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on Banking |
| By: | Buch, Claudia M. ; Hilberg, Björn ; Tonzer, Lena |
| Abstract: | Bank distress can have severe negative consequences for the stability of the financial system, the real economy, and for public finances. Regimes for the restructuring and resolution of banks, financed by bank levies and fiscal backstops, seek to reduce these costs. Bank levies attempt to internalize systemic risk and to increase the costs of leverage. This paper evaluates the effects of the German bank levy implemented in 2011 as part of the German Bank Restructuring Act. Our analysis offers three main insights. First, revenues raised through the bank levy are lower than expected, because of low tax rates and high thresholds for tax exemptions. Second, the bulk of the payments were contributed by large commercial banks and by the central institutions of savings banks and credit unions. Third, for the banks affected by the levy, we find evidence for a reduction in lending and higher deposit rates. |
| Keywords: | bank levy,bank lending,interest rates,German banks |
| JEL: | G21 G28 C21 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:382014&r=ban |
| By: | Choudhary, M. Ali (State Bank of Pakistan ); jain, Anil K. (Board of Governors of the Federal Reserve System (U.S.) ) |
| Abstract: | We exploit exogenous variation in the amount of public information available to banks about a firm to empirically evaluate the importance of adverse selection in the credit market. A 2006 reform introduced by the State Bank of Pakistan (SBP) reduced the amount of public information available to Pakistani banks about a firm's creditworthiness. Prior to 2006, the SBP published credit information not only about the firm in question but also (aggregate) credit information about the firm's group (where the group was defined as the set of all firms that shared one or more director with the firm in question). After the reform, the SBP stopped providing the aggregate group-level information. We propose a model with differentially informed banks and adverse selection, which generates predictions on how this reform is expected to affect a bank's willingness to lend. The model predicts that adverse selection leads less informed banks to reduce lending compared to more informed banks. We construct a measure for the amount of information each lender has about a firm's group using the set of firm-bank lending pairs prior to the reform. We empirically show those banks with private information about a firm lent relatively more to that firm than other, less-informed banks following the reform. Remarkably, this reduction in lending by less informed banks is true even for banks that had a pre-existing relationship with the firm, suggesting that the strength of prior relationships does not eliminate the problem of imperfect information. |
| Keywords: | Information; Credit registries; Financial Intermediation |
| JEL: | G14 O16 |
| Date: | 2014–11–26 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1125&r=ban |
| By: | Yener Altunbas (Bangor University ); Alper Kara (University of Hull ); Aydin Ozkan (University of Bradford ) |
| Abstract: | Bank securitisation is deemed to have been a major contributing factor to the 2007/08 financial crises via fuelling credit growth accompanied by lower banksÕ credit standards. Yet, prior to the crisis a common view was that securitisation activity makes the financial system more stable as risk was more easily diversified, managed and allocated economy-wide. In this survey paper we review the extant literature to explore the so far generated knowledge on the impact of securitisation on banking risks. In particular, we examine the theoretical arguments and empirical studies on securitisation and banking risks before and after the global financial crisis of 2007/08. We identify the limitations of empirical studies and assess the comparability of findings. Theoretical literature univocally accentuate the undesirable consequences of securitisation, which may promote retention of riskier loans, undermine banksÕ screening and monitoring incentives and enhance banksÕ risk appetite. However, empirical evidence does not uniformly support the theoretical conclusions. If banks are securitisation active they lend more to risky borrowers, have less diversified portfolios and hold less capital, retain riskier loans and are aggressive in loan pricing. Others argue that securitisation reduces banks insolvency risk, increases profitability, provides liquidity and leads to greater supply of loans. Mortgage securitisation is an area where there is consistent evidence of bank risk taking via securitisation. |
| Keywords: | securitisation,banking risks, financial crisis |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:bng:wpaper:14006&r=ban |
| By: | Sven Langedijk (European Commission – Joint Research Center ); Gaëtan Nicodème (European Commission ); Andrea Pagano (European Commission – Joint Research Center ); Alessandro Rossi (European Commission – Joint Research Center ) |
| Abstract: | During the period 2008-2012, EU governments incurred substantial costs bailing out banks. As corporate income taxation (CIT) in most countries still favors debt- over equityfinancing, reducing or eliminating this debt bias would complement regulatory reforms reducing costs of financial crises. To estimate this effect, we use a two-step approach. First, using panel regressions on a dataset of 32,833 bank-year observations we find sizable long-run effects of CIT on leverage in the EU. Second, we simulate the effect of tax reforms on bank losses using a Vasicek-based model with actual banks’ balance sheets to estimate costs of systemic crises for six large EU member states. Even if the tax elasticity of bank leverage is taken at the lower end of the ranges found in recent literature, eliminating the debt bias could lead to reductions of public finance losses in the range of 60 to 90%. The results hold even when considering much smaller effects for banks that are close to the regulatory minimum capital requirement of the Basel III framework. Even when asset portfolio risk is allowed to increase endogenously and considering conservative ranges of the parameter space, we conclude that tax reforms to remove the debt bias can result in very sizable reductions in risks and costs of financial crises. |
| Keywords: | Debt bias; Systemic crisis; Capital structure; Taxation; Allowance for Corporate Equity; Public finance; Bail out |
| JEL: | G01 G28 G32 H25 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:tax:taxpap:0050&r=ban |
| By: | Richard Simper (University of Nottingham, England ); Maximilian J.B. Hall (Loughborough University, England ); Wenbin B. Liu (University of Kent, England ); Valentin Zelenyuk (School of Economics, The University of Queensland ); Zhongbao Zhou (Hunan University, P. R. China ) |
| Abstract: | Adopting a profit-based approach to the estimation of the technical efficiency of South Korean banks over the 2007Q3 to 2011Q2 period, we systematically analyse, within a non-parametric DEA analysis, how the choice of risk management control variable impacts upon such estimates. Using the model of Liu et al. (2010), we examine the dependency of the estimated technical efficiency scores on the chosen risk control variables embracing loan loss provisions and equity as good inputs and non-performing loans as a bad output. We duly find that, both for individual banks and banking groups, the mean estimates are indeed model dependent although, for the former, rank correlations do not change much at the extremes. Based on the application of the Simar and Zelenyuk (2006) adapted Li (1996) test, we then find that, if only one of the three risk control variables is to be included in such an analysis, then it should be loan loss provisions. We also show, however, that the inclusion of all three risk control variable is to be preferred to just including one, but that the inclusion of two such variables is about as good as including all three. We therefore conclude that the optimal approach is to include (any) two of the three risk control variables identified. The wider implication for research into bank efficiency is that the optimal choice of risk management control variable is likely to be crucial to both the delivery of un-biased estimates of bank efficiency and the specification of the model to be estimated. |
| Keywords: | South Korean Banks,Risk Management,Efficiency,DEA |
| JEL: | C23 C52 G21 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:qld:uqcepa:98&r=ban |
| By: | Giorgio Primiceri (Northwestern University ); Andrea Tambalotti (Federal Reserve Bank of New York ); Alejandro Justiniano (Federal Reerve Chicago ) |
| Abstract: | We present a model of housing with collateral constraints on both on borrowers and lenders. The constraint on the borrowers corresponds to the usual collateral requirement on the purchase of new houses that has been extensively studied in the literature. The contribution of our analysis is to study constraints on the supply of credit, modeled as limitations in the share of mortgages that lenders can hold in their portfolios. These limits are motivated by risk weighted capital requirements on commercial banks, as well as minimum asset quality restrictions on large institutional investors. The analysis begins with a simple stylized model to understand the implications of transitioning to higher levels of credit supply. To quantify the macroeconomic effects of credit supply expansions we embed borrower and lender constraints into a rich dynamic model, calibrated using evidence on the expansion of off-balance sheet vehicles and market-based funding by financial intermediaries, as well as micro (Survey of Consumer Finances) and macro data (Flow of Funds, NIPA). Our results suggest that the housing boom which preceded the Great Recession was due to a progressive loosening of lending constraints in the residential mortgage market. This view is consistent with a number of empirical observations, such as the rapid increase in house prices and household debt, the stability of debt relative to collateral values, and the fall in mortgage rates. These empirical facts are difficult to reconcile with the popular view that attributes the housing boom to a loosening of borrowing constraints associated with lower collateral requirements. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed014:766&r=ban |
| By: | Michele Fratianni (Indiana University, Kelly School of Business, Bloomington US, Univ. Plitecnica Marche and MoFiR ); Francesco Marchionne (Nottingham Trent University, Division of Economics ) |
| Abstract: | This paper examines how banks around the world have resized and reallocated their earning assets in response to the subprime and sovereign debt crises. We also focus on the interaction between sovereign debt and the asset allocation process. We find that banks have readjusted asset shares and the overall regulatory credit risk by substituting government securities for loans. Furthermore, they have been sensitive to those variables that are of direct interest to the regulator, a result that is consistent with high-debt governments having exerting moral suasion on banks to privilege the purchase of government securities over credit to the private sector. |
| Keywords: | crisis, loans, moral suasion, regulator, securities |
| JEL: | G01 G11 G21 G28 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wmofir:103&r=ban |
| By: | Lucrezia Reichlin (London Business School and CEPR ) |
| Abstract: | The paper is a narrative on monetary policy and the banking sector during the two recent euro area recessions. It shows that while in the two episodes of recession and financial stress the ECB acted aggressively providing liquidity to the banking sector, the second recession, unlike the first, has been characterized by an abnormal decline of loans with respect to both real economic activity and the monetary aggregates. It conjectures that this fact is explained by the postponement of the adjustment in the banking sector by showing that banks, over the 2008-2012 period, did not change neither the capital to asset ratio nor the size of their balance sheet relative to GDP and kept them at the pre-crisis level. The paper also describes other aspects of banks’ balance sheet adjustment during the two crises. |
| Keywords: | Economic recessions; Financial system; ECB policies; Bank behavior |
| JEL: | E44 E58 G21 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:bog:spaper:26&r=ban |
| By: | Sinha, Pankaj ; Sharma, Sakshi |
| Abstract: | The paper studies the impact of bank specific, industry specific and macroeconomic factors affecting profitability of Indian Banks in a dynamic model framework. The persistence of bank profits and endogeneity of the factors have been accounted for using Generalised Method of Moments (GMM) as suggested in Arellano & Bond, 1991.The panel data for the study have been obtained from 42 Indian Scheduled Commercial Banks for the period from 2000 to 2013 .The lag of bank profits variable ROA has been found to be significantly indicating moderate degree of persistence of profits in Indian Banking Industry. This shows that the product markets of Indian Banks are moderately competitive, and less opaque due to asymmetry in information. The Indian banking sector is not far away from becoming a perfectly competitive industry. Bank specific variables; capital to assets ratio, operating efficiency and diversification have been found to be significantly and positively affecting the bank profits. Credit risk, measured by provisions for bad debts, negatively impacts the bank profitability. The study also tests the Structure conduct Hypothesis (SCP) by using Herfindahl – Hirschman Index (HHI) and finds evidence in its support. Bank profits responds positively to the GDP growth, indicating that bank profits are pro-cyclical to the growth of economy whereas the increase in inflation rate affects bank profits negatively .It is observed that the crisis period did not make any significant effect on profitability of banks .The study concludes that there is a moderate degree of persistence of bank profits and most of the determinants of profits have a positive and a significant impact on profitability of banks which implies that Indian Banks in the last decade have been moving towards efficiency and dynamism. |
| Keywords: | Profitability Determinants, Credit risk, Operational efficiency, Persistence, Market power |
| JEL: | C4 C40 G1 G20 G21 |
| Date: | 2014–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:61379&r=ban |
| By: | Costas Azariadis (Washington University and Federal Reserve Bank of St. Louis ) |
| Abstract: | This essay evaluates two central bank policy tools, capital requirements and lending of last resort, designed to avert financial panics in the context of endowment economics with complete markets and limited borrower commitment. Credit panics are self-fulfilling shocks to expected credit conditions which cause transitions from an optimal but fragile steady state to a suboptimal state with zero unsecured credit. The main findings are: (i) Countercyclical reserve policies protect the optimum equilibrium against modest shocks but are powerless against large shocks. (ii) If we ignore private information and central banks inefficiencies, this class of models bears out Bagehot’s 1873 claim in Lombard Street: panics are averted if central banks stand ready to lend at a rate somewhat above the one associated with the optimal state. |
| Keywords: | bank panics; last resort; capital requirements; credit conditions |
| JEL: | E52 E58 E44 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:bog:spaper:23&r=ban |
| By: | Yoshino, Naoyuki (Asian Development Bank Institute ); Taghizadeh-Hesary, Farhad (Asian Development Bank Institute ); Nili, Farhad (Asian Development Bank Institute ) |
| Abstract: | Risky banks that endanger the stability of the financial system should pay higher deposit insurance premiums than healthy banks and other financial institutions that have shown good financial performance. It is necessary, therefore, to have at least a dual fair premium rate system. In this paper, we develop a model for calculating dual fair premium rates. Our definition of a fair premium rate in this paper is a rate that could cover the operational expenditures of the deposit insuring organization, provides it with sufficient funds to enable it to pay a certain percentage share of deposit amounts to depositors in case of bank default, and provides it with sufficient funds as precautionary reserves. To identify and classify healthier and more stable banks, we use credit rating methods that employ two major dimensional reduction techniques. For forecasting non-performing loans (NPLs), we develop a model that can capture both macro shocks and idiosyncratic shocks to financial institutions in a vector error correction setting. The response of NPLs/loans to macro shocks and idiosyncratic innovations shows that using a model with macro variables only is insufficient, as it is possible that under favorable economic conditions some banks show negative performance or vice versa. Our final results show that stable banks should pay lower deposit insurance premium rates. |
| Keywords: | dual deposit insurance premium rates; non-performing loans; idiosyncratic shocks; fair premium rates |
| JEL: | E44 G21 G28 |
| Date: | 2015–01–15 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:0510&r=ban |
| By: | Kelly, Robert (Central Bank of Ireland ); O'Malley, Terry (Central Bank of Ireland ); O'Toole, Conor (Central Bank of Ireland ) |
| Abstract: | Macro-prudential policy is designed to address risk at a systemwide level, an example of which is mortgage default following excessive residential property lending in Ireland. Policy tools to address this risk, such as caps on loan- to-value and loan-to-income ratios, are used to build balance sheet resilience and by design should re ect the risk profile of borrower groups. This research considers whether default rates are different between first time buyers and second and subsequent buyers and finds that first time buyers have lower default rates having controlled for borrower and loan characteristics. This research is consistent with differential regulatory treatment of first time buyers with default risk remaining comparable to the remainder of mortgage lending. |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:ecolet:14/el/14&r=ban |
| By: | P Simmons (York) ; N Tantisantiwong (Southampton) |
| Abstract: | For a risk neutral lender and a group of borrowers facing identical revenue risks we compare individual loans and group lending. We stress the importance of group liquidity in defining the necessary risk premium. There are no welfare differences between the loan forms. However, the default rates and risk premia vary ambiguously between the loan forms. Simulations replicating empirical interest rates and default rates show that the group interest rate is lower for a larger group while the effect of group size on default risk is ambiguous. We then consider the case of identical correlated risks between borrowers. Positive correlation of projects gives a higher downward risk, so a higher group interest rate and a higher fraction of successes are required. Unlike independent group lending, the interest rate and the default risk are not lower in the larger group loan with correlated returns. Simulations using beta-binomial distributionsare presented. |
| Keywords: | Group lending, default rate, interest rate, correlated outcomes |
| JEL: | G21 O16 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:yor:yorken:14/28&r=ban |
| By: | Amromin, Eugene (Federal Reserve Bank of Chicago ); Kearns, Caitlin (University of California - Berkeley ) |
| Abstract: | We explore a policy-induced change in borrower ability to shop for mortgages to investigate whether market competitiveness affects mortgage interest rates. Our paper exploits a discontinuity in the competitive landscape introduced by the Home Affordable Refinancing Program (HARP). Under HARP, lenders that currently service loans eligible for refinancing enjoyed substantial advantages over their potential competitors. Using a fuzzy regression discontinuity design, we show a jump in mortgage interest rates precisely at the HARP eligibility threshold. Our results suggest that limiting competition raised interest rates on 30-year fixed-rate mortgages by 15 to 20 basis points, translating into higher lender profits. The results are distinct from documented effects of consolidation and capacity reduction in mortgage lending and are robust to a number of sample restrictions and estimation choices. We interpret our findings as evidence that increases in pricing power lead to higher interest rates in mortgage markets. |
| Keywords: | Mortgage crisis; market competition; pricing power; HARP |
| JEL: | E52 G21 |
| Date: | 2014–11–30 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-2014-25&r=ban |
| By: | Reinert, Regina M. ; Weigert, Florian ; Winnefeld, Christoph H. |
| Abstract: | This study examines the relationship between the proportion of women in top management positions of banks and the financial performance of these institutions. Using prudential data from supervisory reporting for all credit institutions in the Grand-Duchy of Luxembourg from 1999 to 2013, we find a positive association between female management representation and firm performance. The economic effect is substantial: A 10% increase of women in top management positions improves the bank's future return on equity by more than 3% p.a. Moreover, we show that this positive relationship is (i) almost twice as large during the global financial crisis than in stable market conditions and (ii) non-linear with the most successful banks having a female management share in the range between 20% and 40%. |
| Keywords: | Management Diversity, Female Management Representation, Bank Performance |
| JEL: | G21 J16 L25 M14 |
| URL: | http://d.repec.org/n?u=RePEc:usg:sfwpfi:2015:01&r=ban |
| By: | Lucas Marc Fuhrer ; Basil Guggenheim ; Silvio Schumacher |
| Abstract: | This paper introduces a methodology to estimate the re-use of collateral based on actual transaction data. With a comprehensive dataset from the Swiss franc repo market we are able to provide the first systematic empirical study on the re-use of collateral. We find that re-use was most popular prior to the financial crisis, when roughly 10% of the outstanding interbank volume was based on re-used collateral. Furthermore, we show that re-use increases with the scarcity of collateral. By giving an estimate of collateral re-use and explaining its drivers, the paper contributes to the ongoing debate on collateral availability. |
| Keywords: | Re-use of collateral, repo, money market, financial stability, Switzerland |
| JEL: | E58 G01 G18 G21 G32 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2015-02&r=ban |
| By: | International Monetary Fund. Monetary and Capital Markets Department |
| Abstract: | The financial stability assessment under the Financial Sector Assessment Program (FSAP) for Korea was carried out in close collaboration with the authorities. The assessment included top- down (TD) and bottom-up (BU) stress testing of Korea’s commercial banks and certain non-bank depository institutions (NBDIs); and evaluation of the potential contagion across banks (stemming both from funding pressures and potential defaults). The FSAP team did not have access to confidential supervisory data for the stress tests and the contagion analyses.2 The practice of withholding information in the context of an FSAP, while undesirable, is also observed in other FSAPs. As a result, the analyses were carried out by the authorities in cooperation with participating banks, with the FSAP team performing extensive methodological and estimation validations of the results. The stress testing exercise included TD and BU stress tests of banks’ solvency and liquidity. For the solvency analysis, the TD tests were based on the internal Systemic Risk Assessment Model for Macroprudential Policy (SAMP) developed by the Bank of Korea (BOK), complemented by macroeconomic projections from the BOK’s macroeconomic model. These were supplemented by BU tests, carried out by individual banks. For the liquidity analysis, the TD tests were carried out by the Financial Supervisory Service (FSS), with separate assessments of banks’ local currency and foreign exchange (FX) liquidity risks. BU tests of liquidity were performed by individual banks, and were based on a different set of assumptions on potential liquidity outflows. All stress tests were based on assumptions and parameters agreed between the authorities and the FSAP team. |
| Keywords: | Financial Sector Assessment Program;Banking sector;Liquidity;Stress testing;Financial stability;Bank soundness;Korea, Republic of; |
| Date: | 2015–01–09 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:15/6&r=ban |
| By: | Domanski, Dietrich (Bank for International Settlements ); Moessner, Richhild (Bank for International Sentiments ); Nelson, William R. (Board of Governors of the Federal Reserve System (U.S.) ) |
| Abstract: | During the 2007-2010 financial crisis, central banks accumulated a vast amount of experience in acting as lender of last resort. This paper reviews the various ways that central banks provided emergency liquidity assistance (ELA) during the crisis, and discusses issues for the design of ELA arising from that experience. In a number of ways, the emergency liquidity assistance since 2007 has largely adhered to Bagehot's dictums of lending freely against good collateral to solvent institutions at a penalty rate. But there were many exceptions to these rules. Those exceptions illuminate the situations where the lender of last resort role of central banks is most difficult. They also highlight key challenges in designing lender of last resort policies going forward. |
| Keywords: | Banking crisis; central bank liquidity; lender of last resort |
| JEL: | E58 F31 N10 |
| Date: | 2014–05–14 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2014-110&r=ban |
| By: | Ghamami, Samim (Board of Governors of the Federal Reserve System (U.S.) ); Zhang, Bo (IBM Thomas J. Watson Research Center ) |
| Abstract: | Counterparty credit risk (CCR), a key driver of the 2007-08 credit crisis, has become one of the main focuses of the major global and U.S. regulatory standards. Financial institutions invest large amounts of resources employing Monte Carlo simulation to measure and price their counterparty credit risk. We develop efficient Monte Carlo CCR estimation frameworks by focusing on the most widely used and regulatory-driven CCR measures: expected positive exposure (EPE), credit value adjustment (CVA), and effective expected positive exposure (EEPE). Our numerical examples illustrate that our proposed efficient Monte Carlo estimators outperform the existing crude estimators of these CCR measures substantially in terms of mean square error (MSE). We also demonstrate that the two widely used sampling methods, the so-called Path Dependent Simulation (PDS) and Direct Jump to Simulation date (DJS), are not equivalent in that they lead to Monte Carlo CCR estimators which are drastically different in terms of their MSE. |
| Keywords: | Basel II; Basel III; OTC derivatives market; risk management; counterparty credit ris; credit value adjustment; efficient Monte Carlo simulatio |
| Date: | 2014–12–17 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2014-114&r=ban |
| By: | Ross Levine ; Chen Lin ; Wensi Xie |
| Abstract: | Do stock markets act as a “spare tire” during banking crises, providing an alternative corporate financing channel and mitigating the economic severity of banking crises? Using firm-level data in 36 countries from 1990 through 2011, we find that the adverse consequences of banking crises on firm profitability, employment, equity issuances, and investment efficiency are smaller in countries with stronger shareholder protection laws. These findings are not explained by the development of stock markets or financial institutions prior to the crises, the severity of the crisis, or overall economic, legal, and institutional development. The evidence is consistent with the view that stronger shareholder protection laws provide the legal infrastructure for stock markets to act as alternative sources of finance when banking systems go flat, easing the impact of the crisis on the economy. |
| JEL: | D22 E02 G21 G3 G38 K22 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20863&r=ban |
| By: | Hayashi, Fumiko (Federal Reserve Bank of Kansas City ); Cuddy, Emily |
| Abstract: | Overdrafts have been an ongoing concern of policymakers, and they are one of the main issues being considered for prepaid card rules that the Consumer Financial Protection Bureau (CFPB) is currently drafting. Despite regulatory interventions and heated debate between proponents and opponents of further intervention, little research has been conducted to understand the overdraft behavior of prepaid cardholders. This paper attempts to fill that gap by analyzing a large micro-level dataset of general purpose reloadable (GPR) prepaid cardholders. We find that a small percentage of GPR prepaid cardholders regularly make overdraft transactions and incur overdraft fees, but they tend to spend and load more funds on their card as well as use their card for a longer period of time than do cardholders who do not make overdraft transactions. Our results suggest that some cardholders may be making a deliberate decision to overdraw their account and pay overdraft fees. |
| Keywords: | Overdrafts; General purpose reloadable prepaid cards; Unbanked and underbanked |
| JEL: | D12 E42 G21 |
| Date: | 2014–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp14-08&r=ban |