New Economics Papers
on Banking
Issue of 2013‒05‒22
fifteen papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. Does non-interest income make banks more risky? Retail- versus investment-oriented banks By Köhler, Matthias
  2. The Basel III Financial Architecture and Emerging Regulatory Developments in Macro Prudential Tools By World Bank
  3. Time variation in macro-financial linkages By Prieto, Esteban; Eickmeier, Sandra; Marcellino, Massimiliano
  4. European Bank Deleveraging : Implications for Emerging Market Countries By Erik Feyen; Katie Kibuuka; Inci Ötker-Robe
  5. Financial Inclusion and Stability : What Does Research Show? By Robert Cull; Asl? Demirgüç-Kunt; Timothy Lyman
  6. Banking across borders By Niepmann, Friederike
  7. Bank competition, concentration, and credit reporting By Bruhn, Miriam; Farazi, Subika; Kanz, Martin
  8. Repo funding and internal capital markets in the financial crisis By Düwel, Cornelia
  9. Corporate investment and bank-dependent borrowers during the recent financial crisis By Philip Vermeulen
  10. The influence of regulatory and institutional framework and shareholder structure upon risk of financial institutions in Central Europe By Dorota Skała
  11. Restructuring counterparty credit risk By Albanese, Claudio; Brigo, Damiano; Oertel, Frank
  12. European and Best Practice Bank Resolution Mechanisms : An Assessment and Recommendations for Policy and Legal Reforms By World Bank
  13. Mortgage Default during the U.S. Mortgage Crisis By Thomas Schelkle
  14. Per un accesso sostenibile delle Pmi al credito (A sustainable access to credit for SMEs) By Giuseppe Marotta
  15. Bank Lending to Small and Medium Enterprises : The Republic of Serbia By World Bank

  1. By: Köhler, Matthias
    Abstract: In this paper, we analyze the impact of banks' non-interest income share on risk in the German banking sector for the period between 2002 and 2010. Using linear and quantile regression estimators, we find that the impact of non-interest income on risk significantly differs depending on banks' overall business model. More specifically, we show banks with retail-oriented business model such as savings banks, cooperative banks and other retail-oriented banks become significantly more stable if they increase their share of non-interest income. Investment-oriented banks, in contrast, become significantly more risky. They do not only report a significantly higher share of non-interest income, but also differ in terms of their activities from retail-oriented banks. Overall, this indicates that retail-oriented banks should increase their share of non-interest income to become more stable. Investment-oriented banks, in contrast, should decrease it. Our results imply that banks are significantly less risky if they have a more balanced income structure and neither depend heavily on interest nor on non-interest income. Furthermore, they indicate that the impact of non-interest income on risk significantly depends on the activities used to generate non-interest income with retail-oriented activities being significantly less risky than investment-oriented activities such as those pertaining to capital markets activities. --
    Keywords: banks,risk-taking,business model,non-interest income,diversification
    JEL: G20 G21 G28
    Date: 2013
  2. By: World Bank
    Keywords: Banks and Banking Reform Finance and Financial Sector Development - Debt Markets Private Sector Development - Emerging Markets Finance and Financial Sector Development - Access to Finance Finance and Financial Sector Development - Bankruptcy and Resolution of Financial Distress
    Date: 2012
  3. By: Prieto, Esteban; Eickmeier, Sandra; Marcellino, Massimiliano
    Abstract: We analyze the contribution of credit spread, house and stock price shocks to GDP growth in the US based on a Bayesian VAR with time-varying parameters estimated over 1958-2012. Our main findings are: (i) The contribution of financial shocks to GDP growth fluctuates from about 20 percent in normal times to 50 percent during the global financial crisis. (ii) The Great Recession and the subsequent weak recovery can largely be traced back to negative housing shocks. (iii) Housing shocks have become more important for the real economy since the early-2000s, and negative housing shocks are more important than positive ones. --
    Keywords: financial shocks,time-varying parameter VAR model,Global Financial Crisis,macro-financial linkages
    JEL: C32 E5 E3
    Date: 2013
  4. By: Erik Feyen; Katie Kibuuka; Inci Ötker-Robe
    Keywords: Finance and Financial Sector Development - Financial Intermediation Banks and Banking Reform Finance and Financial Sector Development - Debt Markets Finance and Financial Sector Development - Access to Finance Finance and Financial Sector Development - Bankruptcy and Resolution of Financial Distress
    Date: 2012–04
  5. By: Robert Cull; Asl? Demirgüç-Kunt; Timothy Lyman
    Keywords: Banks and Banking Reform Finance and Financial Sector Development - Debt Markets Private Sector Development - Emerging Markets Finance and Financial Sector Development - Access to Finance Poverty Reduction - Achieving Shared Growth
    Date: 2012–05
  6. By: Niepmann, Friederike
    Abstract: Banking across borders has risen substantially over the past two decades. Yet there is significant heterogeneity in the international and global activities of banks across countries. This paper develops and tests a theoretical model that explains this variation from an international trade theory perspective. In the model, banking across borders arises from differences in factor endowments and differences in banking sector efficiencies between countries. The paper shows how these differences determine banks' foreign asset and liability holdings as well as foreign direct investment in the banking sector. It highlights the differential effects of capital account and banking sector liberalization on banks' foreign positions and international capital flows. The model is consistent with major stylized facts on cross-border banking. The data strongly support its cross-sectional predictions. --
    Keywords: cross-border banking,international capital flows,trade in banking services
    JEL: F21 F23 F34 G21
    Date: 2013
  7. By: Bruhn, Miriam; Farazi, Subika; Kanz, Martin
    Abstract: This paper explores the empirical relationship between bank competition, bank concentration, and the emergence of credit reporting institutions. The authors find that countries with lower entry barriers into the banking market (that is, a greater threat of competition) are less likely to have a credit bureau, presumably because banks are less willing to share proprietary information when the threat of market entry is high. In addition, a credit bureau is significantly less likely to emerge in economies characterized by a high degree of bank concentration. The authors argue that the reason for this finding is that large banks stand to lose more monopoly rents from sharing their extensive information with smaller players. In contrast, the data show no significant relationship between bank competition or concentration and the emergence of a public credit registry, where banks'participation is mandatory. The results highlight that policies designed to promote the voluntary creation of a credit bureau need to take into account banks'incentives to extract monopoly rents from proprietary credit information.
    Keywords: Access to Finance,Banks&Banking Reform,Bankruptcy and Resolution of Financial Distress,Debt Markets,Economic Theory&Research
    Date: 2013–05–01
  8. By: Düwel, Cornelia
    Abstract: This paper examines how the exposure of German parent banks to the disruptions on sale and repurchase markets (repo markets) during the financial crisis has affected their provision of funds to their foreign branches and subsidiaries via bank-internal capital markets. The collapse of the subprime market, the rescue of Bear Stearns and the bankruptcy of Lehman Brothers are analyzed with regard to their role as amplifiers of uncertainty about the value of collateral used in repo transactions and mistrust among market participants. The results show that parent banks which were more exposed to these disruptions were more likely to withdraw bank-internal funds from their branches and subsidiaries located abroad. Among the three events, the rescue of Bear Stearns triggered the largest contraction on internal capital markets from the part of the parent bank, possibly because this event demonstrated for the first time the fragility of even very large financial institutions. After the subprime market collapse, branches were briefly more protected as core investment locations, while subsidiaries were used as core funding locations up to the Lehman Brothers bankruptcy. All in all, funding via repo markets is found to be one channel that transmitted shocks primarily related to the US financial system abroad. --
    Keywords: repo,funding structure,multinational banks,internal capital market,intra-bank lending,financial crisis
    JEL: G21 G15 F34 E44
    Date: 2013
  9. By: Philip Vermeulen (ECB)
    Abstract: This paper provides empirical evidence on the causal role of bank credit in explaining the collapse in corporate investment during the recent financial crisis. Using annual balance sheet data over the period 2000-2009 for Germany, France, Italy, Spain, Belgium and Portugal we compare the role of bank credit versus other types of credit for corporate investment during different episodes. We distinguish between investment boom years, investment downturn years and the investment collapse of 2009. We show that firm investment became highly sensitive to bank debt during the investment collapse of 2009. During the crisis, higher bank debt leverage of firms is associated with reduced investment. The effects we find are quite sizeable. This contrasts with an absence of bank credit effects before the crisis and contrasts further with the absence of effects of other credit during the crisis. The effects of bank debt are largest for small and medium sized firms. We also find evidence that the effects are restricted to the South of Europe (Italy, Portugal, Spain). Our finding lends support to the view that banks credit supply was restricted during the recent financial crisis leading to real effects.
    Date: 2012
  10. By: Dorota Skała (Department of Finance, WNEiZ, University of Szczecin.)
    Abstract: We study the effects of broadening the safety net on bank risk taking in Central Europe, using individual bank data and time-varying regulatory data. Further, we analyse the shareholder structure and its links with risk, as well as possible modifications it may introduce to the moral hazard incentives produced by the financial safety net. We find that more extensive deposit insurance schemes and state aid granted to the financial sector induce higher levels of risk in individual banks. The shareholder structure does not significantly influence the risk levels, although some evidence for higher risk of government-owned institutions is identified. Majority ownership in the form of other financial institutions not only does not alleviate the moral hazard, but makes it more acute, at least in some risk specifications.
    Keywords: Bank risk taking, moral hazard, transition economies
    JEL: G21 G28 G32
    Date: 2013
  11. By: Albanese, Claudio; Brigo, Damiano; Oertel, Frank
    Abstract: We introduce an innovative theoretical framework for the valuation and replication of derivative transactions between defaultable entities based on the principle of arbitrage freedom. Our framework extends the traditional formulations based on credit and debit valuation adjustments (CVA and DVA). Depending on how the default contingency is accounted for, we list a total of ten different structuring styles. These include bi-partite structures between a bank and a counterparty, tri-partite structures with one margin lender in addition, quadripartite structures with two margin lenders and, most importantly, configurations where all derivative transactions are cleared through a central counterparty (CCP). We compare the various structuring styles under a number of criteria including consistency from an accounting standpoint, counterparty risk hedgeability, numerical complexity, transaction portability upon default, induced behaviour and macro-economic impact of the implied wealth allocation. --
    Keywords: counterparty credit risk,CVA,DVA,margin lending,securitisation,Basel III,CCP,clearing,collateral,OTC
    JEL: C51 C54 C63 E51 G01 G32 G33
    Date: 2013
  12. By: World Bank
    Keywords: Finance and Financial Sector Development - Deposit Insurance Banks and Banking Reform Finance and Financial Sector Development - Debt Markets Private Sector Development - Emerging Markets Finance and Financial Sector Development - Bankruptcy and Resolution of Financial Distress
    Date: 2012–03
  13. By: Thomas Schelkle (London School of Economics)
    Abstract: This paper asks which theories of mortgage default are quantitatively consistent with observations in the United States during 2002-2010. Theoretical models are simulated for the observed time-series of aggregate house prices. Their predictions are then compared to actual default rates on prime fixed-rate mortgages. An out-of-sample test discriminates between estimated reduced forms of the two most prominent theories. The test reveals that the double-trigger hypothesis attributing mortgage default to the joint occurrence of negative equity and a life event like unemployment outperforms a frictionless option-theoretic default model. Based on this finding a structural partial-equilibrium model with liquidity constraints and idiosyncratic unemployment shocks is presented to provide micro-foundations for the double-trigger hypothesis. In this model borrowers with negative equity are more likely to default when they are unemployed and have low liquid wealth. The model explains most of the observed strong rise in mortgage default rates. A policy implication of the model is that subsidizing homeowners can mitigate a mortgage crisis at a lower cost than bailing out lenders.
    Date: 2012
  14. By: Giuseppe Marotta
    Abstract: A widespread consensus for an easier access to bank credit for SMEs to quicken the recovery could lead to overlook risks, for banks as well as for economies, of financing projects that do not fit the structural adjustments in the world economy caused by the international crisis. Sustainable lending policies for both firms and banks require an investment in a more comprehensive soft information. Only firms can produce credible business plans; the assessment by banks’ experts in industrial organization as well as finance should integrate the regulatory quantitative risk measurement models. Policy makers’ initiatives to further credit access for SMEs, including central banks’ non conventional measures, should be evaluated within this framework.
    Keywords: growth, debt, financial crisis, macroprudential supervision, banking
    JEL: E58 G01 G21 G28 G32
    Date: 2013–05
  15. By: World Bank
    Keywords: Finance and Financial Sector Development - Financial Intermediation Banks and Banking Reform Finance and Financial Sector Development - Debt Markets Finance and Financial Sector Development - Access to Finance Finance and Financial Sector Development - Bankruptcy and Resolution of Financial Distress
    Date: 2012–01

This issue is ©2013 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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