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on Banking |
| By: | Kiema, Ilkka; Jokivuolle, Esa |
| Abstract: | Basel III has introduced a non-risk-weighted leverage ratio requirement (LRR) which complements the internal ratings based (IRB) capital requirements. It provides a backstop against model risk which arises if some loans get incorrectly rated and become toxic. We study the effects of the LRR on lending strategies and its implications for banks’ stability. We show that the LRR might induce banks with low-risk lending strategies to diversify their portfolios into high-risk loans until the LRR is no longer the binding capital constraint on them. If the LRR is lower than the average bank’s IRB requirement, the aggregate capital costs of banks do not increase. However, because the diversification makes banks’ portfolios more alike the banking sector as a whole may become more exposed to model risk in each loan category. This may undermine banking sec- tor stability. On balance, our calibrated model motivates a significantly higher LRR than the current one. JEL Classification: D41, D82, G14, G21, G28 |
| Keywords: | bank regulation, Basel III, capital requirements, credit risk, leverage ratio |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20141676&r=ban |
| By: | Behn, Markus Wilhelm; Haselmann, Rainer; Vig, Vikrant |
| Abstract: | In this paper, we investigate how the introduction of complex, model-based capital regulation affected credit risk of financial institutions. Model-based regulation was meant to enhance the stability of the financial sector by making capital charges more sensitive to risk. Exploiting the staggered introduction of the model-based approach in Germany and the richness of our loan-level data set, we show that (1) internal risk estimates employed for regulatory purposes systematically underpredict actual default rates by 0.5 to 1 percentage points; (2) both default rates and loss rates are higher for loans that were originated under the model-based approach, while corresponding risk-weights are significantly lower; and (3) interest rates are higher for loans originated under the model-based approach, suggesting that banks were aware of the higher risk associated with these loans and priced them accordingly. Further, we document that large banks benefited from the reform as they experienced a reduction in capital charges and consequently expanded their lending at the expense of smaller banks that did not introduce the model-based approach. Counter to the stated objectives, the introduction of complex regulation adversely affected the credit risk of financial institutions. Overall, our results highlight the pitfalls of complex regulation and suggest that simpler rules may increase the efficacy of financial regulation. |
| Keywords: | capital regulation,internal ratings,Basel regulation |
| JEL: | G01 G21 G28 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:imfswp:82&r=ban |
| By: | Damar, H. Evren; Gropp, Reint; Mordel, Adi |
| Abstract: | We employ a unique identification strategy linking survey data on household consumption expenditure to bank-level data to estimate the effects of bank financial distress on consumer credit and consumption expenditures. We show that households whose banks were more exposed to funding shocks report lower levels of non-mortgage liabilities. This, however, does not result in lower levels of consumption. Households compensate by drawing down liquid assets to smooth consumption in the face of a temporary adverse lending supply shock. The results contrast with recent evidence on the real effects of finance on firms' investment and employment decisions. JEL Classification: E21, E44, G21, G01 |
| Keywords: | banking, consumption expenditure, consumption smoothing, Credit supply, financial crisis, liquid assets |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20141687&r=ban |
| By: | Buch, Claudia M.; Goldberg, Linda |
| Abstract: | Activities of international banks have been at the core of discussions on the causes and effects of the international financial crisis. Yet, we know little about the actual magnitudes and mechanisms for transmission of liquidity shocks through international banks, including the reasons for heterogeneity in transmission across banks. The International Banking Research Network (IBRN), established in 2012, brings together researchers from around the world with access to micro-data on individual banks to analyze issues pertaining to global banks. This paper summarizes the common methodology and results of empirical studies conducted in 11 countries to explore liquidity risk transmission. Among the main results is, first, that explanatory power of the empirical model is higher for domestic lending than for international lending. Second, how liquidity risk affects bank lending depends on the whether the banks are drawing on official sector liquidity facilities. Third, liquidity management across global banks can be important for liquidity risk transmission into lending. Fourth, there is substantial heterogeneity in the balance sheet characteristics that affect banks' responses to liquidity risk. Overall, bank balance sheet characteristics matter for differentiating lending responses across banks mainly in the realm of cross-border lending. |
| Keywords: | International banking,liquidity,transmission,central bank liquidity,uncertainty,regulation,crises |
| JEL: | G01 F34 G21 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:172014&r=ban |
| By: | Stijn Claessens; Neeltje van Horen |
| Abstract: | Although cross-border bank lending has fallen sharply since the crisis, extending our bank ownership database from 1995-2009 up to 2013 shows only limited retrenchment in foreign bank presence. While banks from OECD countries reduced their foreign presence (but still represent 89% of foreign bank assets), those from emerging markets and developing countries expanded abroad and doubled their presence. Especially advanced countries hit by a systemic crisis reduced their presence abroad, with far flung and relatively small investments more likely to be sold. Poorer and slower growing countries host fewer banks today, while large investments less likely expanded. Conversely, faster host countries’ growth and closeness to potential investors meant more entry. Lending by foreign banks locally grew more than cross-border bank claims did for the same home-host country combination, and each was driven by different factors. Altogether, our evidence shows that global banking is not becoming more fragmented, but rather is going through some important structural transformations with a greater variety of players and a more regional focus. |
| Keywords: | Cross-border banking;Loans;Foreign banks;Globalization;International banking;Global Financial Crisis 2008-2009;Foreign banks, financial globalization, global financial crisis, cross-border banking, financial fragmentation |
| Date: | 2014–10–27 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:14/197&r=ban |
| By: | Javier Bianchi; Saki Bigio |
| Abstract: | We develop a new framework to study the implementation of monetary policy through the banking system. Banks finance illiquid loans by issuing deposits. Deposit transfers across banks must be settled using central bank reserves. Transfers are random and therefore create liquidity risk, which in turn determines the supply of credit and the money multiplier. We study how different shocks to the banking system and monetary policy affect the economy by altering the trade-off between profiting from lending and incurring greater liquidity risk. We calibrate our model to study quantitatively why banks have recently increased their reserve holdings but have not expanded lending despite policy efforts. Our analysis underscores an important role of disruptions in interbank markets, followed by a persistent credit demand shock. |
| JEL: | E0 E4 E51 E52 G01 G1 G11 G18 G20 G21 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20490&r=ban |
| By: | Finger, Karl; Lux, Thomas |
| Abstract: | This paper investigates the driving forces behind banks' link formation in the interbank market by applying the stochastic actor oriented model (SAOM) developed in sociology. Our data consists of quarterly networks constructed from the transactions on an electronic platform (e-MID) over the period from 2001 to2010. Estimating the model for the time before and after the global financial crisis (GFC), shows relatively similar behavior over the complete period. We find that past trades are a significant predictor of future credit relations which indicates a strong role for the formation of lasting relationships between banks. We also find strong importance of size-related characteristics, but little influence of past interest rates. The major changes found for the period after the onset of the financial crisis are that: (1) large banks and those identified as 'core' intermediaries became even more popular and (2) indirect counterparty risk appears to be more of a concern as indicated by a higher tendency to avoid indirect exposure via clustering effects. |
| Keywords: | interbank market,network formation,financial crisis |
| JEL: | G21 G1 C35 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fmpwps:1&r=ban |
| By: | Hyejin Cho (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne) |
| Abstract: | The motivation of this article is to induce the bank capital management solution for banks and regulation bodies on commercial banks. The goal of the paper is intended to mitigate the risk of a banking area and also provide the right incentive for banks to support the real economy. |
| Keywords: | Demand Deposit, On-balance-sheet risks and off-balance-sheet risks, Portfolio composition, Minimum equity capital regulation. |
| Date: | 2014–09–22 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-01068235&r=ban |
| By: | A. Penalver |
| Abstract: | This paper presents a theoretical model of how banks set their credit standards. It examines how a monopoly bank sets its monitoring intensity in order to manage credit risk when it makes long duration loans to borrowers who have private knowledge of their project's stochastic profitability. In contrast to standard models, it has a recursive structure and a general equilibrium. The bank loan contract considered specifies the interest rate, the monitoring intensity and a profitability covenant. Within this class of contract, the bank chooses the terms which maximise steady-state profits subject to the constraint that it must have as many deposits as loans. The model is then used to consider whether the reduction in credit standards and credit spreads observed before the financial crisis could have been caused by low official interest rates or a positive deposit shock. The model rejects a risk-taking channel of monetary policy and endorses the savings glut hypothesis. |
| Keywords: | credit standards, credit risk, monitoring, risk-taking channel, savings glut. |
| JEL: | G21 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:519&r=ban |
| By: | Fabien Tripier |
| Abstract: | This article develops a search-theoretic model of financial intermediation to study the efficiency condition of the banking sector. Competitive financial intermediation is determined by the search decisions of both households (to find adequate financial products) and banks (to attract depositors through marketing and to select borrowers through auditing) and by the interest rate setting mechanism. The efficiency of the competitive economy requires that interest rates are posted by banks or are bargained under a specific Hosios (1990) condition, which addresses the hold-up problem induced by search frictions on the credit and deposit markets. Interbank market frictions are introduced to show how an interbank market crisis leads to inefficient financial intermediation characterized by credit rationing and high net interest margin. |
| Keywords: | Banking;Search;Search;Matching;Switching Costs;Efficiency |
| JEL: | C78 D83 G21 |
| Date: | 2014–11 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2014-18&r=ban |
| By: | FERROUHI, El Mehdi; LEHADIRI, Abderrassoul |
| Abstract: | This paper analyzes the behavior of Moroccan bank’s liquidity during the period 2001 – 2012. The research aims to identify the determinants of Moroccan bank’s liquidity. We first evaluate Moroccan banks’ liquidity positions through different liquidity ratios to determine the effects of financial crisis on bank’s liquidity. We then highlight the effect of banks’ size on banks’ liquidity. Finally, we identify determinants of Moroccan bank’s liquidity using panel data regression. From results obtained, we can conclude that liquidity has decreased during the last decade. This decline has increased since 2007 with the financial crisis. We also conclude that banks’ size is a determinant of banks’ liquidity since liquidity is correlated with size of banks. Large banks are more liquid than small banks. Results show that in Morocco, liquidity is mainly determined by eleven 11 determinants: size of banks, share of own bank’s capital of the bank's total assets, external funding to total liabilities, return on assets, foreign direct investment, monetary aggregate M3, foreign assets, growth rate of gross domestic product, public deficit, inflation ratio and the effects of financial crisis. Thus, liquidity of Moroccan banking industry is positively correlated with bank’s size, share of own bank’s capital of the bank's total assets, external funding to total liabilities, monetary aggregate M3, foreign assets, foreign direct investment and negatively correlated with return on assets, inflation rate, growth rate of gross domestic product, public deficit and financial crisis. However, bank’s return on equity, equity to total assets and unemployment rate have no impact on Moroccan bank’s liquidity. |
| Keywords: | Morocco; bank’s liquidity, panel data regression; size of banks |
| JEL: | G17 G21 G32 |
| Date: | 2013–11–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:59888&r=ban |
| By: | Kwan, Simon H. (Federal Reserve Bank of San Francisco); Wong, Eric T.C. (Hong Kong Monetary Authority); Hui, Cho-hoi (Hong Kong Monetary Authority) |
| Abstract: | The international transmission of shocks in the global financial system has always been an important issue for policy makers. Different types of foreign shocks have different effects and policy implications. In this paper, we examine the effects of the recent U.S. financial crisis and the European sovereign debt crisis on foreign bank branches in Hong Kong. Unlike the literature on global banking that studies a global bank’s foreign operations from a home country perspective, our analysis uses foreign bank branches in Hong Kong and has a distinct host country perspective, which would seem more relevant to the host country policy makers. We find global banks using the foreign branches in Hong Kong as a funding source during the liquidity crunch in home country, suggesting that global banks manage their liquidity risk globally. After the central bank at home country introduced liquidity facility to relieve funding pressure, the effect disappeared. We also find strong evidence that foreign branches originated from crisis countries lend significantly less in Hong Kong relative to their controls, suggesting the presence of the lending channel in the transmission of shocks from the home country to the host country. |
| Keywords: | shocks transmission; foreign banks; financial crisis; liquidity management |
| JEL: | G01 G21 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2014-25&r=ban |
| By: | Alan Elizondo (Banco de México); Enrique Seira (Centro de Investigación Económica (CIE), Instituto Tecnológico Autónomo de México (ITAM)) |
| Abstract: | Consumer protection in financial markets in the form of information disclosure is high on governments agendas, espite the fact that the empirical evidence on its effectiveness is scarce. To measure the impact of Truth-in-Lending-Act-type disclosures on default and indebtedness, as well as of debiasing warning messages and social comparison information, we implement a randomized control trial in the credit card market for a large population of indebted cardholders. We find that providing salient interest rate disclosures has no effect, while social comparisons and debiasing messages have only a odest effect. Other types of disclosures discussed in the paper could have larger effects |
| Keywords: | Credit cards, information disclosure, truth in lending, Mexico. |
| JEL: | D12 D14 D83 G02 G21 G28 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:cie:wpaper:1407&r=ban |
| By: | Ongena, Steven; Schindele, Ibolya; Vonnák, Dzsamila |
| Abstract: | We analyze the differential impact of domestic and foreign monetary policy on the local supply of bank credit in domestic and foreign currencies. We analyze a novel, supervisory dataset from Hungary that records all bank lending to firms including its currency denomination. Accounting for time-varying firm-specific heterogeneity in loan demand, we find that a lower domestic interest rate expands the supply of credit in the domestic but not in the foreign currency. A lower foreign interest rate on the other hand expands lending by lowly versus highly capitalized banks relatively more in the foreign than in the domestic currency. |
| Keywords: | Bank balance-sheet channel,monetary policy,foreign currency lending |
| JEL: | E51 F3 G21 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:474&r=ban |
| By: | Georg, Co-Pierre |
| Abstract: | When banks choose similar investment strategies, the financial system becomes vulnerable to common shocks. Banks decide about their investment strategy ex-ante based on a private belief about the state of the world and a social belief formed from observing the actions of peers. When the social belief is strong and the financial network is fragmented, banks follow their peers and their investment strategies synchronize. This effect is stronger for less informative private signals. For endogenously formed interbank networks, however, less informative signals lead to higher network density and less synchronization. It is shown that the former effect dominates the latter. JEL Classification: G21, C73, D53, D85 |
| Keywords: | endogenous nancial networks, multi-agent simulations, social learning, Systemic risk |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20141700&r=ban |
| By: | Serena Frazzoni; Maria Luisa Mancusi (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore); Zeno Rotondi; Maurizio Sobrero; Andrea Vezzulli |
| Abstract: | This paper assesses the role of relationship lending in explaining simultaneously the innovation activity of Small and Medium Enterprises (SME), their probability to export (i.e. the extensive margin) and their share of exports on total sales conditional on exporting (i.e. the intensive margin). We adopt a measure of informational tightness based on the ratio of firm’s debt with its main bank to firm’s total assets. Our results show that the strength of the bank-firm relation has a positive impact on both SME’s probability to export and their export margins. This positive effect is only marginally mediated by the SME’s increased propensity to introduce product innovation. We further discuss the financial and non-financial channels through which the intensity of bank-firm relationship supports SMEs’ international activities. |
| Keywords: | margins of export, bank-firm relationships, innovation, localized knowledge spillovers |
| JEL: | F10 G20 G21 O30 |
| Date: | 2014–11 |
| URL: | http://d.repec.org/n?u=RePEc:ctc:serie1:def18&r=ban |
| By: | Kühl, Michael |
| Abstract: | The role of bank capital as a propagation channel of shocks is strongly pronounced in recent macroeconomic models. In this paper, we show how the evolution of bank capital depends on the share of non-state-contingent assets in banks' balance sheets and present the consequences for macroeconomic dynamics. State-contingent securities impact on banks' balance sheets through changes in their returns (and their prices), both of which depend on the current state of the economy. Nonstate-contingent assets are signed before shocks are realized and their repayment is guaranteed. For this reason they insulate banks' balance sheets from recent economic activity in the absence of defaults. Our results show that non-state-contingent assets in banks' balance sheets attenuate the amplification of shocks resulting from financial frictions in the banking sector. |
| Keywords: | bank capital,state-contingent assets,non-state-contingent assets,monetary policy,financial frictions |
| JEL: | E44 E58 E61 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:252014&r=ban |
| By: | Brown, Martin; Trautmann, Stefan T.; Vlahu, Razvan |
| Abstract: | We study experimental coordination games to examine through which transmission channels, and under which information conditions, a panic-based depositor-run at one bank may trigger a panic-based depositor-run at another bank. We find that withdrawals at one bank trigger withdrawals at another bank by increasing players’ beliefs that other depositors in their own bank will withdraw, making them more likely to withdraw as well. Importantly though, observed withdrawals affect depositors’ beliefs, and are thus contagious, only when depositors know that there are economic linkages between their bank and the observed bank. JEL Classification: D81, G21, G28 |
| Keywords: | bank runs, Contagion, Systemic risk |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20141711&r=ban |
| 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, Centre de recherche de la Banque de France - Banque de France, CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - CNRS : UMR7534 - Université Paris IX - Paris Dauphine) |
| 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 on microeconomic data at the bank level. The second one is based on econometric estimations of the probability and the cost of a systemic banking crisis. 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: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-00825256&r=ban |
| By: | Saki Bigio (Columbia Business School) |
| Abstract: | Financial crises seem particularly severe and lengthy when banks fail to recapitalize after large losses. I explain this failure and the consequent depth of financial crises through a model in which banks provide intermediation in markets with informational asymmetries. Large equity losses reduce a bank's capacity to bear further losses. Losing this capacity leads to reductions in intermediation and exacerbates adverse selection. Adverse selection, in turn, lowers profits from intermediation, which explains the failure to attract equity injections or retain earnings quickly. Financial crises are infrequent events characterized by low economic growth that is overcome only as banks slowly recover by retaining earnings. I explore several policy interventions. |
| Keywords: | Financial Crisis, Adverse Selection, Capacity Constraints |
| Date: | 2014–11 |
| URL: | http://d.repec.org/n?u=RePEc:apc:wpaper:2014-022&r=ban |
| By: | Beirne, John; Friedrich, Christian |
| Abstract: | This paper assesses the effectiveness and associated externalities that arise when macro- prudential policies (MPPs) are used to manage international capital flows. Using a sample of up to 139 countries, we examine the impact of eight different MPP measures on cross-border bank flows over the period 1999-2009. Our panel analysis takes into account the structure of the banking system as well as the presence of potential cross-country and cross-asset class spillover effects. Our results indicate that the structure of the domestic banking system matters for the effectiveness of MPPs. We specifically find that a high share of non-resident bank loans in the MPP-implementing country reduces the domestic effectiveness of most MPPs, while a high return on assets in the domestic banking system has the opposite effect. Our results on the spillover analysis indicate that both types of spillover can occur. First, we find that a high return on assets in the banking system of countries other than the MPP-implementing one leads to a reduction, and a greater degree of trade integration leads to an increase in spillovers across countries. However, the economic significance of the results suggests that only a limited number of countries will tend to experience substantial geographical spillover effects. Second, we also find some evidence of spillover effects across asset classes within countries. JEL Classification: F3, F5, G01, G11 |
| Keywords: | banking system, international capital flows, macroprudential policies |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20141721&r=ban |
| By: | Fuentes-Albero, Cristina (Board of Governors of the Federal Reserve System (U.S.)) |
| Abstract: | I revisit the Great Inflation and the Great Moderation. I document an immoderation in corporate balance sheet variables so that the Great Moderation is best described as a period of divergent patterns in volatilities for real, nominal and financial variables. A model with time-varying financial frictions and financial shocks allowing for structural breaks in the size of shocks and the institutional framework is estimated. The paper shows that (i) while the Great Inflation was driven by bad luck, the Great Moderation is mostly due to better institutions; (ii) the slowdown in credit spreads is driven by an easier access to credit, while a higher exposure to financial risk determines the immoderation of balance sheet variables; and (iii) financial shocks arise as relevant drivers of U.S. business cycle uctuations. |
| Keywords: | Great Inflation; Great Moderation; immoderation; financial frictions; financial shocks; structural breaks; Bayesian methods |
| JEL: | C11 C13 E32 E44 |
| Date: | 2014–09–19 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2014-84&r=ban |
| By: | Rachel Ong (Bankwest Curtin Economics Centre, Curtin University); Gavin Wood (Centre for Urban Research, RMIT University); Siobhan Austen (School of Economics and Finance, Curtin University); Therese Jefferson (Graduate School of Business, Curtin University); Marietta E.A. Haffner (Faculty of Architecture and the Built Environment, Delft University of Technology) |
| Abstract: | resource that can perform a pension role in retirement. This paper assesses the extent to which Australians aged over 45 utilise housing equity withdrawal (HEW) through the three methods of in situ mortgage equity withdrawal, downsizing and selling up. We find that the incidence of HEW has increased over the last decade despite a global financial crisis. Mortgage equity withdrawal is the dominant form of equity release among those under pension age, while downsizing or selling up is relatively more frequent among those above pension age. Different motivations are associated with the decision to invoke alternative styles of equity withdrawal. Mortgage equity withdrawal is linked with financial and employment factors while downsizing and selling up seems to be prompted by adverse life events. Selling up to access equity is typically an option of last resort. Our findings offer insights into important debates around home ownership societies and the welfare role performed by owner-occupied housing in mid-to-late life. |
| Keywords: | housing equity withdrawal, mortgage equity withdrawal, downsizing, selling up, mid-to-late life |
| JEL: | E21 J14 |
| Date: | 2014–11 |
| URL: | http://d.repec.org/n?u=RePEc:ozl:bcecwp:wp1406&r=ban |
| By: | Weber, Ron; Mußhoff, Oliver; petrick, Martin |
| Abstract: | Using a unique dataset of a commercial microfinance institution in Madagascar, this paper investigates how the provision of microfinance loans with (in)flexible repayment schedules affects loan delinquencies of agricultural borrowers. Flexible repayment schedules allow a redistribution of principal payments during periods with low agricultural returns to periods when agricultural returns are high. We develop a theoretical framework and apply and estimate an econometric model for the loan repayment behavior of agricultural micro-borrowers with seasonal and non-seasonal production types. Our results reveal that delinquencies of non-seasonal farmers and seasonal farmers with inflexible repayment schedules are not significantly different from those of non-farmers. Furthermore, we find that seasonal farmers with flexible repayment schedules show significantly higher delinquencies than non-farmers in low delinquency categories, but we also find that this effect disappears in the highest delinquency category. |
| Keywords: | Agricultural Credit, Borrowing, Financial Risk, Loan Repayment, Microfinance, Seasonality, Agribusiness, Agricultural Finance, |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:ags:gewi14:187434&r=ban |