bilateral trade, portfolio investment, foreign direct investment and banking exposures, as well as asset-side vs. liability-side financial channels. Capturing both bilateral trade and inward foreign direct investment or outward banking claim exposures in a GVAR fits the data better than using trade weights only. We use sign restrictions on the short-run impulse responses to financial shocks that have the effect of reducing credit supply to the private sector. We find that negative US credit supply shocks have stronger negative effects on domestic and foreign GDP, compared to credit supply shocks from the euro area and Japan. Domestic and foreign credit and equity markets respond clearly to the credit supply shocks. Exchange rate responses are consistent with a "flight to quality" to the US dollar. The UK, another international financial centre, is also responsive to the shocks. These results are robust to the exclusion of the 2007-09 crisis episode from the sample. |
| Keywords: | credit supply shocks; global VAR; international business cycles; sign restrictions; trade and financial integration |
| JEL: | C3 F15 F36 F41 F44 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8720&r=ban |
| By: | Adrian Pagan (University of Sydney); Tim Robinson (Reserve Bank of Australia) |
| Abstract: | In the wake of the global financial crisis a considerable amount of research has focused on integrating financial factors into macroeconomic models. Two common approaches for doing so include the financial accelerator and collateralised lending, examples of which are Gilchrist, Ortiz and Zakrajšek (2009) and Iacoviello (2005). This paper proposes that two useful ways to evaluate such models are by focusing on their implications for business cycle characteristics and whether the models can match several stylised facts about the impact of financial conditions. One of these facts is that credit crises produce long-duration recessions. We find that while in the Gilchrist <em>et al</em> (2009) model financial factors can impact on particular cycles, they do little change to the average cycle characteristics. Some, but not all, of the stylised facts are captured by the model. |
| Keywords: | financial crises; business cycles |
| JEL: | E13 E32 E44 E51 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:rba:rbardp:rdp2011-04&r=ban |
| By: | Fiorella De Fiore (European Central Bank (ECB) - Directorate General Research); Harald Uhlig (University of Chicago - Department of Economics) |
| Abstract: | We present a dynamic general equilibrium model with agency costs, where heterogeneous firms choose among two alternative instruments of external finance - corporate bonds and bank loans. We characterize the financing choice of firms and the endogenous financial structure of the economy. The calibrated model is used to address questions such as: What explains differences in the financial structure of the US and the euro area? What are the implications of these differences for allocations? We find that a higher share of bank finance in the euro area relative to the US is due to lower availability of public information about firms' credit worthiness and to higher efficiency of banks in acquiring this information. We also quantify the effect of differences in the financial structure on per-capita GDP. |
| Keywords: | Financial structure; agency costs; heterogeneity |
| JEL: | E20 E44 C68 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:bfi:wpaper:2011-004&r=ban |
| By: | Jeroen Klomp; Jakob de Haan |
| Abstract: | Using data for more than 200 banks from 21 OECD countries for the period 2002 to 2008, we examine the impact of bank regulation and supervision on banking risk using quantile regressions. In contrast to most previous research, we find that banking regulation and supervision has an effect on the risks of high-risk banks. However, most measures for bank regulation and supervision do not have a significant effect on low-risk banks. As banking risk and bank regulation and supervision are multifaceted concepts, our measures for both concepts are constructed using factor analysis. |
| Keywords: | Financial soundness; Bank regulation and supervision; Banking risk; Quantile regression |
| JEL: | E44 G2 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:323&r=ban |
| By: | Friederike Niepmann |
| Abstract: | This paper develops and tests a theoretical model that allows for the endogenous decision of banks to engage in international and global banking. International banking, where banks raise capital in the home market and lend it abroad, is driven by differences in factor endowments across countries. In contrast, global banking, where banks intermediate capital locally in the foreign market, arises from differences in country-level bank efficiency. Together, these two driving forces determine the foreign assets and liabilities of a banking sector. The model provides a rationale for the observed rise in global banking relative to international banking. Its key predictions regarding the cross-country pattern of foreign bank asset and liability holdings are strongly supported by the data |
| Keywords: | international banking; cross-border lending; capital flows; trade in banking services |
| JEL: | F21 F23 F34 G21 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:325&r=ban |
| By: | Franziska Bremus |
| Abstract: | This study assesses how banking sector integration and especially cross-border lending affect macroeconomic stability. I use a two-country general equilibrium model with heterogeneous banks that are hit by idiosyncratic shocks. According to the concept of granularity, idiosyncratic shocks to large firms (or: banks) do not have to cancel out under a skewed distribution of firm sizes. Given the highly skewed distribution of bank sizes, macroeconomic stability may thus be affected by shocks to large banks. Hence, to grasp the impact of financial liberalization on aggregate fluctuations, the presence of large banks as measured by high concentration in the banking industry has to be accounted for. I study the role of different forms of banking sector integration - i.e. arms-length crossborder lending versus lending via foreign affiliates - for the stability of aggregate lending. I find that banking sector integration decreases the aggregate volatility of lending due to intensified competition. The model implies that cross-border lending is more stable under lending via foreign affiliates than under arms-length cross-border lending. |
| Keywords: | Cross-border banking, large banks, granularity, volatility |
| JEL: | E44 F41 G21 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1178&r=ban |
| By: | Ben R. Craig; Falko Fecht |
| Abstract: | While net settlement systems make more efficient use of liquidity than gross settlement systems, they are known to generate systemic risk. What does that tendency imply for the stability of the payments (or financial) system when the two settlement systems coexist? Do liquidity shortages induce banks to settle more transactions in the net settlement system, thereby increasing systemic risk? Or do banks require their counterparties to send payments through the gross settlement system when default risks are high, increasing the need for liquidity and the money market rate but reducing overall systemic risk? This paper studies the factors that drive the relative importance of net and gross settlement systems over the short run, using daily data on transaction volumes from the large- volume payment systems of all euro area countries that have had both a net and a gross settlement system at the same time. Applying a large portfolio of different econometric techniques, we find that it is actually the transaction volumes in gross settlement systems that affect the daily price of liquidity and the credit risk spread in money markets. |
| Keywords: | Payment systems ; Systemic risk |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwp:1132&r=ban |
| By: | Hasman, Augusto; López, Ángel, L.; Samartín Sáenz, Margarita |
| Abstract: | This paper analyzes the effectiveness of different government policies to prevent the emergence of bank ing crises. In particular, we study the impact on welfare of using taxpayers money to recapitalize banks, government injection of money into the banking system through credit lines, the creation of a buffer and taxes on financial transactions (the Tobin tax). We illustrate the trade off between these policies and derive policy implications. |
| Keywords: | Banking crises; Information induced bank runs; Government policies; Taxes; |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ner:carlos:info:hdl:10016/12766&r=ban |
| By: | Daniel Sámano |
| Abstract: | The global financial crisis of late 2008 could not have provided more convincing evidence that price stability is not a sufficient condition for financial stability. In order to attain both, central banks must develop macroprudential instruments in order to prevent the occurrence of systemic risk episodes. For this reason testing the effectiveness of different macroprudential tools and their interaction with monetary policy is crucial. In this paper we explore whether two policy instruments, namely, a capital adequacy ratio rule in combination with a Taylor rule may provide a better macroeconomic outcome than a Taylor rule alone. We conduct our analysis by appending a macroeconometric financial block to an otherwise standard semistructural small open economy neokeynesian model for policy analysis estimated for the Mexican economy. Our results show that with the inclusion of the second instrument, the central bank may obtain substantial gains. Specifically, the central authority can isolate financial shocks and dampen their effects over macroeconomic variables. |
| Keywords: | Macroprudential policy, monetary policy, capital requirements. |
| JEL: | E44 E52 E61 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2011-17&r=ban |
| By: | Valeriya Dinger |
| Abstract: | In this paper I revisit the debate on the impact of bank and market characteristics on the rigidity of retail bank interest rates. Whereas existing research in this area has been exclusively concerned with static measures of bank and market structure, I adopt a dynamic approach which explores the rigidity effects of the changes of bank and market structure generated by bank mergers. I find that bank mergers significantly affect the frequency of changes to deposit rates. In particular, the probability of adjusting deposit rates in response to shocks in money market rates significantly drops after mergers that involve large target banks and after mergers that generate a substantial geographical expansion of bank operations. These effects, however, materialize only after a "transition" period characterized by very frequent changes of the deposit rates. |
| Keywords: | Bank mergers ; Bank deposits ; Interest rates |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwp:1131&r=ban |
| By: | Donato Masciandaro, Francesco Passarelli |
| Abstract: | In this paper we describe systemic financial risk as a pollution issue. Free riding leads to excess risk production. This problem may be solved, at least partially, either with financial regulation or taxation. From a normative viewpoint taxation is superior in many respects. However, reality shows that financial regulation is more frequently adopted. In this paper we make a positive, politico-economic argument. If the majority chooses a tax, then it is likely to be too low. If it chooses regulation it will possibly be too harsh. Moreover, a majority of low polluting portfolio owners may strategically use regulation in order to charge the minority a larger share of the externality reduction. |
| Keywords: | financial crises, banking regulation, financial transaction taxes |
| JEL: | D62 D72 G21 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:slp:islawp:islawp41&r=ban |
| By: | Peter Sinclair |
| Abstract: | This paper scrutinizes the economic case for adopting a system of macroprudential regulation, the instruments that may be available to conduct it, and the practical implications for policy |
| Keywords: | macroprudential regulation |
| JEL: | D53 G28 L74 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:bir:birmec:11-21&r=ban |
| By: | Chaudhuri, Sarbajit; Ghosh Dastidar, Krishnendu |
| Abstract: | We develop a model of vertical linkage between the formal and informal credit markets which highlights the presence of corruption in the distribution of formal credit. The existing moneylender, the bank official and the new moneylenders move sequentially and the existing moneylender acts as a Stackelberg leader and unilaterally decides on the informal interest rate. The analysis distinguishes between two different ways of designing a credit subsidy policy. If a credit subsidy policy is undertaken through an increase in the supply of institutional credit, it is likely to increase the competitiveness in the informal credit market and lower the informal sector interest rate under reasonable parametric restrictions. Any change in the formal sector interest rate has no effect. However, an anticorruption measure (increase in penalty) unambiguously lowers the interest rate in the informal credit market. Finally, we examine the effects of alternative policies on the incomes of different economic agents in our model. |
| Keywords: | Formal/informal credit markets; informal interest rate; corruption; credit subsidy policy |
| JEL: | L13 O17 O16 |
| Date: | 2011–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:35563&r=ban |
| By: | Junsang Lee; Keisuke Otsu |
| Abstract: | In this paper, we construct a dynamic stochastic general equilibrium model in order to investigate the impact of credit spread shocks on the U.S. business cycle. We find that the shocks to the investment specific technology and the preference weights on consumption and leisure are the main sources of output fluctuation. Shocks to the credit spread and productivity are the main source of the fluctuation in the investment to output ratio. Credit spread shocks also had a significant impact on the output during the recent financial crisis. |
| Keywords: | Credit Spread; Business Cycles; Investment Specific Technology |
| JEL: | E13 E32 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:ukc:ukcedp:1123&r=ban |
| By: | Gunther Capelle-Blancard; Claire Labonne |
| Keywords: | Banking system, Growth |
| JEL: | G20 G G A |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2011-22&r=ban |