New Economics Papers
on Banking
Issue of 2012‒07‒14
twelve papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. The Role of Credit in Great Moderation: a Multivariate GARCH Approach By Grydaki, Maria; Bezemer, Dirk J.
  2. Deep recessions, fast recoveries, and financial crises: evidence from the American record By Michael D. Bordo; Joseph G. Haubrich
  3. Responding to a shadow banking crisis: the lessons of 1763 By Stephen Quinn; William Roberds
  4. Global Banks and Crisis Transmission By Sebnem Kalemli-Ozcan; Elias Papaioannou; Fabrizio Perri
  5. Too-Systemic-To-Fail: What Option Markets Imply About Sector-wide Government Guarantees By Kelly, Bryan; Lustig, Hanno; van Nieuwerburgh, Stijn
  6. Incomplete Financial Markets With Real Assets and Endogenous Credit Limits By Matthew Hoelle; Marina Pireddu; Antonio Villanacci
  7. Financial constraints and relationship lending in the growth of italian SMEs By Cinquegrana, Giuseppe; Donati, Cristiana; Sarno, Domenico
  8. Foreign banks in India: liabilities or assets? By Ghosh, Saibal
  9. Incentivizing Calculated Risk-Taking: Evidence from an Experiment with Commercial Bank Loan Officers By Shawn Cole; Martin Kanz; Leora Klapper
  10. Debt Collection Agencies and the Supply of Consumer Credit By Viktar Fedaseyeu
  11. La asimetria de la informacion en la crisis financiera, el racionamiento del credito y la garantia como mecanismo simbiotico del sistema. By Gallurt, Jesus; Pombo, Pablo; Ramirez, Jesus; Molina, Horacio
  12. Risk measures for Skew Normal mixtures By Bernardi, Mauro

  1. By: Grydaki, Maria; Bezemer, Dirk J.
    Abstract: During the Great Moderation, financial innovation in the U.S. increased the size and scope of credit flows supporting the growth of wealth. We hypothesize that spending out of wealth came to finance a wider range of GDP components such that it smoothed GDP. Both these trends combined would be consistent with a decrease in the volatility of output. We suggest testable implications in terms of both growth of credit and output and volatility of growth. In a multivariate GARCH framework, we test this view for home mortgages and residential investment. We observe unidirectional causality in variance from total output, residential investment and non-residential output to mortgage lending before, but not during the Great Moderation. These findings are consistent with a role for credit dynamics in explaining the Great Moderation.
    Keywords: great moderation; mortgage credit; multivariate GARCH; causality
    JEL: C51 C32 C52 E44
    Date: 2012–06–28
  2. By: Michael D. Bordo; Joseph G. Haubrich
    Abstract: Do steep recoveries follow deep recessions? Does it matter if a credit crunch or banking panic accompanies the recession? Moreover, does it matter if the recession is associated with a housing bust? We look at the American historical experience in an attempt to answer these questions. The answers depend on the definition of a financial crisis and on how much of the recovery is considered. But in general recessions associated with financial crises are generally followed by rapid recoveries. We find three exceptions to this pattern: the recovery from the Great Contraction in the 1930s; the recovery after the recession of the early 1990s and the present recovery. The present recovery is strikingly more tepid than the 1990s. One factor we consider that may explain some of the slowness of this recovery is the moribund nature of residential investment, a variable that is usually a key predictor of recessions and recoveries.
    Keywords: Monetary policy ; Macroeconomics
    Date: 2012
  3. By: Stephen Quinn; William Roberds
    Abstract: In August 1763, northern Europe experienced a financial crisis with numerous parallels to the 2008 Lehman Brothers episode. The 1763 crisis was sparked by the failure of a major provider of acceptance loans, a form of securitized credit resembling modern asset-backed commercial paper. The central bank at the hub of the crisis, the Bank of Amsterdam, responded by broadening the range of acceptable collateral for its repo transactions. Analysis of archival data shows that this emergency source of liquidity helped to contain the effects of the crisis, by preventing the collapse of at least two other major securitizers. While the underlying themes seem to have changed little in 250 years, the modest scope of the 1763 liquidity intervention, together with the lightly regulated nature of the eighteenth century financial landscape, provide some informative contrasts with events of late 2008.
    Date: 2012
  4. By: Sebnem Kalemli-Ozcan; Elias Papaioannou; Fabrizio Perri
    Abstract: We study the effect of financial integration (through banks) on the transmission of international business cycles. In a sample of 20 developed countries between 1978 and 2009 we find that, in periods without financial crises, increases in bilateral banking linkages are associated with more divergent output cycles.This relation is significantly weaker during financial turmoil periods, suggesting that financial crises induce co-movement among more financially integrated countries. We also show that countries with stronger, direct and indirect, financial ties to the U.S. experienced more synchronized cycles with the U.S. during the recent 2007-2009 crisis. We then interpret these findings using a simple general equilibrium model of international business cycles with banks and shocks to banking activity. The model suggests that the relation between integration and synchronization depends on the type of shocks hitting the world economy, and that shocks to global banks played an important role in triggering and spreading the 2007-2009 crisis.
    JEL: E32 F15 F36
    Date: 2012–07
  5. By: Kelly, Bryan; Lustig, Hanno; van Nieuwerburgh, Stijn
    Abstract: We examine the pricing of financial crash insurance during the 2007-2009 financial crisis in U.S. option markets. A large amount of aggregate tail risk is missing from the price of financial sector crash insurance during the financial crisis. The difference in costs of out-of-the-money put options for individual banks, and puts on the financial sector index, increases fourfold from its pre-crisis 2003-2007 level. We provide evidence that a collective government guarantee for the financial sector, which lowers index put prices far more than those of individual banks, explains the divergence in the basket-index put spread.
    Keywords: financial crisis; government bailout; option pricing models; systemic risk; too-big-to-fail
    JEL: E44 E60 G12 G13 G18 G21 G28 H23
    Date: 2012–06
  6. By: Matthew Hoelle; Marina Pireddu; Antonio Villanacci
    Abstract: In this paper we analyze the effects of restricted participation in a two-period gen- eral equilibrium model with uncertainty in the second period and real assets. Similar to certain arrangements in the market for bank loans, household borrowing is restricted by a household-specific wealth dependent upper bound on credit lines in all states of uncertainty in the second period. We first establish that, generically in the set of the economies, equilibria exist and are finite and regular. We then show that equilibria are generically suboptimal. Finally, we provide a robust example demonstrating that the equilibrium allocations can be Pareto improved through a tightening of the participation constraints.
    Keywords: general equilibrium; restricted participation; financial markets; generic regularity; real assets; Pareto suboptimality
    JEL: D50 D53 D61
    Date: 2012–06
  7. By: Cinquegrana, Giuseppe; Donati, Cristiana; Sarno, Domenico
    Abstract: Our study confirms that the financial constraints to SME’s growth tend to appear as an excess of sensibility of the investment expenditures on firm’s cash flow. Through the application of dynamic panel data techniques to an extended version of Eulero’s investment equation of a sample of Italian SMEs, the analysis shows that the growth of the subsample of the small firms in backward regions of Italy is more constrained by inside finance than that of firms in more developed regions. This is because the typical information opacity of SMEs is worsened here by the unsatisfactory development of financial markets. Moreover, our analysis ascertains that the small firms can significantly relax the constraints if they are able to establish a close relationship with the banks making easier the access of bank to firm’s information.
    Keywords: firm growth; financial constraints; relationship lending
    JEL: G31 E22 G32
    Date: 2012–07–04
  8. By: Ghosh, Saibal
    Abstract: Using data on Indian banks for 1996-2007, the article examines the impact of foreign banks on the domestic banking sector. The analysis suggests that foreign bank penetration improves profitability and asset quality, although it dampens spreads. The results are robust to alternate measures of foreign bank presence. In addition, foreign banks appear to impact the maturity of credit portfolio of domestic banks. Finally, the results also support the fact that foreign banks typically charge lower interest rates as compared to domestic banks.
    Keywords: foreign banks; non-performing loans; credit allocation; interest rates; India
    JEL: G21
    Date: 2012–06
  9. By: Shawn Cole (Harvard Business School, Finance Unit); Martin Kanz (World Bank); Leora Klapper (World Bank)
    Abstract: This paper uses a series of experiments with commercial bank loan officers to test the effect of performance incentives on risk-assessment and lending decisions. We first show that, while high-powered incentives lead to greater screening effort and more profitable lending, their power is muted by both deferred compensation and the limited liability typically enjoyed by credit officers. Second, we present direct evidence that incentive contracts distort judgment and beliefs, even among trained professionals with many years of experience. Loans evaluated under more permissive incentive schemes are rated significantly less risky than the same loans evaluated under pay-for-performance.
    Keywords: loan officer incentives, banking, emerging markets
    JEL: D03 G21 J22 J33 L2
    Date: 2012–07
  10. By: Viktar Fedaseyeu
    Abstract: I examine the role of third-party debt collectors in consumer credit markets. Using law enforcement as an instrument for the number of debt collectors, I find that higher density of debt collectors increases the supply of unsecured credit. The estimated elasticity of the average credit card balance with respect to the number of debt collectors per capita is 0.49, the elasticity of the average balance on non-credit card unsecured loans with respect to the number of debt collectors per capita is 1.32. I also find evidence that creditors substitute unsecured credit for secured credit when the number of debt collectors increases. Higher density of debt collectors improves recoveries, which enables lenders to extend morecredit. Finally, creditors charge higher interest rates and lend to a larger pool of borrowers when the density of debt collectors increases, presumably because better collections enable them to extend credit to riskier applicants.
    Date: 2012
  11. By: Gallurt, Jesus; Pombo, Pablo; Ramirez, Jesus; Molina, Horacio
    Abstract: After the fall of Lehman Brothers and the start of the financial crisis is a break in economic activity, evidences a lack of financial attributed to information asymmetry experienced by the financial system. This paper will see how it has been analyzed by different economists this phenomenon that makes credit rationing and moral hazard. This issue is more severe because banking regulation establishes strict coverage criteria to operations that boost this exclusive effect. guarantee activity is beneficial for the entrepreneur and for financial institutions, finding common interests on them that, joined to the public sector, shape the guarantee activity as a policy that find the most effective coordination vectors between agents. However, test how the system no develops guarantee on the Spanish economy to achieve the desired volumes.
    Keywords: credit rationing; guarantee; loan; asimetry ; information asimmetryc
    JEL: H81
    Date: 2012–05
  12. By: Bernardi, Mauro
    Abstract: Finite mixtures of Skew distributions have become increasingly popular in the last few years as a flexible tool for handling data displaying several different characteristics such as multimodality, asymmetry and fat-tails. Examples of such data can be found in financial and actuarial applications as well as biological and epidemiological analysis. In this paper we will show that a convex linear combination of multivariate Skew Normal mixtures can be represented as finite mixtures of univariate Skew Normal distributions. This result can be useful in modeling portfolio returns where the evaluation of extremal events is of great interest. We provide analytical formula for different risk measures like the Value-at-Risk and the Expected Shortfall probability.
    Keywords: Finite mixtures; Skew Normal distributions; Value-at-Risk; Expected Shortfall probability
    JEL: C16
    Date: 2012

This issue is ©2012 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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