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on Banking |
| By: | Beck, T.H.L.; Todorov, R.I.; Wagner, W.B. (Tilburg University, Center for Economic Research) |
| Abstract: | Abstract: This paper analyzes the distortions that banks’ cross-border activities, such as foreign assets, deposits and equity, can introduce into regulatory interventions. We find that while each individual dimension of cross-border activities distorts the incentives of a domestic regulator, a balanced amount of cross-border activities does not necessarily cause inefficiencies, as the various distortions can offset each other. Empirical analysis using bank-level data from the recent crisis provide support to our theoretical findings. Specifically, banks with a higher share of foreign deposits and assets and a lower foreign equity share were intervened at a more fragile state, reflecting the distorted incentives of national regulators. We discuss several implications for the supervision of cross-border banks in Europe. |
| Keywords: | Bank regulation;bank resolution;cross-border banking. |
| JEL: | G21 G28 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2012059&r=ban |
| By: | Jason Allen; H. Evren Damar; David Martinez-Miera |
| Abstract: | We analyze the relationship between the intensity of banks’ use of soft-information and household bankruptcy patterns. Using a unique data set on the universe of Canadian household bankruptcies, we document that bankruptcy rates are higher in markets where the collection of soft, or qualitative locally gathered information, is the weakest. Using two Canadian bank mergers as exogenous variation in local market structure, we show that the differences in bankruptcy rates are not due to changes in the supply of credit. Our findings indicate that screening via hard-information is not a perfect substitute for soft-information. Instead, the two appear to be complements. |
| Keywords: | Financial institutions; Financial services |
| JEL: | G2 D4 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:12-18&r=ban |
| By: | Stephen Cecchetti; Enisse Kharroubi |
| Abstract: | This paper investigates how financial development affects aggregate productivity growth. Based on a sample of developed and emerging economies, we first show that the level of financial development is good only up to a point, after which it becomes a drag on growth. Second, focusing on advanced economies, we show that a fast-growing financial sector is detrimental to aggregate productivity growth. |
| Keywords: | Growth, financial development, credit booms, R&D intensity, financial dependence |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:381&r=ban |
| By: | McQuinn, Kieran (Central Bank of Ireland); Woods, Maria (Central Bank of Ireland) |
| Abstract: | This paper examines the corporate funding flows of Irish credit institutions over the period 2009 to end-2010. The analysis examines the daily net movement across the consolidated corporate and retail deposit books of the domestic Irish banking sector and models these flows as a function of bank specific measures of risk, sovereign influences and general macro-financial conditions. The international financial crisis resulted in Irish banking institutions experiencing more acute funding difficulties than institutions elsewhere. Over the period 1995 to 2007, Irish credit institutions had engaged in a remarkable surge in concentrated lending to the commercial and residential property sector. The collapse in prices and activity in both markets post-2007 coupled with the downturn in general economic activity are the main reasons why Irish banks now rely substantially on liquidity support from the ECB and the Irish Central Bank. This situation is clearly unsustainable in the longer term and, in returning these institutions to a more viable longer-term path of market based funding, a greater understanding of the deposit flows of financial institutions is required. |
| Keywords: | Banks, Deposit, Financial Crisis |
| JEL: | G21 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:02/rt/12&r=ban |
| By: | Cole, Shawn; Kanz, Martin; Klapper, Leora |
| 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. The paper first shows 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 loan officers. Second, the paper presents 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: | Debt Markets,Access to Finance,Bankruptcy and Resolution of Financial Distress,Banks&Banking Reform,Microfinance |
| Date: | 2012–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:6146&r=ban |
| By: | Anand, Kartik (Technische Universitat Berlin); Gai, Prasanna (Department of Economics, University of Auckland and National University of Singapore, Risk Management Institute); Kapadia, Sujit (Bank of England); Brennan, Simon (Bank of England); Willison, Matthew (Bank of England) |
| Abstract: | We examine the role of macroeconomic fluctuations, asset market liquidity, and network structure in determining contagion and aggregate losses in a stylised financial system. Systemic instability is explored in a financial network comprising three distinct, but interconnected, sets of agents - domestic banks, overseas banks, and firms. Calibrating the model to advanced country banking sector data, this preliminary model generates broadly sensible aggregate loss distributions which are bimodal in nature. We demonstrate how systemic crises may occur and analyse how our results are influenced by fire-sale externalities and the feedback effects from curtailed lending in the macroeconomy. We also illustrate the resilience of our model financial system to stress scenarios with sharply rising corporate default rates and falling asset prices. |
| Keywords: | Contagion; financial crises; network models; systemic risk |
| JEL: | C63 G10 G17 G21 |
| Date: | 2012–07–20 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0458&r=ban |
| By: | Simon Cornée (University of Rennes 1 - CREM, UMR CNRS 6211) |
| Abstract: | Based on a unique hand-collected database of 389 loans obtained from a French social bank dealing with small businesses, this paper compares two predictive models of future default events: the first relies on soft information (SI model), the second on hard information (HI model). The results indicate that the SI model outperforms the HI model in terms of forecast quality and goodness of fit. In so doing, this paper provides further empirical evidence that, when they serve small businesses, small or decentralized banks have a greater ability to collect and act on soft information. This empirical conclusion conveys practical implication for social banks’ internal credit rating procedures, especially in their calibration of capital requirements. |
| Keywords: | Credit Rating, Debt Default, Small Business Lending, Relationship Lending, Social Banking |
| JEL: | G21 M21 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:tut:cremwp:201226&r=ban |
| By: | Hyun Song Shin |
| Abstract: | This paper outlines an approach to macroprudential policy for open emerging economies that emphasizes banking sector balance sheet management as the key driver of risk premiums, capital flows and vulnerabilities to sudden reversals in global liquidity conditions. This paper argues for the usefulness of monitoring the "non-core liabilities" of the banking sector as a signal of lending standards and potential vulnerability of the financial system to shocks. The paper presents a taxonomy of macroprudential tools, ranging from orthodox tools for bank capital regulation to more novel "liabilities-side" tools, such as the levy on non-core liabilities recently introduced by South Korea. |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:chb:bcchwp:671&r=ban |
| By: | Holton, Sarah (Central Bank of Ireland); Lawless, Martina (Central Bank of Ireland); McCann, Fergal (Central Bank of Ireland) |
| Abstract: | This paper analyses the effects of the recent euro area economic, financial and debt crisis on SMEs’ access to bank finance. We use a survey on access to finance of SMEs in the euro area carried out by the European Central Bank during 2009 and 2010 to examine the impact of macroeconomic factors on developments in loan applications and approvals as well as changes in credit terms and conditions. At the country level, we identify three distinct aspects of the recent crisis in Europe affecting firm credit through different channels. A weak real economy is found to affect the demand for bank financ- ing. Financial conditions (proxied by the median credit default swap for banks in each country and sovereign yields) predominantly affect the probability of loan rejection and the terms and conditions of credit rather than the demand for credit. We interpret this as evidence of a bank balance sheet channel negatively impacting credit provision. Crucially, the level of debt overhang affects all aspects of SME financing, with suggestive evidence that the effect on credit rejection operates through the bank balance sheet channel, as opposed to being due to the borrower balance sheet. |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:04/rt/12&r=ban |
| By: | Leonardo Becchetti (Faculty of Economics, University of Rome "Tor Vergata"); Nicola Ciampoli (Faculty of Economics, University of Rome "Tor Vergata") |
| Abstract: | We investigate the finance-growth nexus before and around the global financial crisis using for the first time OTC derivative data in growth estimates. Beyond the most recent Wacthel and Rousseau (2010) evidence which documents the interruption of the positive finance-growth relationship after 1989, we show that bank assets contribute indeed negatively, while OTC derivative positively or insignificantly with a much smaller effect in magnitude. At the same time the impact of the crisis is captured by a very strong negative effect of year dummies around the event. Our findings and their discussion aim to provide insights for policy measures aimed at tackling the crisis, disentangling positive from negative effects of derivatives and bank activity on the real economy and restoring the traditional positive link between finance and growth. |
| Keywords: | Finance and growth, OTC derivatives, Banking, Global financial crisis |
| JEL: | E44 G10 O40 |
| Date: | 2012–07–20 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:243&r=ban |
| By: | Lawless, Martina (Central Bank of Ireland); McCann, Fergal (Central Bank of Ireland) |
| Abstract: | This paper uses unique SME loan-level data complete with quarterly loan ratings assigned by the lend- ing institution over the period 2008-2010. This allows us to examine the evolution of loan performance throughout the period of economic and financial crisis. We document the shift in the distribution of loans across ratings as economic conditions deteriorated, but also show that this effect was heteroge- neous across sectors. In panel data estimations, changes in employment across sectors are shown to be a leading indicator of loan performance, demonstrating the importance of the link between real economy demand and loan impairment. Levels of outstanding credit in a sector cannot explain cur- rent loan performance. However, in keeping with a growing literature on the dangers of post-boom debt overhang, we calculate a measure of excess credit using deviations from a long-run trend that is strongly associated with higher levels of current impairment. This provides new evidence on the effect of relaxed credit standards during a boom on crisis-era loan delinquency. |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:03/rt/12&r=ban |
| By: | Alexander Lipton; Ioana Savescu |
| Abstract: | A three-dimensional extension of the structural default model with firms' values driven by correlated diffusion processes is presented. Green's function based semi-analytical methods for solving the forward calibration problem and backward pricing problem are developed. These methods are used to analyze bilateral counterparty risk for credit default swaps and evaluate the corresponding credit and debt value adjustments. It is shown that in many realistic cases these value adjustments can be surprisingly large. |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1207.6049&r=ban |
| By: | Enrique Mendoza; Marco Terrones |
| Abstract: | What are the stylized facts that characterize the dynamics of credit booms and the associated fluctuations in macro-economic aggregates? This paper answers this question by applying a method proposed in our earlier work for measuring and identifying credit booms to data for 61 emerging and industrialized countries over the 1960-2010 period. We identify 70 credit boom events, half of them in each group of countries. Event analysis shows a systematic relationship between credit booms and a boom-bust cycle in production and absorption, asset prices, real exchange rates, capital inflows, and external deficits. Credit booms are synchronized internationally and show three striking similarities between industrialized and emerging economies: (1) credit booms are similar in duration and magnitude, normalized by the cyclical variability of credit; (2) banking crises, currency crises or sudden stops often follow credit booms, and they do so at similar frequencies in industrialized and emerging economies; and (3) credit booms often follow surges in capital inflows, TFP gains, and financial reforms, and are far more common with managed than flexible exchange rates. |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:chb:bcchwp:670&r=ban |
| By: | Ron Boschma; Rik Wenting |
| Abstract: | There is little understanding of how clusters evolve, and where. While dynamic analyses of clusters hardly exist, this is especially true for spatial clustering of service industries. We take an evolutionary perspective to describe and explain why the Dutch banking cluster clustered in the Amsterdam region. This analysis is based on an unique database of all banks in the Netherlands that existed in the period 1850-1993, which were collected by the authors. We examine the extent to which spinoff dynamics, merger and acquisition activity and the location of Amsterdam had a significant effect on the survival rate of Dutch banks during the last 150 years. Doing so, we make a first step in providing an evolutionary explanation for why Amsterdam is the leading banking cluster of the Netherlands. Our analyses demonstrate, among other things, that Amsterdam banks were disproportionally active in acquiring other banks, leading to a further concentration of the banking sector in the Amsterdam region. |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa10p1158&r=ban |
| By: | UCHINO Taisuke |
| Abstract: | This paper estimates the pass-through between market interest rates and deposit interest rates in Japan, in order to investigate whether the bank deposit markets are geographically segmented. The unique feature of this paper is to make use of monthly deposit interest rates posted by 106 regional banks from March 1999 to March 2010. Following theoretical results from a simple banking activity model with Cournot competition, I estimate the long run pass-through of each regional bank by utilizing the panel cointegration method. The empirical results of this paper show a significant negative correlation between regional market concentration and pass-through, which implies the existence of geographical market segmentation. |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:eti:rdpsjp:12023&r=ban |
| By: | Caterina Liberati; Massimiliano Marzo; Paolo Zagaglia; Paola Zappa |
| Abstract: | We study the frictions in the patterns of trades in the Euro money market. We characterize the structure of lending relations during the period of recent financial turmoil. We use network-topology method on data from overnight transactions in the Electronic Market for Interbank Deposits (e-Mid) to investigate on two main issues. First, we characterize the division of roles between borrowers and lenders in long-run relations by providing evidence on network formation at a yearly frequency. Second, we identify the 'key players' in the marketplace and study their behaviour. Key players are 'locally-central banks' within a network that lend (or borrow) large volumes to (from) several counterparties, while borrowing (or lending) small volumes from (to) a small number of institutions. Our results are twofold. We show that the aggregate trading patterns in e-Mid are characterized by largely asymmetric relations. This implies a clear division of roles between lenders and borrowers. Second, the key players do not exploit their position of network leaders by imposing opportunistic pricing policies. We find that only a fraction of the networks composed by big players are characterized by interest rates that are statistically different from the average market rate throughout the turmoil period. |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1207.5269&r=ban |
| By: | Liberati, Caterina; Marzo, Massimiliano; Zagaglia, Paolo; Zappa, Paola |
| Abstract: | We study the frictions in the patterns of trades in the Euro money market. We characterize the structure of lending relations during the period of recent financial turmoil. We use network-topology method on data from overnight transactions in the Electronic Market for Interbank Deposits (e-Mid) to investigate on two main issues. First, we characterize the division of roles between borrowers and lenders in long-run relations by providing evidence on network formation at a yearly frequency. Second, we identify the 'key players' in the marketplace and study their behaviour. Key players are ‘locally-central banks’ within a network that lend (or borrow) large volumes to (from) several counterparties, while borrowing (or lending) small volumes from (to) a small number of institutions. Our results are twofold. We show that the aggregate trading patterns in e-Mid are characterized by largely asymmetric relations. This implies a clear division of roles between lenders and borrowers. Second, the key players do not exploit their position of network leaders by imposing opportunistic pricing policies. We find that only a fraction of the networks composed by big players are characterized by interest rates that are statistically different from the average market rate throughout the turmoil period. |
| Keywords: | market microstructure; network analysis; money markets; asset pricing |
| JEL: | G10 D85 G01 G21 |
| Date: | 2012–07–16 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:40223&r=ban |
| By: | Adriana Soares Sales; Waldyr D. Areosa; Marta B. M. Areosa |
| Abstract: | We present a methodology to construct a Broad Financial Stability Indicator (FSIB) based on unobserved common factors and a Specific Financial Stability Indicator (FSIS) for the Brazilian economy combining observed credit, debt and exchange rate markets indicators. Rather than advocate a particular numerical indicator of financial stability, our main goal is methodological. Our indicators, calculated in sample and ex-post, seem to capture three periods of considerably high financial instability in Brazil: (i) the 1998/1999 speculative attack on the Real, (ii) the government transition of 2002/2003 and (iii) the intensification of the 2008/2009 subprime financial crisis triggered by the collapse of the Lehman Brothers. We also propose an alternative methodology that decomposes business cycle fluctuations in two components -- a Financial Factor (FF) and a Real Factor (RF) -- which are identified from co-movements of financial and non-financial variables. The results are similar to the ones pointed out by our FSIB and FSIS measures. |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:287&r=ban |
| By: | Alexander Guarín; Andrés González; Daphné Skandalis; Daniela Sánchez |
| Abstract: | In this paper, we propose an alternative methodology to determine the existence of credit booms, which is a complex and crucial issue for policymakers. In particular, we exploit the Mendoza and Terrones (2008)’s idea that macroeconomic aggregates other than the credit growth rate contain valuable information to predict credit boom episodes. Our econometric method is used to estimate and predict the probability of being in a credit boom. We run empirical exercises on quarterly data for six Latin American countries between 1996 and 2011. In order to capture simultaneously model and parameter uncertainty, we implement the Bayesian model averaging method. As we employ panel data, the estimates may be used to predict booms of countries which are not considered in the estimation. Overall, our findings show that macroeconomic variables contain valuable information to predict credit booms. In fact, with our method the probability of detecting a credit boom is 80%, while the probability of not having false alarms is greater than 92%. |
| Date: | 2012–07–22 |
| URL: | http://d.repec.org/n?u=RePEc:col:000094:009826&r=ban |
| By: | Clifford Rosenthal |
| Abstract: | Community development credit unions (CDCUs) have a long history of serving low-income and minority markets. They played an important role in the founding and leadership of the Community Development Financial Institutions (CDFI) Coalition, which successfully advocated for the establishment of the CDFI Fund and has monitored and supported the CDFI Fund throughout its history. Yet, the role of credit unions in the CDFI movement is often overlooked. The term, “CDFI” is frequently understood by researchers and policymakers to mean CDFI loan funds, the unregulated institutions that dominate the ranks of institutions certified by the CDFI Fund. This working paper explains the critical role that CDCUs play in community development and examines their financial performance through the Great Recession. |
| Keywords: | Credit unions ; Community development |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfcw:2012-01&r=ban |
| By: | UCHINO Taisuke |
| Abstract: | This study is an empirical attempt to investigate whether firms' bond issues mitigate rent extraction by their banks. To that end, I focus on the cash holdings of Japanese listed firms in the early 1980s, when Japanese banks used compensation balances as a device to extract rent from their client firms. Concretely, this study examines whether firms' bond issues lead to a decrease in their cash holdings. The unique feature of this study is its exploitation of the eligibility for bond issues—i.e., Bond Issue Criteria—that formerly existed in Japan to address a possible endogeneity problem. Estimation results from the two-step least squares (2SLS) model and an instrumental variable quantile regression model show that (1) a decline in cash holdings is accompanied by bond issues; and (2) the magnitude of decline becomes larger as the quantile of the conditional distribution of cash holding levels increases. These results imply that bond issues mitigate bank rent extraction, and that the effect is larger for firms facing severe bank power. |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:12046&r=ban |
| By: | Wermers, Russ |
| Abstract: | This paper studies daily investor flows to and from each money market mutual fund during the period prior to and including the money fund crisis of September and October 2008. We focus on the determinants of flows in the prime money fund category to shed light on the covariates of money fund runs, since this category was, by far, the most heavily impacted by the money fund crisis. We find that institutional investors moved their money simultaneously (or with a one-day delay) into or out of prime money funds, especially within the same fund complex. Specifically, during September and October 2008, flows in a given prime institutional fund are strongly correlated with same-day flows in all other same-complex prime institutional funds, indicating that the money fund crisis was especially focused on certain types of fund complexes. To illustrate, a daily outflow of 1% of total assets from other same-complex prime institutional money funds predicts, on average, a 0.92% outflow in a given prime institutional money fund during the same day; by contrast, prime fund flows are not correlated with same-day, different complex prime fund flows. We also find that investors are sensitive to the liquidity of money fund holdings: correlated flow patterns are less likely to occur in money funds with greater levels of securities with very short maturity (seven days or less). Our analysis also suggests that prime retail money funds also exhibited persistent outflows, and that (similar to institutional shareclasses) retail runs were focused on certain complexes, as well as on funds holding lower levels of short-maturity securities. -- |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfrwps:1205&r=ban |