nep-ban New Economics Papers
on Banking
Issue of 2015‒04‒02
35 papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. Bank localism and financial crisis By Cristina Demma
  2. How do banks react to catastrophic events? Evidence from Hurricane Katrina By Lambert, Claudia; Noth, Felix; Schüwer, Ulrich
  3. Systemic Risk and Bank Size By Simone Varotto; Lei Zhao
  4. Modelling and measuring business risk and the resiliency of retail banks By M. Chaffai; M. Dietsch
  5. Similarity and Clustering of Banks: Application to the Credit Exposures of the Czech Banking Sector By Josef Brechler; Vaclav Hausenblas; Zlatuse Komarkova; Miroslav Plasil
  6. Market Discipline Across Bank Governance Models. Empirical Evidence from German Depositors. By Eva A. Arnold; Ingrid Größl; Philipp Koziol
  7. Financial Frictions and Foreign Direct Investment: Theory and Evidence from Japanese Microdata By Horst Raff; Michael Ryan; Frank Stähler
  8. Bonus caps, deferrals and bankers' risk-taking By Jokivuolle, Esa; Keppo, Jussi; Yuan , Xuchuan
  9. The Role of Regulatory Arbitrage in U.S. Banks’ International Lending Flows: Bank-Level Evidence By Judit Temesvary
  10. On Competition in the Banking Sector in Poland and Europe Before and During the Crisis / Jak kszta³towa³a siê konkurencja w sektorze bankowym w Polsce i w Europie przed kryzysem i w okresie kryzys By Malgorzata Pawlowska
  11. Cross-border interbank contagion in the European banking sector. By S. Gabrieli; D. Salakhova; G. Vuillemey
  12. Uncertainty Aversion and Systemic Risk By Dicks, David L.; Fulghieri, Paolo
  13. The international bank lending channel of monetary policy rates and quantitative easing : credit supply, reach-for-yield, and real effects By Morais,Bernardo; Peydró,José-Luis; Ruiz Ortega,Claudia
  14. Corporate Governance, Bank Mergers and Executive Compensation By Yan Liu; Carol Padgett; Simone Varotto
  15. Characteristics of bank financial intermediation in Croatian counties By Jakša Krišto; Iva Mandac
  16. Detecting financial Imbalances: Monitoring Financial Imbalances through the Financial Activity Indexes (FAIXs) By Koji Nakamura; Yuichiro Ito
  17. When is macroprudential policy effective? By Chris McDonald
  18. Credit, Financial Stability, and the Macroeconomy By Taylor, Alan M.
  19. Cross-Border Banking and Business Cycles in Asymmetric Currency Unions By Lena Dräger; Christian R. Proaño
  20. The transmission of monetary policy in EMEs in a changing financial environment: a longitudinal analysis By Emanuel Kohlscheen; Ken Miyajima
  21. Self-Fulfilling Credit Cycles By Azariadis, Costas; Kaas, Leo; Wen, Yi
  22. The Cyprus Crisis and the Legal Protection of Foreign Investors By Giovanni Battista Donato
  23. The Exposure of Microfinance Institutions to Financial Risk By Gietzen, Thomas
  24. Disclosure of risk information in the European banking sector By Emilia Klepczarek
  25. The Role of Prepayment Penalties in Mortgage Loans By Beltratti, Andrea E; Benetton, Matteo; Gavazza, Alessandro
  26. A dynamic approach to intraday liquidity needs By Freddy Cepeda L.; Fabio Ortega C.
  27. Bank-Specific and Industry-Characteristic Determinants of Commercial Bank Profitability: Empirical Study for Indonesia By Abdul Manap Pulungan; Ahmad Erani Yustika
  28. Determinants of Credit Expansion in Brazil By Barbi, Fernando C.
  29. Testing the Global Banking Glut Hypothesis By Maria Teresa Punzi; Karlo Kauko
  30. In love with the debit card but still married to cash By Carin van der Cruijsen; Lola Hernandez; Nicole Jonker
  31. Money Overhang, Credit Overhang and Financial Imbalances in the Euro Area By C.J.M. Kool; E. de Regt; T. van Veen
  32. Consumer Bankruptcy and Financial Health By Will Dobbie; Paul Goldsmith-Pinkham; Crystal Yang
  33. Predicting Systemic Risk with Entropic Indicators By Nikola Gradojevic; Marko Caric
  34. The Equity-like Behaviour of Sovereign Bonds By Alfonso Dufour; Andrei Stancu; Simone Varotto
  35. Reaction Functions of the Participants in Colombia’s Large-value Payment System By Constanza Martínez; Freddy Cepeda

  1. By: Cristina Demma (Bank of Italy)
    Abstract: This paper analyzes whether from the end of 2005 to the first half of 2012 bank localism influenced the dynamics and the quality of loans to Italian firms. To this aim, this paper proposes a new definition for local banks that, respect to the traditional classifications employed in literature, has the advantage to classify medium and small banks according to the number and the size of markets where they operate, regardless banks’ institutional category and size. The main result is that, after controlling for demand elements and the initial bank balance sheet characteristics, credit supply was influenced by banks’ size while bank localism was not significant. During the crisis, the loan default rate was substantially higher for medium and small banks; among these banks, for local banks the deterioration in credit quality was smaller with respect to non-local banks.
    Keywords: local banks, crisis, credit crunch
    JEL: G01 G21 G29
    Date: 2015–03
  2. By: Lambert, Claudia; Noth, Felix; Schüwer, Ulrich
    Abstract: This paper explores how banks adjust their risk-based capital ratios and asset allocations following an exogenous shock to their asset quality caused by Hurricane Katrina in 2005. We find that independent banks based in the disaster areas increase their risk-based capital ratios after the hurricane, while those part of a bank holding company do not. The effect on independent banks mainly comes from the subgroup of high-capitalized banks. These banks increase their holdings in government securities and reduce loans to non-financial firms. Hence, banks that become more stable achieve this at the cost of reduced lending.
    Keywords: catastrophic events,bank regulation,capital ratios,natural experiment
    JEL: G21 G28
    Date: 2015
  3. By: Simone Varotto (ICMA Centre, Henley Business School, University of Reading); Lei Zhao
    Abstract: In this paper we analyse aggregate and firm level systemic risk for US and European banks from 2004 to 2012. We observe that common systemic risk indicators are primarily driven by firm size which implies an overriding concern for “too-big-to-fail” institutions. However, smaller banks may still pose considerable systemic threats, as exemplified by the Northern Rock debacle in 2007. By introducing a simple standardisation, we obtain a new risk measure that identifies Northern Rock as a top ranking systemic institution up to 4 quarters before its bailout. The new indicator also appears to have a superior ability to predict which banks would be affected by the most severe stock price contractions during the 2007-2009 sub-prime crisis. In addition we find that a bank’s balance sheet characteristics can help to forecast its systemic importance and, as a result, may be useful early warning indicators. Interestingly, the systemic risk of US and European banks appears to be driven by different factors.
    Keywords: systemic risk, financial crisis, bank regulation, contingent claim analysis
    JEL: G01 G21 G28
    Date: 2014–12
  4. By: M. Chaffai; M. Dietsch
    Abstract: The paper uses recent developments of the methodology of efficiency frontiers to provide an original modeling of the risk of volatility of banking profits which relies on the estimation of a profit frontier. This methodology allows taking into account coordinated adjustments of banks’ costs to revenues as well as the absence of such adjustments. The study uses data of more than ninety French institutions running a retail banking business model over the period 1993 to 2012. Results confirm the resiliency of retail banks in crisis period. The decrease in profitability seems largely sustainable even if case of severe shocks. Thus, in case of a large drop in the banks’ lending activity, profit decreases moderately if costs are adjusted quickly, more largely if they are not. A shock on the provision of liquidity services shows less significant effects. In case where banks cannot adjust operating costs, only a very strong shock precipitating banks in the situation of the 5% less profitable could destroy completely yearly profits.
    Keywords: Bank solvency, Retail Banking, Business Risk, Efficiency Frontier Methodology, Profit Function.
    JEL: G21 D24
    Date: 2014
  5. By: Josef Brechler; Vaclav Hausenblas; Zlatuse Komarkova; Miroslav Plasil
    Abstract: After the recent events in the global financial system there has been significant progress in the literature focusing on the sources of systemic importance of financial institutions. However, the concept of systemic importance is in practice often simplified to the problem of size and contagion due to interbank market interconnectedness. Against this backdrop, we explore additional features of systemic importance stemming from similarities between bank asset portfolios and investigate whether they can contribute to the build-up of systemic risks. We propose a set of descriptive methods to address this aspect empirically in the context of the Czech banking system. Our main findings suggest that the overall measure of the portfolio similarity of individual banks is relatively stable over time and is driven mainly by large and well-established banks. However, we identified several clusters of very similar banks whose market share is small individually but which could become systemically important when considered as a group. After taking into account the credit risk characteristics of portfolios we conclude that the importance of these clusters is even higher.
    Keywords: Contagion, correlation, financial stability, systemic risk, too-many-to-fail
    JEL: B12 B52
    Date: 2014–12
  6. By: Eva A. Arnold (Universität Hamburg (University of Hamburg)); Ingrid Größl (Universität Hamburg (University of Hamburg)); Philipp Koziol (European Central Bank)
    Abstract: German savers are renowned for preferring safe, long-term investments, thus providing patient capital, with bank deposits playing an important role. Using a unique data set provided by the Deutsche Bundesbank for German banks, we examine whether German depositors are really that patient, abstaining from any type of market discipline, and how the financial crisis might have changed a well-established habit. Our empirical investigation reveals the existence of market discipline with a high degree of heterogeneity depending on banks’ governance structures. The announcement of a state guarantee for bank deposits following the collapse of Lehman Brothers succeeded in calming depositors of all banking groups but did not remove market discipline entirely. Remaining disciplinary reactions by depositors of different banking groups increase in homogeneity but some differences remain.
    Keywords: Market discipline, bank depositor behavior, bank risk taking, deposit rates
    JEL: G10 G20 G30
    Date: 2015–03
  7. By: Horst Raff; Michael Ryan; Frank Stähler
    Abstract: We use Japanese microdata to examine how financial market frictions affect foreign direct investment (FDI). The Japanese land price bubble and banking trouble in the late 1980s and early 1990s serve as a quasi natural experiment to identify two possible transmission channels from financial shocks to FDI: (i) a collateral channel, whereby changes in the value of collateral affect investors’ ability to borrow; and (ii) a lending channel, whereby changes in bank health affect banks’ ability to lend. We find evidence that both transmission channels are statistically significant and economically important
    Keywords: Foreign direct investment, multinational enterprise, financing, credit rationing, collateral, bank health, Japan
    JEL: F23 L20
    Date: 2015–03
  8. By: Jokivuolle, Esa (Bank of Finland Research); Keppo, Jussi (NUS Business School and Risk Management Institute National University of Singapore); Yuan , Xuchuan (Risk Management Institute National University of Singapore)
    Abstract: We model a banker's future bonuses as a series of call options on the bank's profits and show that bonus caps and deferrals reduce risk-taking. However, the banker's optimal risk-taking also depends on the costs of risk-taking. We calibrate the model to US banking data and show that lengthening the standard one-year bonus payment interval has no material impact, whereas capping the bonus at the level of the base salary substantially reduces the bankers’ risk-taking. Our results suggest that the European Union's bonus cap reduces risk-taking whereas bonus clawbacks as prescribed in the Dodd-Frank Act appear to be ineffective.
    Keywords: banking; bonuses; regulation; compensation; Dodd-Frank Act
    JEL: G01 G21 G28 J33 M52
    Date: 2015–03–04
  9. By: Judit Temesvary
    Abstract: This paper examines how cross-border differences in the stringency of bank regulations affect U.S. banks’ international activities. The analysis relies on a unique bank-level dataset on the globally most active U.S. banks’ balance sheet as well as their cross-border, foreign affiliate lending and foreign market entry choices in 82 foreign countries in the 2003-2013 period. Results show that U.S. banks are significantly more likely to enter foreign markets with relatively laxer bank capital and disclosure requirements, and exit foreign markets with relatively stricter deposit insurance schemes and more restrictions on activities. Banks substitute away from foreign affiliate lending (via subsidiaries in the foreign country) towards cross-border lending (originating from the U.S.) in foreign countries with more powerful and independent bank regulators and limits on activities.
    Keywords: International bank lending, Cross-border regulatory arbitrage, Foreign market entry and exit, Balance sheet effects
    JEL: F3 F4 G2
    Date: 2015–03
  10. By: Malgorzata Pawlowska
    Abstract: In the past decades, the banking sector has come to be known in literature as the banking industry as it was geared to increasing profits, banks were growing, and banking products developed dynamically. It was believed that competition in the banking sector makes banks more efficient and stimulates financial innovation opening new markets. The financial crisis of 2007–2008 has sparked the interest of researchers and politicians in competition in the banking sector and its impact on the stability of the financial sector and overall economic growth. However, researchers cannot agree whether more competition improves or hinders stability.The paper is comprised of three sections and a summary. The first section discusses the concept of competition in the banking sector as well as measures of competition. The second section is a review of literature on competition in the banking sector and its determinants. The third section presents the results of research on competition in the EU, including my own research as well as other research. The paper concludes with a short summary.This publication was presented by Ma³gorzata Paw³owska during the 134th mBank-CASE Seminar "The global financial crisis: changes in competition in the banking sector in Europe, the role of regulation and intervention by governments and central banks".
    Keywords: banking and finance, competition, financial services, mergers and acquisitions, market structure, efficiency, credit market, European Union, banking regulation
    JEL: G18 G20 G21 G28 G29
    Date: 2015–01
  11. By: S. Gabrieli; D. Salakhova; G. Vuillemey
    Abstract: This paper studies the scope for cross-border contagion in the European banking sector using true bilateral exposure data. Using a model of sequential solvency and liquidity cascades in networks, we analyze geographical patterns of loss propagation from 2008 to 2012. We study the distribution of contagion outcomes after a common shock and an exogenous bank default over simulated networks of actual long- and short-term claims. We exploit a novel and unique dataset of money market transactions estimated from TARGET2 payments data. Our results show the critical impact of the underlying network structure on the propagation of losses. An econometric analysis of the determinants of contagion shows that the position of a bank in the network and its exposure to the riskiest counterparties are significantly correlated with default outcomes, behind its own financial ratios.
    Keywords: Contagion, Interbank market, Stress Testing, Liquidity Hoarding, Counterparty Risk.
    JEL: G01 G21 G28 F36
    Date: 2015
  12. By: Dicks, David L.; Fulghieri, Paolo
    Abstract: We propose a new theory of systemic risk based on Knightian uncertainty (or "ambiguity"). We show that, due to uncertainty aversion, beliefs on future asset returns are endogenous, and bad news on one asset class induces investors to be more pessimistic about other asset classes as well. This means that idiosyncratic risk can create contagion and snowball into systemic risk. Furthermore, in a Diamond and Dybvig (1983) setting, we show that, surprisingly, uncertainty aversion causes investors to be less prone to run individual banks, but runs will be systemic. In addition, we show that bank runs are associated with stock market crashes and flight to quality. Finally, we argue that increasing uncertainty makes the financial system more fragile and more prone to crises. We conclude with implications for the current public policy debate on the management of financial crisis
    Keywords: Ambiguity Aversion; Bank Runs; Financial Crises; Systemic Risk
    JEL: G01 G21 G28
    Date: 2015–03
  13. By: Morais,Bernardo; Peydró,José-Luis; Ruiz Ortega,Claudia
    Abstract: This paper identifies the international credit channel of monetary policy by analyzing the universe of corporate loans in Mexico, matched with firm and bank balance-sheet data, and by exploiting foreign monetary policy shocks, given the large presence of European and U.S. banks in Mexico. The paper finds that a softening of foreign monetary policy increases the supply of credit of foreign banks to Mexican firms. Each regional policy shock affects supply via their respective banks (for example, U.K. monetary policy affects credit supply in Mexico via U.K. banks), in turn implying strong real effects, with substantially larger elasticities from monetary rates than quantitative easing. Moreover, low foreign monetary policy rates and expansive quantitative easing increase disproportionally more the supply of credit to borrowers with higher ex ante loan rates -- reach-for-yield -- and with substantially higher ex post loan defaults, thus suggesting an international risk-taking channel of monetary policy. All in all, the results suggest that foreign quantitative easing increases risk-taking in emerging markets more than it improves the real outcomes of firms.
    Keywords: Access to Finance,Debt Markets,Bankruptcy and Resolution of Financial Distress,Banks&Banking Reform,Economic Stabilization
    Date: 2015–03–19
  14. By: Yan Liu (ICMA Centre, Henley Business School, University of Reading); Carol Padgett (ICMA Centre, Henley Business School, University of Reading); Simone Varotto (ICMA Centre, Henley Business School, University of Reading)
    Abstract: Using a sample of US bank mergers from 1995 to 2012, we observe that the pre-post merger changes in CEO bonus are significantly negatively related to the strength of corporate governance within the bidding bank. This suggests that bonus compensation is not consistent with the “optimal contracting hypothesis”. Salary changes, on the other hand, are not affected by corporate governance but are positively correlated with pre-post merger changes in the M/B ratio of the bidding banks, in line with “optimal contracting”. We also find that good governance is associated with more accretive deals for the bidder. Overall, our results are consistent with the notion that, unlike salary and long-term compensation, bonus compensation is not aligned with value creation and is more vulnerable to CEO manipulation in banks with poor corporate governance.
    Keywords: corporate governance, bank mergers, executive compensation, bonus
    JEL: G21 G28 G34
    Date: 2014–12
  15. By: Jakša Krišto (Faculty of Economics and Business, University of Zagreb); Iva Mandac (Croatia bank Ltd.)
    Abstract: Research on bank financial intermediation in a country's narrower territorial units is scarce, in both domestic and international literature. Banks are almost the only financial intermediaries in narrower territorial units and their role is substantial, ranging from participating in regional development to the successful running of their own business. Hence, the main objective of this paper is to examine the characteristics of the financial intermediation of banks in the counties of the Republic of Croatia, both through a comparison between their economic development levels and the general presence of financial intermediation, and a more specific analysis of their deposit and credit policies. The article uses hierarchical and non-hierarchical (k-means) cluster analyses to identify relatively homogeneous groups of counties based on sets of indicators of: economic environment, financial development and infrastructure and, at a more detailed level, the deposit and credit policies of banks. The research results suggest heterogeneity and diversity of bank policies across the counties and sets of indicators. Differences have been observed between developed and developing counties, as well as in approaches to banks' deposit and credit policies. The paper's findings encourage further research into these issues.
    Keywords: bank financial intermediation and banks' business policies, counties, Republic of Croatia, cluster analysis
    JEL: G21 O16 O18
    Date: 2015–03–23
  16. By: Koji Nakamura (Bank of Japan); Yuichiro Ito (Bank of Japan)
    Abstract: This note explains the "Financial Activity Indexes (FAIXs)," a set of indicators developed by Bank of Japan staff which are used to detect financial imbalances.
    Keywords: Financial imbalances; bubble; early warning indicator; financial crisis
    JEL: E44 G01
    Date: 2015–03–19
  17. By: Chris McDonald
    Abstract: Previous studies have shown that limits on loan-to-value (LTV) and debt-to-income (DTI) ratios can stabilise the housing market, and that tightening these limits tends to be more effective than loosening them. This paper examines whether the relative effectiveness of tightening vs. loosening macroprudential measures depends on where in the housing cycle they are implemented. I find that tightening measures have greater effects when credit is expanding quickly and when house prices are high relative to income. Loosening measures seem to have smaller effects than tightening, but the difference is negligible in downturns. Loosening being found to have small effects is consistent with where it occurs in the cycle.
    Keywords: loan-to-value limit, debt-to-income limit, housing credit, house-price-to-income ratio
    Date: 2015–03
  18. By: Taylor, Alan M.
    Abstract: Since the 2008 global financial crisis, and after decades of relative neglect, the importance of the financial system and its episodic crises as drivers of macroeconomic outcomes has attracted fresh scrutiny from academics, policy makers, and practitioners. Theoretical advances are following a lead set by a fast-growing empirical literature. Recent long-run historical work has uncovered a range of important stylized facts concerning financial instability and the role of credit in advanced economies, and this article provides an overview of the key findings.
    Keywords: banks; financial crisis; financial history; leverage; macroeconomic history; macroprudential policy; monetary policy; recessions
    JEL: E02 E31 E32 E42 E44 E51 E58 F32 F42 G01 G20 G28 N10 N20
    Date: 2015–03
  19. By: Lena Dräger (Universität Hamburg (University of Hamburg)); Christian R. Proaño (The New School for Social Research)
    Abstract: Against the background of the recent housing boom and bust in countries such as Spain and Ireland, we investigate in this paper the macroeconomic consequences of cross-border banking in monetary unions such as the euro area. For this purpose, we incorporate in an otherwise standard two-region monetary union DSGE model a banking sector module along the lines of Gerali et al. (2010), accounting for borrowing constraints of entrepreneurs and an internal constraint on the bank’s leverage ratio. We illustrate in particular how different lending standards within the monetary union can translate into destabilizing spill-over effects between the regions, which can in turn result in a higher macroeconomic volatility. This mechanism is modelled by letting the loan-to-value (LTV) ratio that banks demand of entrepreneurs depend on either regional productivity shocks or on the productivity shock from one dominating region. Thereby, we demonstrate a channel through which the financial sector may have exacerbated the emergence of macroeconomic imbalances within the euro area. Additionally, we show the effects of a monetary policy rule augmented by the loan rate spread as in Cúrdia and Woodford (2010) in a two-country monetary union context.
    Keywords: Cross-border banking, euro area, monetary unions, DSGE
    JEL: F41 F34 E52
    Date: 2015–03
  20. By: Emanuel Kohlscheen; Ken Miyajima
    Abstract: The departure from the Modigliani-Miller conditions, due for instance to market incompleteness, asymmetric information or taxation, tends to increase the importance of indirect channels by which monetary policy affects the level of economic activity in emerging market economies (EMEs). The bank lending channel highlighted by Bernanke and Blinder (1988) is a prominent example of such indirect effect of monetary policy. In this study we investigate how the bank lending channel acts above and beyond the traditional money channel that most macroeconomic models emphasize. We find that, particularly in EMEs with high bank reliance, changes in the volume of bank credit are important drivers of fixed capital formation. Using micro-level bank balance sheet data, we then show how monetary policy and sovereign risk premia affected bank credit growth in EMEs between 2001 and 2013. We find that both, changes in the monetary policy stance and changes in risk premia have had significant effects on credit volumes. Furthermore, we show that these effects tend to affect smaller banks more strongly. Our results suggest that the accommodative monetary policies that have been seen recently were contributing factors to the rapid expansion of credit in many EMEs.
    Keywords: monetary policy, bank credit, emerging markets, risk premia
    Date: 2015–03
  21. By: Azariadis, Costas (Federal Reserve Bank of St. Louis); Kaas, Leo (University of Konstanz); Wen, Yi (Federal Reserve Bank of St. Louis)
    Abstract: In U.S. data 1981–2012, unsecured firm credit moves procyclically and tends to lead GDP, while secured firm credit is acyclical; similarly, shocks to unsecured firm credit explain a far larger fraction of output fluctuations than shocks to secured credit. In this paper we develop a tractable dynamic general equilibrium model in which unsecured firm credit arises from self-enforcing borrowing constraints, preventing an efficient capital allocation among heterogeneous firms. Unsecured credit rests on the value that borrowers attach to a good credit reputation which is a forward-looking variable. We argue that self-fulfilling beliefs over future credit conditions naturally generate endogenously persistent business cycle dynamics. A dynamic complementarity between current and future borrowing limits permits uncorrelated sunspot shocks to unsecured debt to trigger persistent aggregate fluctuations in both secured and unsecured debt, factor productivity and output. We show that these sunspot shocks are quantitatively important, accounting for around half of output volatility.
    Keywords: Unsecured firm credit; Credit cycles; Sunspots
    JEL: D92 E32
    Date: 2015–03–20
  22. By: Giovanni Battista Donato (Queen Mary University at London)
    Abstract: The legal protection of foreign investments deposited in EU financial institutions has attracted considerable attention both in the legal as well as in the business community following European Parliament’s approval on last April of the Bank Recovery and Resolution Directive which includes the so called bail in clause. As the introduction of this clause reflects the intentions of EU’s institutions to put an end to the use of taxpayers’ funds to resolve financial crises, on the other hand it already had a remarkable impact on banks’ creditors’ property rights, especially in the case of foreign investors. In this view, this dissertation will survey the possible legal protection, mostly but not exclusively included in ad hoc Bilateral Investment Treaties (“BIT”), provided to foreign investors to recover the losses suffered following bail-ins’ of credit institutions. In this regard, particular attention will be given to the analysis of the relevant crisis of the Cypriot’s banking sector and the following laws enabling its restructuring by means of creditors’ assets write off, the subsequent institutionalization of this template at the EU level and the connections of this new legal framework with international law rules and principles which safeguard property rights of expropriated foreign investors.
    Keywords: International Monetary Arrangements and Institutions, International Lending and Debt Problems, Government Policy and Regulation, International Law, Property Rights.
    JEL: F33 F34 G28 K33 P14
    Date: 2015–03
  23. By: Gietzen, Thomas
    Abstract: This study examines the exposure of microfinance institutions to liquidity, interest rate and foreign exchange (FX) risk. It builds on a manually collected set of data on FX positions and the maturity structure of assets and liabilities of the largest microfinance institutions worldwide. The data suggests that microfinance institutions in the sample, on average, face no liquidity risk and that exposure to FX risk is lower than commonly assumed. Linking risk exposure to institutional characteristics, I find that legal status and regional affiliation are correlated with risk exposure while regulatory quality is not.
    Keywords: Microfinance, Financial Risk, Liquidity Risk, FX Risk, Ownership, Regulation
    JEL: G21 G32 O16
    Date: 2015–03
  24. By: Emilia Klepczarek (Uniwersytet £odzki)
    Abstract: The debate on the scope of bank information disclosures seems to be an essential issue, especially after the 2007-2010 financial crisis. The adequate number of data provided to the public domain is the condition of transparency of the banking sector, which should assure the optimization of market participants’ decisions. There is also a tendency to unify the global accountancy standards and they are expected to ensure the same scope of disclosed information for the global financial market. The aim of the study is to check if the accounting standards required by the European countries influence the number of risk disclosures and if more stable banking sectors tend to report wider scope of data. Finding out the nature of disclosures’ determinants is an important aspect in terms of working out the procedures increasing the transparency and stability of the financial markets.
    Keywords: risk disclosures, financial statements, accounting standards, GAAP, IFRS
    JEL: E44 E52 E58 F33 G18 G21 G28
    Date: 2015–03
  25. By: Beltratti, Andrea E; Benetton, Matteo; Gavazza, Alessandro
    Abstract: We study the effect of mortgage prepayment penalties on borrowers' prepayments and delinquencies by exploiting a 2007 reform in Italy that reduced penalties on outstanding mortgages and banned penalties on newly-issued mortgages. Using a unique dataset of mortgages issued by a large Italian lender before and after the reform, we provide evidence that: 1) before the reform, mortgages issued to riskier borrowers included larger penalties; 2) higher prepayment penalties decreased borrowers' prepayments; 3) higher prepayment penalties did not affect borrowers' delinquencies; and 4) prepayment penalties indirectly affected prepayments and delinquencies through borrowers' mortgage selection at origination, especially for riskier borrowers.
    Keywords: mortgages; prepayment penalties
    JEL: G21
    Date: 2015–03
  26. By: Freddy Cepeda L.; Fabio Ortega C.
    Abstract: This paper presents a methodology to estimate the intraday liquidity that systemically important entities (SIE) need to fulfill all its obligations in a timely fashion, when a simulated failure-to-pay from its main liquidity supplier by discretionary concepts of payment occurs. Using the Bank of Finland’s simulator and the fund transfer data from Colombian large value payment system, we achieve a dynamic estimation measuring three types of effects (direct, second round and feedback). The results validate the existence of a non-linear relationship between the initial failure-to-pay of a specific institution and extended failures-to-pay to the rest of system. An Intraday Liquidity Sufficiency Index is proposed to quantify the average amount of additional liquidity needed to fulfill timely all SIE’s obligations without generating second-round effects. Our methodology and recommendations contribute to the international discussion on management intraday liquidity risk, to efficiency and security of the payment system, and ultimately to financial stability.
    Keywords: Large value payment system, intraday liquidity, counterparty stress test, discretionary payments, simulation, direct effect, second-round effect, feedback effect, network topology.
    JEL: D53 D85 E51 C63 G21 G23
    Date: 2015–03–30
  27. By: Abdul Manap Pulungan (Supervisory Board of Bank Indonesia); Ahmad Erani Yustika (Supervisory Board of Bank Indonesia)
    Abstract: This study discusses the influence of a series of bank-specific factors such as CAR (Capital Adequacy Ratio), OEOI (Operations Expences to Operations Income), NPL (Non Performing Loan), and FBI (Fee-based Income) on ROA as a profitability proxy. Also studied whether commercial banks probability affected by the concentration (Structure Conduct Performance, SCP) or efficiency (Efficiency Hypothesis, HE). Share of Third Party Funds (STPF) is variable proxy of SCP, while the OEOI proxy of HE. By using panel data procedures of the 111 commercial banks during 2005 to 2011, this research concludes that CAR and FBI have significant effect with positive sign on ROA, while OEIO and NPL significant with negative sign. STPF does not significantly affect on ROA so SCP theory as a proxy for the concentration is rejected, on the other hand, this research accepts the HE theory that focuses on the efficiency.
    Keywords: profitability; structure conduct performance; efficiency hypothesis
    JEL: E50
    Date: 2014–10
  28. By: Barbi, Fernando C.
    Abstract: Brazilian economy has experienced a major boost in leverage in the first decade of 2000 as a result of a set factors ranging from macroeconomic stability to the abundant liquidity in international financial markets before 2008 and a set of deliberate decisions taken by President Lula's to expand credit, boost consumption and gain political support from the lower social strata. This paper analyzes the determinants of credit using an extensive bank level panel dataset. As relevant conclusions to our investigation we verify that: credit expansion relied on the reduction of the monetary policy rate, international financial markets are an important source of funds, payroll-guaranteed credit and investment grade status affected positively credit supply. We were not able to confirm the importance of financial inclusion efforts. The importance of financial sector sanity indicators of credit conditions cannot be underestimated. These results raise questions over the sustainability of this expansion process and financial stability in the future.
    Keywords: bank credit, public credit, emerging markets, financial stability
    JEL: E44 G18 G21 H21
    Date: 2014–04–08
  29. By: Maria Teresa Punzi (Department of Economics, Vienna University of Economics and Business); Karlo Kauko (Bank of Finland, PO Box 160, 00101 Helsinki, Finland)
    Abstract: This paper presents VAR results on the recent economic history of the U.S and focuses on the dependence of U.S. macrofinancial variables on international capital flows. Both gross and net flows are included in the analysis. The results indicate that cross-border funding has affected the build-up in the U.S. housing market irrespective of how these flows are defined and measured. Both the savings glut hypothesis and the banking glut hypothesis are supported by these findings. However, net banking flows appear to explain the higher volatility in the increase in house prices as well as the mortgage loan boom.
    Keywords: Global Banking Glut, Global Savings Glut, Cross-Border Banking Transactions, House Prices, Mortgage Loans, VAR model
    JEL: F32 F33 F34
  30. By: Carin van der Cruijsen; Lola Hernandez; Nicole Jonker
    Abstract: Using shopping diary survey data we show that changing payment patterns is a challenging task; even when consumers have fallen in love with the debit card, they find it hard to divorce from cash. While seven out of ten Dutch consumers report to prefer using the debit card, only seven out of twenty actually mostly pay by debit card. The likelihood that reported preferences and actual behaviour do not match increases with income, education and age. Consumers with payments in cash-intensive sectors, where the wide acceptance of the debit card is a relatively recent phenomenon, are more likely to overestimate debit card usage than other consumers. The likelihood of a gap also increases with the amount of cash that consumers carry with them and decreases with the average transaction size. Our findings indicate that persistent habits are an important explanation why the substitution of cash by debit cards took place at a slower pace than was expected.
    Keywords: payment patterns; cash; debit card; households; survey data; diary data; economic psychology
    JEL: C25 D12
    Date: 2015–02
  31. By: C.J.M. Kool; E. de Regt; T. van Veen
    Abstract: This paper focusses on the relation between external imbalances and domestic money and credit growth in the euro area. We compute money and credit overhang both for the euro area as a whole and for individual member countries. Our results show that both aggregate money and credit overhang have trend-like increased since the early 2000s. The increase in money overhang has been rather evenly spread over the member states but the increase in credit overhang has been unevenly spread and has mainly occurred in the GIIP countries. We apply panel analysis to detect temporal patterns between the developments in money overhang, credit overhang and external indebtedness. Looking at the groups of GIPS countries in isolation, net debt flows do play a significant role to explain money and credit overhang.
    Keywords: money growth, credit growth, current account, financial integration, foreign lending
    Date: 2014
  32. By: Will Dobbie; Paul Goldsmith-Pinkham; Crystal Yang
    Abstract: This paper estimates the effect of Chapter 13 bankruptcy protection on post-filing financial outcomes using a new dataset linking bankruptcy filings to credit bureau records. Our empirical strategy uses the leniency of randomly-assigned judges as an instrument for Chapter 13 protection. Over the first five post-filing years, we find that Chapter 13 protection decreases an index measuring adverse financial events such as civil judgments and repossessions by 0.316 standard deviations, increases the probability of being a homeowner by 13.2 percentage points, and increases credit scores by 14.9 points. Chapter 13 protection has little impact on open unsecured debt, but decreases the amount of debt in collections by $1,315.
    JEL: D14 K35
    Date: 2015–03
  33. By: Nikola Gradojevic (IÉSEG School of Management (LEM-CNRS), Lille Catholic University, France; Faculty of Technical Sciences, University of Novi Sad, Serbia; The Rimini Centre for Economic Analysis, Italy); Marko Caric (Faculty of Economics and Engineering Management, Business Academy, Serbia)
    Abstract: This paper concentrates on quantifying the behavioral aspects of systemic risk by using a novel approach based on entropy. More specifically, we study aggregate market expectations and the predictability of the systemic risk before and during the financial crisis in 2008. Two underlying signals for estimating entropic risk measures are considered: 1) skewness premium of deepest out-of-the-money options, and 2) implied volatility ratio in regards to deepest out-of-the-money options. The findings confirm the predictive and contemporaneous usefulness of our entropy setting in market risk management. The degree of predictability is closely linked to both the type of entropy and the nature of the underlying signal.
    Date: 2015–03
  34. By: Alfonso Dufour (ICMA Centre, Henley Business School, University of Reading); Andrei Stancu; Simone Varotto
    Abstract: Using a rich dataset of high frequency historical information we study the determinants of European sovereign bond returns over calm and crisis periods. We find that the importance of the equity risk factor varies greatly over time and crucially depends on country risk. In low risk countries, government bond returns are negatively related to equity returns, regardless of market conditions. Investors appear to migrate from low risk government bonds to stocks in calm periods and in the opposite direction when markets are under stress. On the other hand, government bonds of high risk countries lose their “safe-asset” status and exhibit more equity- like behaviour during the sovereign debt crisis, with positive and strongly significant co- movements relative to the stock market. Interestingly, this segmentation of the government bond market results in higher diversification benefits for fixed income investors and pension funds in periods of sovereign stress.
    Keywords: government bonds, subprime crisis, sovereign debt crisis, credit risk, liquidity risk, asset pricing
    JEL: G01 G12 G15 E43
    Date: 2014–12
  35. By: Constanza Martínez; Freddy Cepeda
    Abstract: Large value payment flows can be disrupted by several types of failures such as operational incidents, problems experienced by the administrator of the payments settlement system, outages in the communications networks and the inability of a participant to submit payments due to insufficient liquidity. During any of these incidents, the participants of the system can either decide to stop, delay or continue sending payment orders, which fundamentally depends on the elements that originated the disruption, as well as on the alternative liquidity sources available to each entity. By means of Tobit models with random effects we evaluated the payments activity of Colombian financial institutions. Our results suggest that participants’ reaction vary in accordance with the type of incident, along with the type of entity and its role in the market.
    Keywords: Payment system, operational incidents, payment reaction function.
    JEL: G21 E42 C24
    Date: 2015–03–24

This nep-ban issue is ©2015 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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.