New Economics Papers
on Banking
Issue of 2012‒12‒10
eight papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. Bank regulation and supervision around the world : a crisis update By Cihak, Martin; Demirguc-Kunt, Asli; Peria, Maria Soledad Martinez; Mohseni-Cheraghlou, Amin
  2. Fiscal Sustainability in the Presence of Systemic Banks : the Case of EU Countries By Agnès Bénassy-Quéré; Guillaume Roussellet
  3. Estrategia contracíclica de los bancos de desarrollo By Machín, Alejandra
  4. CDS pricing under Basel III: capital relief and default protection By Chris Kenyon; Andrew Green
  5. L’efficienza del sistema bancario italiano dal 2006 al 2010. Un’applicazione delle frontiere stocastiche. By Bonanno, Graziella
  6. Will Central Counterparties become the New Rating Agencies? By Chris Kenyon; Andrew Green
  7. Foreign Currency Loans and Loan Arrears of Households in Central and Eastern Europe By Elisabeth Beckmann; Jarko Fidrmuc; Helmut Stix
  8. Optimal portfolio for a robust financial system By Yoshiharu Maeno; Satoshi Morinaga; Hirokazu Matsushima; Kenichi Amagai

  1. By: Cihak, Martin; Demirguc-Kunt, Asli; Peria, Maria Soledad Martinez; Mohseni-Cheraghlou, Amin
    Abstract: This paper presents the latest update of the World Bank Bank Regulation and Supervision Survey, and explores two questions. First, were there significant differences in regulation and supervision between crisis and non-crisis countries? Second, what aspects of regulation and supervision changed significantly during the crisis period? The paper finds significant differences between crisis and non-crisis countries in several aspects of regulation and supervision. In particular, crisis countries (a) had less stringent definitions of capital and lower actual capital ratios, (b) faced fewer restrictions on non-bank activities, (c) were less strict in the regulatory treatment of bad loans and loan losses, and (d) had weaker incentives for the private sector to monitor banks'risks. Survey results also suggest that the overall regulatory response to the crisis has been slow, and there is room to improve regulation and supervision, as well as private incentives to monitor risk-taking. Specifically, comparing regulatory and supervisory practices before and after the global crisis, the paper finds relatively few changes: capital ratios increased (primarily among non-crisis countries), deposit insurance schemes became more generous, and some reforms were introduced in the area of bank governance and bank resolution.
    Keywords: Banks&Banking Reform,Access to Finance,Emerging Markets,Debt Markets,Bankruptcy and Resolution of Financial Distress
    Date: 2012–12–01
  2. By: Agnès Bénassy-Quéré (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique); Guillaume Roussellet (ENSAE - École Nationale de la Statistique et de l'Administration Économique - ENSAE ParisTech)
    Abstract: We provide a first attempt to include off-balance sheet, implicit insurance to SIFIs into a consistent assessment of fiscal sustainability, for 27 countries of the European Union. We first calculate tax gaps à la Blanchard (1990) and Blanchard et al. (1990). We then introduce two alternative measures of implicit off-balance sheet liabilities related to the risk of a systemic bank crisis. The first one relies of microeconomic data at the bank level. The second one relies on econometric estimations of the probability and the cost of a systemic banking crisis, based on historical data. The former approach provides an upper evaluation of the fiscal cost of systemic banking crises, whereas the latter one provides a lower one. Hence, we believe that the combined use of these two methodologies helps to gauge the range of fiscal risk.
    Keywords: Fiscal sustainability; tax gap; systemic banking risk; off-balance sheet liabilities
    Date: 2012–11
  3. By: Machín, Alejandra
    Abstract: The objective of this report is to analyze whether development banks in Germany, Spain and Brazil have made a strategic counter during the current crisis. The development banks (necessarily consistent with public policy) are a tool that can address the countercyclical strategy that could drive growth and development in countries in crisis. As countercyclical strategy of the development banks we understand actions in two ways. At the macroeconomic level the development banks can provide resources to the economy in a context of tight credit from private financial institutions. At the microeconomic level, we analyze whether the development banks have supported specific sectors and actors palliating the disadvantage access of some economic agents and ensuring the financing of productive activities chosen by public policy because of its importance in development.
    Keywords: development bank; countercyclical policy;
    JEL: D02 G38 O16 E61 G21 G01 P16
    Date: 2012–10–15
  4. By: Chris Kenyon; Andrew Green
    Abstract: Basel III introduces new capital charges for CVA. These charges, and the Basel 2.5 default capital charge can be mitigated by CDS. Therefore, to price in the capital relief that CDS contracts provide, we introduce a CDS pricing model with three legs: premium; default protection; and capital relief. If markets are complete, with no CDS bond basis, then CDSs can be replicated by taking short positions in risky floating bonds issued by the reference entity and a riskless bank account. If these conditions do not hold, then it is theoretically possible that the capital relief that CDSs provide may be priced in. Thus our model provides bounds on the CDS-implied hazard rates when markets are incomplete. Under simple assumptions we show that 20% to over 50% of observed CDS spread could be due to priced in capital relief. Given that this is different for IMM and non-IMM banks will we see differential pricing?
    Date: 2012–11
  5. By: Bonanno, Graziella
    Abstract: The objective of this paper is to analyze the efficiency of the Italian Banking System over the period 2006-2010. By applying the Stochastic Frontier Approach (SFA) to a panel of 700 banks, the analysis is based on the joint estimation of a cost function and an efficiency equation (Battese and Coelli, 1995). The bank outputs are the loans, the income commission and the securities. Beside controlling variables, the efficiency equation includes an indicator of credit quality. The main results are fourfold. First, the study finds that the efficiency of the banking system ranges from 08884, observed in 2007, to 0.8713 which refers to 2009. However, cost efficiency does not show regular dynamics over time. Moreover, it indicates that the cost efficiency of cooperative banks (BCC) is always higher than that observed for other banks (SPA and popular). Third, the study suggests that the cost efficiency tends to decrease as bank size increases. Finally, as regards the role of the determinants of banks efficiency ("what makes a bank efficient"), it also shows the presence of simultaneity between efficiency and credit quality. This supports the bad management hypothesis (Berger and De Young, 1997).
    Keywords: banks; mergers; cost efficiency; credit quality; stochastic frontiers; panel data
    JEL: D24 C33 G21
    Date: 2012–11–24
  6. By: Chris Kenyon; Andrew Green
    Abstract: Central Counterparties (CCPs) are widely promoted as a requirement for safe banking with little dissent except on technical grounds (such as proliferation of CCPs). Whilst CCPs can have major operational positives, we argue that CCPs have many of the business characteristics of Rating Agencies, and face similar business pressures. Thus we see a risk that prices from CCPs may develop the characteristics attributed to ratings from Rating Agency pre-crisis. Business over-reliance on ratings of questionable accuracy is seen as a cause of the financial crisis. We see the potential for same situation to be repeated with prices from CCPs. Thus the regulatory emphasis on CCPs, rather than on collateralization, may create the preconditions for an avoidable repeat of the financial crisis.
    Date: 2012–11
  7. By: Elisabeth Beckmann; Jarko Fidrmuc; Helmut Stix
    Abstract: Given recent adverse developments, widespread foreign currency borrowing in CEECs poses a serious challenge for financial stability. Against this background, we use survey data to study the determinants of loan arrears of private households. Our data confirm a non-negligible impact of foreign currency loans on financial vulnerability. However, higher loan delinquency rates in depreciation countries can only partly be explained by foreign currency borrowing. Employing survey formation about the reasons for households’ financial difficulties, we show that income shocks exert a stronger impact on loan delinquency rates than the direct effect which works through increased installments on foreign currency loans. JEL classification: G21, D14, C25
    Keywords: Foreign currency loans, arrears, dollarization, euroization, household debt, non-performing loans, financial vulnerability, CEECs
    Date: 2012–11–25
  8. By: Yoshiharu Maeno; Satoshi Morinaga; Hirokazu Matsushima; Kenichi Amagai
    Abstract: This study presents an ANSeR model (asset network systemic risk model) to quantify the risk of financial contagion which manifests itself in a financial crisis. The transmission of financial distress is governed by a heterogeneous bank credit network and an investment portfolio of banks. Bankruptcy reproductive ratio of a financial system is computed as a function of the diversity and risk exposure of an investment portfolio of banks, and the denseness and concentration of a heterogeneous bank credit network. An analytic solution of the bankruptcy reproductive ratio for a small financial system is derived and a numerical solution for a large financial system is obtained. For a large financial system, Large diversity among banks in the investment portfolio makes financial contagion more damaging on the average. But large diversity is essentially effective in eliminating the risk of financial contagion in the worst case of financial crisis scenarios. A bank-unique specialization portfolio is more suitable than a uniform diversification portfolio and a system-wide specialization portfolio in strengthening the robustness of a financial system.
    Date: 2012–11

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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