nep-ban New Economics Papers
on Banking
Issue of 2014‒10‒17
fourteen papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. Stress-testing banks’ corporate credit portfolio By O. de Bandt; N. Dumontaux; V. Martin; D. Médée
  2. Deposit Insurance Adoption and Bank Risk-Taking: the Role of Leverage By M. Lé
  3. Drivers of Structural Change in Cross-Border Banking since the Global Financial Crisis By Franziska Bremus; Marcel Fratzscher
  4. A Network Analysis of the Evolution of the German Interbank Market By Tarik Roukny, Co-Pierre Georg and Stefano Battiston
  5. Foreign bank subsidiaries'default risk during the global crisis : what factors help insulate affiliates from their parents ? By Anginer, Deniz; Cerutti, Eugenio; Martinez Peria, Maria Soledad
  6. From Boom to Bust in the Credit Cycle: The Role of Mortgage Credit By Bezemer, Dirk J.; Zhang, Lu
  7. Macro Stress Testing at the Bank of Japan By Tomiyuki Kitamura; Satoko Kojima; Koji Nakamura; Kojiro Takahashi; Ikuo Takei
  8. The effectiveness of countercyclical capital requirements and contingent convertible capital: a dual approach to macroeconomic stability By Hylton Hollander
  9. A Bank Lending Channel of Monetary Policy in Spain: Evidence from Bank Balance Sheets By Rafaela PIZARRO-BARCELÓ
  10. Cross country linkages as determinants of procyclicality of loan loss provisions – empirical importance of SURE specification By Malgorzata A. Olszak; Mateusz Pipien
  11. Collateral Registries for Movable Assets: Does Their Introduction Spur Firms’ Access to Bank Finance? By Inessa Love; Maria Soledad Martinez Peria; Sandeep Singh
  12. Firms' Export Behavior and the Role of Bank' Overseas Information By INUI Tomohiko; ITO Keiko; MIYAKAWA Daisuke; SHOJI Keishi
  13. Financial Integration Challenges in ASEAN Beyond 2015 By Maria Monica Wihardja
  14. A Reassessment of Competition in the Credit Card Market by Introducing Liquidity Cost Measures: Evidence from an Emerging Economy By Ahmet AYSAN; G. GULSUN AKIN; Denada BORICI; Levent YILDIRAN

  1. By: O. de Bandt; N. Dumontaux; V. Martin; D. Médée
    Abstract: The paper describes the methods used by the French Banking Supervision Authority (ACP) to run stress tests for the corporate credit portfolio, through credit migration matrices (or transition matrices). This approach is currently used for “top-down” stress tests exercises. Developed for Basel II, it is still relevant under the Basel III framework. It includes sufficient flexibility to accommodate the severe crisis period observed recently. The paper introduces the basic model underlying the approach, largely based on Merton’s model; it then describes carefully the different steps for its practical implementation, providing hints on how it can be extended to other banking sectors. Finally the paper comments a few outputs of a stress testing exercise.
    Keywords: credit risk, corporate, stress tests, migration matrices.
    JEL: G21 G28 G32 E44
    Date: 2013
  2. By: M. Lé
    Abstract: Explicit deposit insurance is a crucial ingredient of modern financial safety nets. This paper investigates the effect of deposit insurance adoption on individual bank leverage. Using a panel of banks across 117 countries during the period 1986-2011, I show that deposit insurance adoption pushes banks to increase significantly their leverage by reducing their capital buffer. This increase in bank leverage then translates into higher probability of insolvency. Most importantly, I bring evidence that deposit insurance adoption has important competitive effects: I show that large, systemic and highly leveraged banks are unresponsive to deposit insurance adoption.
    Keywords: Deposit Insurance, Bank Risk-Taking, Leverage, Systemic Bank, Capital Buffer.
    JEL: G18 G21 G28 G32
    Date: 2013
  3. By: Franziska Bremus; Marcel Fratzscher
    Abstract: The paper analyzes the effects of changes to regulatory policy and to monetary policy on cross-border bank lending since the global financial crisis. Cross-border bank lending has decreased, and the home bias in the credit portfolio of banks has risen sharply, especially among banks in the euro area. Our results suggest that expansionary monetary policy in the source countries - as measured by the change in reserves held at central banks - has encouraged cross-border lending, both in euro area and non-euro area countries. Regarding regulatory policy, increases in financial supervisory power or independence of the supervisory authorities have encouraged credit outflows from source countries. The findings thus underline the importance of regulatory arbitrage as a driver of cross-border bank flows since the global financial crisis. However, in the euro area, arbitrage in capital stringency was linked to lower cross-border lending since the crisis.
    Keywords: Cross-border bank lending, financial integration, regulation, arbitrage, monetary policy, home bias
    JEL: F30 G11 G15 G28
    Date: 2014
  4. By: Tarik Roukny, Co-Pierre Georg and Stefano Battiston
    Abstract: In this paper, we report a descriptive investigation of the structural evolution of two of the most important over-the-counter markets for liquidity in Germany: the interbank market for credit and for derivatives. We use end-of-quarter data from the German large credit register between 2002 and 2012 and characterize the underlying networks. Surprisingly, the data show little or no impact of the 2008 crisis on the structure of credit market. The derivative market however exhibits a peak of concentration in the run up to the crisis. Globally, both markets exhibit high stability for most of the networks metrics and high correlation amongst them.
    Keywords: financial networks, interbank market, credit default swaps, liquidity
    JEL: G2 G21 D85
    Date: 2014
  5. By: Anginer, Deniz; Cerutti, Eugenio; Martinez Peria, Maria Soledad
    Abstract: This paper examines the association between the default risk of foreign bank subsidiaries and their parents during the global financial crisis, with the purpose of understanding what factors can help insulate affiliates from their parents. The paper finds evidence of a significant positive correlation between parent banks'and foreign subsidiaries'default risk. This correlation is lower for subsidiaries that have higher capital, retail deposit funding, and profitability ratios and that are more independently managed from their parents. Host country regulations also influence the extent to which shocks to the parents affect the subsidiaries'default risk. In particular, the correlation between the default risk of the subsidiary and the parent is lower for subsidiaries operating in countries that impose higher capital, reserve, provisioning, and disclosure requirements and tougher restrictions on bank activities.
    Keywords: Banks&Banking Reform,Debt Markets,Corporate Law,Access to Finance,Bankruptcy and Resolution of Financial Distress
    Date: 2014–10–01
  6. By: Bezemer, Dirk J.; Zhang, Lu (Groningen University)
    Abstract: Based on newly collected data on 37 economies over 1970-2012, we provide a rich description of 187 credit booms, credit busts and other episodes. We explore the changing composition of bank credit over the credit cycle. In an event analysis we chart changes in capital flows, regulation, productivity and house prices over credit booms and busts. We also ask which credit boom eatures are connected to a subsequent credit growth contraction. We find that the interaction of mortgage credit growth and increasing house prices is a good predictor of a credit boom. Credit booms in which the share of mortgage credit in total bank credit increases more, are credit booms which are more likely to ?go bad?, leading to subsequent credit growth contractions.
    Date: 2014
  7. By: Tomiyuki Kitamura (Bank of Japan); Satoko Kojima (Bank of Japan); Koji Nakamura (Bank of Japan); Kojiro Takahashi (Bank of Japan); Ikuo Takei (Bank of Japan)
    Abstract: Since the global financial crisis, macro stress testing has attracted much attention in many countries as a method to evaluate potential risks of financial system. The Bank of Japan has conducted macro stress testing with various scenarios reflecting financial and economic conditions at each point in time, and published the results in the semi-annual Financial System Report. This paper explains the framework of macro stress testing reported in the Financial System Report. The framework has been improved over time to ensure it appropriately analyzes risk factors in Japan's financial system. Current notable features of the Bank's macro stress testing are as follows. First, it includes a mechanism reflecting the feedback loop between the financial and economic sectors by using the FMM, a medium-sized structural macro model comprising two sectors: financial and macroeconomic. Second, it can analyze not only aggregate figures such as capital adequacy ratios and net interest income, but also those for individual financial institutions.
    Keywords: stress testing; macroprudential policy
    JEL: E44 G21
    Date: 2014–10–08
  8. By: Hylton Hollander (Department of Economics, University of Stellenbosch)
    Abstract: This paper studies the effectiveness of countercyclical capital requirements and contingent convertible capital (CoCos) in limiting financial instability, and its associated influence on the real economy. To do this, I augment both features into a standard real business cycle framework with an equity market and a banking sector. The model is calibrated to real U.S. data and used for simulations. The findings suggest that CoCos effectively re-capitalize the banking sector and foster the objectives of countercyclical capital requirements (i.e., Basel III). Under financial shocks, CoCos provide an effective automatic stabilization effect on the financial cycle and the real economy. Conversely, a countercyclical capital adequacy rule dominates CoCos in the stabilization of real shocks.
    Keywords: Contingent convertible debt, bank capital, bank regulation, Basel
    JEL: G28 G38 E44
    Date: 2014
  9. By: Rafaela PIZARRO-BARCELÓ
  10. By: Malgorzata A. Olszak (Faculty of Management,University of Warsaw); Mateusz Pipien (Cracow University of Economics, Economic Institute, National Bank of Poland)
    Abstract: Procyclicality in banking may result in financial instability and therefore be destructive to economic growth. The sensitivity of different banking balance sheet and income statement variables to the business cycle is diversified and may be prone to increasing integration of financial markets. In this paper we address the problem of the influence of financial integration on the transmission of economic shocks from one country to another and consequently on the sensitivity of loan loss provisions to the business cycle. We also aim to find out whether earnings management hypotheses are supported throughout the whole business cycle. Application of the SURE approach to 13 OECD countries in 1995-2009 shows that the procyclicality of LLP is statistically significant almost in thewhole sample of countries. Independent of the econometric specification, the earnings management hypotheses are hardly supported.
    Keywords: loan loss provisions, procyclicality, earnings management
    JEL: E32 G21 G28
    Date: 2013–09
  11. By: Inessa Love (University of Hawai‘i at Manoa); Maria Soledad Martinez Peria (Development Research Department of the World Bank); Sandeep Singh (Consultant at the World Bank)
    Abstract: Using firm-level surveys for up to 73 countries, this paper explores the impact of introducing collateral registries for movable assets on firms' access to bank finance. It compares firms’ access to bank finance in seven countries that introduced collateral registries for movable assets against three control groups: firms in all countries that did not introduce a registry, firms in a sample of seven countries matched by location and income per capita to the countries that introduced registries for movable assets, and firms in countries that undertook other types of collateral reforms but did not set up registries for movable assets. Overall, the analysis finds that introducing collateral registries for movable assets increases firms' access to bank finance. There is also evidence that this effect is larger among smaller and younger firms.
    Keywords: movable collateral, access to bank finance
    JEL: K20 G21 G30
    Date: 2014–09
  12. By: INUI Tomohiko; ITO Keiko; MIYAKAWA Daisuke; SHOJI Keishi
    Abstract: This paper examines how firms’ decision to start exporting is affected by the availability of information on export markets. Unlike existing studies which focus on information sharing among firms, we are interested in the information provided by firms’ main bank. Specifically, using a unique dataset containing information on both Japanese firms’ export activities and their main banks’ experience in transacting with other exporting firms, we examine whether main banks act as a conduit of information on export markets. We find that information spillovers through main banks positively affect client firms’ decision to start exporting (extensive margin), implying that information on foreign markets provided by banks substantially reduces the fixed entry cost of exporting. On the other hand, we do not find any evidence that information provided by banks has an effect on the export volume or on the growth rate of exports (intensive margin). Our results highlight that channels of information spillovers other than those examined in the literature so far may be of considerable importance.
    Date: 2013–03
  13. By: Maria Monica Wihardja (Center for Strategic and International Studies)
    Abstract: Financial integration has many potential economic benefits. However, it also carries potential risks. In ASEAN, since its financial sector is generally bank-dominated, the banking sector is a key driver in the financial integration process. The ASEAN Banking Integration Framework (ABIF) aims to provide financial stability in the region and achieve multilateral liberalization in the banking sector by 2020 for ASEAN commercial banks. Given the diversity of financial market development, economic structure, and priorities among ASEAN members, the implementation process of ABIF is very challenging, particularly in terms of establishing the necessary preconditions. The biggest technical challenges concern the harmonization of the principles of prudential regulations and the building of financial stability infrastructure. Political challenges, meanwhile, stem from varying political commitments to ABIF between countries, with the ABIF process experiencing numerous domestic political backlashes. ASEAN countries can learn lessons from European Union (EU) banking integration, especially in light of the recent European sovereign and banking crisis, but it must be emphasized that the ABIF will not be the same as that of the EU banking integration. Ultimately, ABIF will continue to progress in the "ASEAN way" marked by small incremental changes, pragmatism and countries retaining much of their sovereignty.
    Date: 2014–08
  14. By: Ahmet AYSAN; G. GULSUN AKIN; Denada BORICI; Levent YILDIRAN

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