New Economics Papers
on Banking
Issue of 2012‒05‒29
28 papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. Private Liquidity and Banking Regulation By Cyril Monnet; Daniel R. Sanches
  2. Predicting rating changes for banks: How accurate are accounting and stock market indicators? By Distinguin, Isabelle; Hasan, Iftekhar; Tarazi , Amine
  3. Collective Moral Hazard, Maturity Mismatch and Systemic Bailouts. By Farhi, Emmanuel; Tirole, Jean
  4. Reconstructing Economics in Light of the 2007-? Financial Crisis By Friedman, Benjamin Morton
  5. Financial Risk Measurement for Financial Risk Management By Torben G. Andersen; Tim Bollerslev; Peter F. Christoffersen; Francis X. Diebold
  6. Global Banks, Financial Shocks and International Business Cycles: Evidence from an Estimated Model By Kollmann, Robert
  7. Fire Sales Forensics: Measuring Endogenous Risk By Rama Cont; Lakshithe Wagalath
  8. Involving copula functions in Conditional Tail Expectation By Brahim Brahimi
  9. The End of Bank Secrecy? An Evaluation of the G20 Tax Haven Crackdown By Niels Johannesen; Gabriel Zucman
  10. Systematic and liquidity risk in subprime-mortgage backed securities By Mardi Dungey; Gerald P. Dwyer; Thomas Flavin
  11. Were multinational banks taking excessive risks before the recent financial crisis? By Mohamed Azzim Gulamhussen; Carlos Pinheiro; Alberto Franco Pozzolo
  12. Revenue diversification in emerging market banks: implications for financial performance By Saoussen Ben Gamra; Dominique Plihon
  13. Contagion in financial networks: a threat index By Gabrielle Demange
  14. The perverse effect of government credit subsidies on banking risk By Riccardo De Bonis; Matteo Piazza; Roberto Tedeschi
  15. Information or Insurance? On the Role of Loan Officer Discretion in Credit Assessment By Martin Brown; Matthias Schaller; Simone Westerfeld; Markus Heusler
  16. Structure in the Italian Overnight Loan Market By Matthias Raddant
  17. What determines bank stock price synchronicity? Global evidence By Francis , Bill; Hasan, Iftekhar; Song, Liang; Yeung , Bernard
  18. Banks, Free Banks, and U.S. Economic Growth By Matthew Jaremski; Peter L. Rousseau
  19. Corporate boards and bank loan contracting By Francis, Bill; Hasan, Iftekhar; Koetter, Michael; Wu, Qiang
  20. Single-name concentration risk in credit portfolios: a comparison of concentration indices By Raffaella Calabrese; Francesco Porro
  21. Cultural Proximity and Loan Outcomes By Raymond Fisman; Daniel Paravisini; Vikrant Vig
  22. Authority and Soft Information Production within a Bank Organization By Masazumi Hattori; Kohei Shintani; Hirofumi Uchida
  23. Bank regulations and income inequality: Empirical evidence By Delis, Manthos D.; Hasan, Iftekhar; Kazakis , Pantelis
  24. Asymmetric benchmarking in bank credit rating By Shen, Chung-Hua; Huang , Yu-Li; Hasan , Iftekhar
  25. Diverse Degrees of Competition within the EMU and their Implications for Monetary Policy By Patrick Brämer; Horst Gischer; Toni Richter; Mirko Weiß
  26. The Availability and Utilization of 401(k) Loans By Choi, James J; Beshears, John; Laibson, David I.; Madrian, Brigitte
  27. Income Smoothing and the Cost of Bank Loans -The Effect of Information Asymmetry- By Takasu, Yusuke
  28. Financial Regulation in the English-Speaking Caribbean: Is it Helping or Hindering Microfinance? By Robert C. Vogel; Gerald Schulz

  1. By: Cyril Monnet; Daniel R. Sanches
    Keywords: Banks and banking ; Regulation ; Banking structure
    Date: 2012
  2. By: Distinguin, Isabelle (Université de Limoges, LAPE); Hasan, Iftekhar (Fordham University and Bank of Finland); Tarazi , Amine (Université de Limoges, LAPE)
    Abstract: We aim to assess how accurately accounting and stock market indicators predict rating changes for Asian banks. We conduct a stepwise process to determine the optimal set of early indicators by tracing upgrades and downgrades from rating agencies, as well as other relevant factors. Our results indicate that both accounting and market indicators are useful leading indicators but are more effective in predicting upgrades than downgrades, especially for large banks. Moreover, early indicators are only significant in predicting rating changes for banks that are more focused on traditional banking activities such as deposit and loan activities. Finally, a higher reliance of banks on subordinated debt is associated with better accuracy of early indicators.
    Keywords: bank failure; bank risk; ratings; emerging market
    JEL: G21 G28
    Date: 2012–04–12
  3. By: Farhi, Emmanuel; Tirole, Jean
    Abstract: The paper shows that time-consistent, imperfectly targeted support to distressed institutions makes private leverage choices strategic complements. When everyone engages in maturity mismatch, authorities have little choice but intervening, creating both current and deferred (sowing the seeds of the next crisis) social costs. In turn, it is profitable to adopt a risky balance sheet. These insights have important consequences, from banks choosing to correlate their risk exposures to the need for macro-prudential supervision.
    Keywords: monetary policy, funding liquidity risk, strategic complementarities, macro-prudential supervision
    JEL: E44 E52 G28
    Date: 2012–02
  4. By: Friedman, Benjamin Morton
    Abstract: The lessons learned from the recent financial crisis should significantly reshape the economics profession's thinking, including, importantly, what we teach our students. Five such lessons are that we live in a monetary economy and therefore aggregate demand and policies that affect aggregate demand are determinants of real economic outcomes; that what actually matters for this purpose is not money but the volume, availability, and price of credit; that the fact that most lending is done by financial institutions matters as well; that the prices set in our financial markets do not always exhibit the “rationality†economists normally claim for them; and that both frictions and the uneven impact of economic events prevent us from adapting to disturbances in the way textbook economics suggests.
    Date: 2011
  5. By: Torben G. Andersen; Tim Bollerslev; Peter F. Christoffersen; Francis X. Diebold
    Abstract: Current practice largely follows restrictive approaches to market risk measurement, such as historical simulation or RiskMetrics. In contrast, we propose flexible methods that exploit recent developments in financial econometrics and are likely to produce more accurate risk assessments, treating both portfolio-level and asset-level analysis. Asset-level analysis is particularly challenging because the demands of real-world risk management in financial institutions – in particular, real-time risk tracking in very high-dimensional situations – impose strict limits on model complexity. Hence we stress powerful yet parsimonious models that are easily estimated. In addition, we emphasize the need for deeper understanding of the links between market risk and macroeconomic fundamentals, focusing primarily on links among equity return volatilities, real growth, and real growth volatilities. Throughout, we strive not only to deepen our scientific understanding of market risk, but also cross-fertilize the academic and practitioner communities, promoting improved market risk measurement technologies that draw on the best of both.
    JEL: C1 G1
    Date: 2012–05
  6. By: Kollmann, Robert
    Abstract: This paper estimates a two-country model with a global bank, using US and Euro Area (EA) data, and Bayesian methods. The estimated model matches key US and EA business cycle statistics. Empirically, a model version with a bank capital requirement outperforms a structure without such a constraint. A loan loss originating in one country triggers a global output reduction. Banking shocks matter more for EA macro variables than for US real activity. During the Great Recession (2007-09), banking shocks accounted for about 20% of the fall in US and EA GDP, and for more than half of the fall in EA investment and employment.
    Keywords: Bayesian econometrics; financial crisis; global banking; investment; real activity
    JEL: E44 F36 F37 G21
    Date: 2012–05
  7. By: Rama Cont (LPMA - Laboratoire de Probabilités et Modèles Aléatoires - CNRS : UMR7599 - Université Paris VI - Pierre et Marie Curie - Université Paris VII - Paris Diderot); Lakshithe Wagalath (LPMA - Laboratoire de Probabilités et Modèles Aléatoires - CNRS : UMR7599 - Université Paris VI - Pierre et Marie Curie - Université Paris VII - Paris Diderot)
    Abstract: We propose a tractable framework for quantifying the impact of fire sales on the volatility and correlations of asset returns in a multi-asset setting. Our results enable to quantify the impact of fire sales on the covariance structure of asset returns and provide a quantitative explanation for spikes in volatility and correlations observed during liquidation of large portfolios. These results allow to estimate the impact and magnitude of fire sales from observation of market prices: we give conditions for the identifiability of model parameters from time series of asset prices, propose an estimator for the magnitude of fire sales in each asset class and study the consistency and large sample properties of the estimator. We illustrate our estimation methodology with two empirical examples: the hedge fund losses of August 2007 and the Great Deleveraging following the Lehman default.
    Keywords: fire sales ; endogenous risk ; systemic risk ; liquidity ; financial econometrics ; correlation ; volatility
    Date: 2012–05–12
  8. By: Brahim Brahimi
    Abstract: We discuss a new notion of risk measures that preserve the property of coherence called Copula Conditional Tail Expectation (CCTE). This measure describes the expected amount of risk that can be experienced given that a potential bivariate risk exceeds a bivariate threshold value, and provides an important measure for right-tail risk. Our goal is to propose an alternative risk measure which takes into account the fluctuations of losses and possible correlations between random variables.
    Date: 2012–05
  9. By: Niels Johannesen (Department of Economics - University of Copenhagen - University of Copenhagen); Gabriel Zucman (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: During the financial crisis, G20 countries compelled tax havens to sign bilateral treaties providing for exchange of bank information. Is it the end of bank secrecy? Exploiting a unique panel dataset, we study how the treaties affected bank deposits in tax havens. Our results suggest that most tax evaders did not respond to the treaties but that a minority responded by transferring their deposits to havens not covered by a treaty. Overall, the G20 tax haven crackdown caused a modest relocation of deposits between havens but no significant repatriation of funds: the era of bank secrecy is not yet over.
    Keywords: Tax havens ; Tax evasion
    Date: 2012–02
  10. By: Mardi Dungey; Gerald P. Dwyer; Thomas Flavin
    Date: 2011
  11. By: Mohamed Azzim Gulamhussen (Lisbon University Institute); Carlos Pinheiro (Caixa Geral de Dep¢sitos); Alberto Franco Pozzolo (University of Molise, Centro Studi Luca d'Agliano)
    Abstract: The recent financial crisis has clearly shown that the relationship between bank internationalization and risk is complex. Multinational banks can benefit from portfolio diversification, reducing their overall riskiness, but this effect can be offset by incentives going in the opposite direction, leading them to take on excessive risks. Since both effects are grounded on solid theoretical arguments, the answer of what is the actual relationship between bank internationalization and risk is left to the empirical analysis. In this paper, we study such relationship in the period leading to the financial crisis of 2007-2008. For a sample of 384 listed banks from 56 countries, we calculate two measures of risk for the period from 2001 to 2007 - the expected default frequency (EDF), a market-based and forward-looking indicator, and the Z-score, a balance-sheet-based and backward-looking measure - and relate them to their degree of internationalization. We find robust evidence that international diversification increases bank risk.
    Keywords: Banks, Economic integration, Market structure, Multinational banking, Risk
    JEL: F23 F36 G21 G32 L22
    Date: 2012–05
  12. By: Saoussen Ben Gamra (CEPN - Centre d'Economie de l'Université Paris Nord - Université Paris XIII - Paris Nord - CNRS : UMR7234); Dominique Plihon (CEPN - Centre d'Economie de l'Université Paris Nord - Université Paris XIII - Paris Nord - CNRS : UMR7234)
    Abstract: Shaped by structural forces of change, banking in emerging markets has recently experienced a decline in its traditional activities, leading banks to diversify into new business strategies. This paper examines whether the observed shift into non-interest based activities improves financial performance. Using a sample of 714 banks across 14 East-Asian and Latin-American countries over the post 1997-crisis changing structure, we find that diversification gains are more than offset by the cost of increased exposure to the non-interest income, specifically by the trading income volatility. But this diversification performance's effect is found to be no linear with risk, and significantly not uniform among banks and across business lines. An implication of these findings is that banking institutions can reap diversification benefits as long as they well-studied it depending on their specific characteristics, competences and risk levels, and as they choose the right niche.
    Keywords: Diversification revenue; non-interest income; bank performance; emerging markets
    Date: 2011
  13. By: Gabrielle Demange (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: An intricate web of claims and obligations ties together the balance sheets of a wide variety of financial institutions. Under the occurrence of default, these interbank claims generate externalities across institutions and possibly disseminate defaults and bankruptcy. Building on a simple model for the joint determination of the repayments of interbank claims, this paper introduces a measure of the threat that a bank poses to the system. Such a measure, called threat index, may be helpful to determine how to inject cash into banks so as to increase debt reimbursement, or to assess the contributions of individual institutions to the risk in the system. Although the threat index and the default level of a bank both reflect some form of weakness and are affected by the whole liability network, the two indicators differ. As a result, injecting cash into the banks with the largest default level may not be optimal.
    Keywords: Contagion ; Systemic risk ; Financial linkages ; Bankruptcy
    Date: 2012–01
  14. By: Riccardo De Bonis (Banca d'Italia, Economics and International Relations Area); Matteo Piazza (Banca d'Italia, Economics and International Relations Area); Roberto Tedeschi (Banca d'Italia, Economics and International Relations Area)
    Abstract: Government intervention in credit markets has been criticized as potentially conducive to distortions in the behaviour of both banks and firms. We argue that credit subsidies may lead to a decline in the level of screening performed by banks. This effect was at work in Italy in the early 1990s when subsidized lending was still important and several intermediaries experienced a deterioration in their loan portfolios. The novelty of the paper is to show that the share of government subsidized credit on a bank's loan portfolio contributes to explaining the overall credit risk of the intermediary.
    Keywords: banks, credit risk, government subsidies
    JEL: E44 G21
    Date: 2012–05
  15. By: Martin Brown (University of St. Gallen); Matthias Schaller (University of St. Gallen); Simone Westerfeld (University of Applied Sciences Northwestern Switzerland); Markus Heusler (Risk Solution Network AG)
    Abstract: We employ a unique dataset of 6,669 credit assessments for 3,542 small businesses by nine banks using an identical rating model over the period 2006-2011 to examine (i) to what extent loan officers use their discretion to smooth credit ratings of their clients, and (ii) to assess whether this use of discretion is driven by information about the creditworthiness of the borrower or by the insurance of clients against fluctuations in lending conditions. Our results show that loan officers make extensive use of their discretion to smooth clients' credit ratings: One in five rating shocks induced by changes in the quantitative assessment of a client is reversed by the loan officer. This smoothing of credit ratings is prevalent across all rating classes, is independent of whether the borrower experiences a positive or a negative rating shock, and is independent of whether the shock is firm-specific or market-related. We find that discretionary rating changes have limited power in predicting future loan performance, indicating that the smoothing of credit ratings is only partially driven by information about creditworthiness. Instead, in line with the implicit contract view of credit relationships loan officers are more likely to smooth ratings when rating shocks have stronger implications for interest rates.
    Keywords: Asymmetric information, Credit rating, Implicit contracts, Relationship banking
    JEL: D82 G21 L14
    Date: 2012–05
  16. By: Matthias Raddant
    Abstract: We analyze the Italian interbank loan market from 1999 until 2010. The analysis of net trade flows shows a high imbalance caused by few large net borrowers in the market. The trading volume shows a significant drop starting in 2007, which accelerates with the Lehman default in late 2008. The network, based on trading relationships, is very dense. Hence, we try to identify strong links by looking for preferential lending relationships expressed by discounts in the loan rate. Furthermore, we estimate the dynamics of credit spreads for each bank and find that economically significant spreads for the overnight market only developed in 2010. The analysis of bilateral loan relationships reveals that in the pre-crisis era large net borrowers used to borrow at a slight discount. In the post-Lehman era borrowers with large net exposures paid more than the average market rate, which shows that the risk evaluation of market participants has changed considerably
    Keywords: interbank markets, overnight loans, preferential lending
    JEL: G15 G21 E44
    Date: 2012–05
  17. By: Francis , Bill (Rensselaer Polytechnic Institute); Hasan, Iftekhar (Fordham University and Bank of Finland); Song, Liang (Michigan Technological University); Yeung , Bernard (National University of Singapore)
    Abstract: This paper examines what institutional and bank-specific factors determine bank stock price synchronicity. Using data on 37 countries from 1996–2007, we find that bank stocks are more aligned with the whole market (1) during the financial crisis; (2) in countries that have more credit provided by banks; (3) in countries that do not have explicit depository insurance; and (4) in countries that have lower bank-level disclosure. The results hold for both emerging and developed economy subsamples. Furthermore, in emerging economies, bank stocks in countries with higher degree of state-owned bank are more synchronized with the whole market, similarly, in developed markets, lower banking freedom enhances bank stock price synchronicity. Finally, the effects of state ownership, protection of property rights, and bank size are all more pronounced when determining bank stock price synchronicity during the financial crisis period.
    Keywords: stock price synchronicity; financial crisis; bank ownership; deposit insurance; banking freedom; bank disclosure
    JEL: G12 G14 G15 G21 G38 N20
    Date: 2012–04–18
  18. By: Matthew Jaremski (Department of Economics, Colgate University); Peter L. Rousseau (Department of Economics, Vanderbilt University)
    Abstract: The “Federalist financial revolution” may have jump-started the U.S. economy into modern growth, but the Free Banking System (1837-1862) did not play a direct role in sustaining it. Despite lowering entry barriers and extending banking into developing regions, we find in county-level data that free banks had little or no effect on growth. The result is not just a symptom of the era, as state-chartered banks seem to have strong and positive effects on manufacturing and urbanization.
    Keywords: Free banking; antebellum banking; financial liberalization; finance-led growth
    JEL: G21 O43 N21
    Date: 2012–03
  19. By: Francis, Bill (Rensselaer Polytechnic Institute); Hasan, Iftekhar (Fordham University and Bank of Finland); Koetter, Michael (University of Groningen); Wu, Qiang (Rensselaer Polytechnic Institute)
    Abstract: We investigate the role of corporate boards in bank loan contracting. We find that when corporate boards are more independent, both price and nonprice loan terms (e.g., interest rates, collateral, covenants, and performance-pricing provisions) are more favorable, and syndicated loans comprise more lenders. In addition, board size, audit committee structure, and other board characteristics influence bank loan prices. However, they do not consistently affect all nonprice loan terms except for audit committee independence. Our study provides strong evidence that banks tend to recognize the benefits of board monitoring in mitigating information risk ex ante and controlling agency risk ex post, and they reward higher quality boards with more favorable loan contract terms.
    Keywords: corporate governance; corporate boards; loan contract terms
    JEL: G21 G34
    Date: 2012–04–12
  20. By: Raffaella Calabrese (University College Dublin); Francesco Porro (Universit`a degli Studi di Milano-Bicocca)
    Abstract: For assessing the effect of undiversified idiosyncratic risk, Basel II has established that banks should measure and control their credit concentration risk. Concentration risk in credit portfolios comes into being through an uneven distribution of bank loans to individual borrowers (single-name concentration) or through an unbalanced allocation of loans in productive sectors and geographical regions (sectoral concentration). To evaluate single-name concentration risk in the literature concentration indices proposed in welfare (Gini Index) and monopoly theory (Herfindahl- Hirschman index, Theil entropy index, Hannah-Kay index, Hall-Tidemann index) have been used. In this paper such concentration indices are compared by using as benchmark six properties that ensure a consistent measurement of single-name concentration. Finally, the indices are compared on some portfolios of loans.
    Keywords: credit concentration risk, bank loans, single-name concentration
    Date: 2012–05–22
  21. By: Raymond Fisman; Daniel Paravisini; Vikrant Vig
    Abstract: We present evidence that shared codes, religious beliefs, ethnicity - cultural proximity - between lenders and borrowers improves the efficiency of credit allocation. We identify in-group preferential treatment using dyadic data on the religion and caste of bank officers and borrowers from a bank in India, and a rotation policy that induces exogenous matching between officers and borrowers. Cultural proximity increases lending on both intensive and extensive margins and improves repayment performance, even after the in-group officer is replaced by an out-group one. Further, cultural proximity increases loan dispersion and reduces loan to collateral ratios. Our results imply that cultural proximity mitigates informational problems that adversely affect lending, which in turn relaxes financial constraints and improves access to finance.
    JEL: D82 G21 J15
    Date: 2012–05
  22. By: Masazumi Hattori (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:; Kohei Shintani (Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:; Hirofumi Uchida (Professor, Graduate School of Business Administration, Kobe University (E-mail:
    Abstract: We ask three questions to clarify the production of soft information and decision making within a bank organization: (1) In a hierarchical ladder within a bank organization, who has more soft information on borrowers (repository of soft information) and does the answer differ depending on bank- and/or firm-specific factors?; (2) In the hierarchical ladder, who makes a decision to grant loans (decision maker) and does the answer have bank- and/or firm-specificity?; (3) Does the authority distance between the repository of soft information and the decision maker reduce the benefit from the bank-firm relationship? Our empirical findings are the following: (1) Branch managers rather than loan officers have sufficient soft information on borrowers, and the repository is located at a higher level in the hierarchy for smaller banks; (2) Branch managers and executives in the headquarters have decision-making authority, but more authority is delegated at a lower level in the hierarchy for larger banks; and (3) A greater authority distance is harmful for borrowers because it invites more financial constraints.
    Keywords: Authority, Soft information, Organizational structure, Banks
    JEL: D2 D8 L2 G21
    Date: 2012–05
  23. By: Delis, Manthos D. (Faculty of Finance, Cass Business School, City University); Hasan, Iftekhar (Fordham University and Bank of Finland); Kazakis , Pantelis (Department of Economics, Ohio State University)
    Abstract: This paper provides cross-country evidence that variations in bank regulatory policies result in differences in income distribution. In particular, the overall liberalization of banking systems decreases the Gini coefficient and the Theil index significantly. However, this effect fades away for countries with low levels of economic and institutional development and for market-based economies. Among the different liberalization policies, the most significant negative effect on inequality is that of credit controls, which also seem to have a lasting effect on the Gini coefficient. Banking supervision and the abolition of interest rate controls also have a negative yet short-run impact on income inequality. A notable finding is that liberalization of securities markets increases income inequality substantially and over a long time span, suggesting that securitization widens the distribution of income. We contend that these findings have new implications for the effects of bank regulations, besides those related to their impact on financial stability.
    Keywords: bank regulations; income inequality; cross-country panel data; instrumental variables; panel VAR
    JEL: G28 O15 O16
    Date: 2012–04–20
  24. By: Shen, Chung-Hua (Department of Finance, National Taiwan University); Huang , Yu-Li (Department of Insurance and Financial Management, Takming University of Science and Technology); Hasan , Iftekhar (Fordham University & Bank of Finland)
    Abstract: This study proposes an information asymmetry hypothesis to examine why bank credit ratings vary among countries even when bank financial ratios remain constant. Countries are divided among those with low and high information asymmetry. The former include high-income countries, those in North America and West Europe regions, and those with strong institutional environment quality, whereas the latter group possess the opposite characteristics. This study hypothesizes that the influences of financial ratios on ratings are enhanced in low information asymmetry countries but reduced in countries with high information asymmetry. The sample includes the long-term credit ratings issued by Standard and Poor’s from 86 countries during 2002–2008. The estimated results show that the effects of financial ratios on ratings are significantly affected by information asymmetries. Countries wishing to improve the credit ratings of their banks thus should reduce information asymmetry.
    Keywords: bank rating; financial ratio; information asymmetry; institutional quality
    JEL: G21 G32 G38
    Date: 2012–04–12
  25. By: Patrick Brämer (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Horst Gischer (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Toni Richter (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Mirko Weiß (German Savings Banks Association)
    Abstract: Our paper calls attention to the heterogeneous levels of competition in EMU banking systems. We enhanced the ECB MFI interest rate statistics by calculating a lending rate average weighted by loan volumes for each EMU member country. Employing a modified Lerner Index, our unique data set enables us to calculate banks' price setting power in the national lending business alone, instead of measuring market power for banks' total business. For 12 countries, we ultimately show that market power in the exclusive segment of lending is greater than market power in total banking business. In an OLS regression model, we investigate to what extent loan rate variations can be explained by changing degrees of market power during the period 2003-2009. Significant cross-country differences can be observed. We find that changes in the national degree of competition considerably affect funding conditions in the individual countries and therefore hinder a homogeneous transmission of ECB monetary policy.
    Keywords: banking competition; European Monetary Union; Lerner Index; monetary policy
    JEL: E43 E52 E58 L16
    Date: 2012–03
  26. By: Choi, James J; Beshears, John; Laibson, David I.; Madrian, Brigitte
    Abstract: We document the loan provisions in 401(k) savings plans and how participants use 401(k) loans. Although only about 22% of savings plan participants who are allowed to borrow from their 401(k) have such a loan at any given point in time, almost half had used a 401(k) loan over a longer, seven-year horizon. The probability of having a loan follows a hump-shaped pattern with respect to age, job tenure, account balance, and salary, but conditional on having a loan, loan size as a fraction of 401(k) balances declines with respect to these variables. Participants are less likely to use loans in plans that charge a higher interest rate, and loans are smaller when plans allow fewer simultaneously outstanding loans, impose a shorter maximum possible loan duration, or charge a lower interest rate.
    Date: 2011
  27. By: Takasu, Yusuke
    Keywords: Income Smoothing, Cost of of Bank Loans, Information Asymmetry, Delegated Monitor, Private Information
    Date: 2012–05
  28. By: Robert C. Vogel; Gerald Schulz
    Abstract: This paper presents the results of an investigation requested by the Multilateral Investment Fund of the Inter-American Development Bank under its Caribbean Microfinance Capacity Building project (CARIB-CAP) to strengthen microfinance in the English-speaking Caribbean. With the financial support of the Compete Caribbean program, this report seeks specifically to analyze the extent to which the regulation of financial entities in the region is supporting or inhibiting the development of microfinance in the region. Among the issues considered are the case for regulation, the differences between prudential and non-prudential regulation, the differences in regulatory arrangements among countries in the region, and especially the impact of these regulations on the availability of microfinancial services and on the different types of financial institutions that provide these services.
    Keywords: Private Sector :: Microbusinesses & Microfinance, Financial Sector :: Financial Policy
    Date: 2011–11

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