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on Banking |
| By: | Guglielmo Maria Caporale; Suman Lodh; Monomita Nandy |
| Abstract: | This paper examines the impact of the recent global financial crisis on the cost of debt capital (syndicated loans) in a leading emerging market, namely China, using difference-in-differences and GARCH approaches. Before the crisis China adopted banking reforms allowing entry of foreign banks and more domestic participation in the syndicated loan market. As a result, during the crisis the volume of syndicated loans grew steadily, in contrast to other countries. In addition, the amount of foreign syndicated loans decreased and average maturity increased compared to the precrisis period. Our findings provide useful information to policy makers to devise effective responses to financial crises. |
| Keywords: | Loan Spread, Loan Amount, Loan Maturity, China, Financial Crisis |
| JEL: | G21 G32 P34 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1481&r=ban |
| By: | OGURA Yoshiaki; OKUI Ryo; SAITO Yukiko |
| Abstract: | We demonstrate theoretically and empirically that monopolistic or collusive banks will keep lending to a loss-making firm at an interest rate lower than the prime rate if the firm is located in an influential position in an inter-firm supply network. An influential firm generates a positive externality, and its exit damages sales in the supply network. To internalize this externality, the banks may forbear on debt collection and/or bail out such influential firms when the cost to support the loss-making influential company can be recouped by imposing high interest rates on less influential companies. The analytical model shows that such forbearance can improve welfare. Our empirical study, performed using a unique dataset containing information about inter-firm transactions, provides evidence for such network-motivated lending decisions. In particular, this effect is observed more clearly at less credit-worthy firms whose main bank is a regional bank. Notably, we observe that such banks are often dominant lenders in the local loan market, and most of their clientele do not have direct access to the stock and bond markets. |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:15057&r=ban |
| By: | Robert E. Hall; Ricardo Reis |
| Abstract: | Since 2008, the central banks of advanced countries have borrowed trillions of dollars from their commercial banks in the form of interest-paying reserves and invested the proceeds in portfolios of risky assets. We investigate how this new style of central banking affects central banks' solvency. A central bank is insolvent if its requirement to pay dividends to its government exceeds its income by enough to cause an unending upward drift in its debts to commercial banks. We consider three sources of risk to central banks: interest-rate risk (the Federal Reserve), default risk (the European Central Bank), and exchange-rate risk (central banks of small open economies). We find that a central bank that pays dividends equal to a standard concept of net income will always be solvent---its reserve obligations will not explode. In some circumstances, the dividend will be negative, meaning that the government is making a payment to the bank. If the charter does not provide for payments in that direction, then reserves will tend to grow more in crises than they shrink in normal times. To prevent this buildup, the charter needs to provide for makeup reductions in payments from the bank to the government. We compute measures of the financial strength of central banks at the end of 2013, and discuss how different institutions interact with quantitative easing policies to put these banks in less or more danger of instability. We conclude that the risks to financial stability are real in theory, but remote in practice today. |
| JEL: | E42 E58 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21173&r=ban |
| By: | Aiello, Francesco; Bonanno, Graziella |
| Abstract: | Banking is increasingly a-spatial. However, the environment matters for small banks. Indeed, they are embedded in narrowed markets and hence benefit from proximity to their member-customers. By referring to multilevel approach, this article aims at measuring how much the performance of Italian mutual-cooperative banks is determined by both geographical (provincial level) and individual characteristics (small bank level). The effect of local markets explains 28.27% of bank heterogeneity in the empty multilevel model and 33% in the most extended model. Moreover, it is found that bank efficiency increases with market concentration and demand density and decreases with branching in local markets. |
| Keywords: | Multilevel model; mutual-cooperative banks; local markets; cost efficiency |
| JEL: | C13 C21 D00 G21 R19 |
| Date: | 2015–05–16 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:64399&r=ban |
| By: | Carroll, James (Central Bank of Ireland); McCann, Fergal (Central Bank of Ireland); O'Toole, Conor (Central Bank of Ireland) |
| Abstract: | This Letter describes the use of personal guarantees (PGs) in Irish SME bank lending. To date, domestic or international evidence on this topic has been extremely sparse. Using data from the Red C / Department of Finance SME Credit Demand Survey, we show that one third of successful finance applications in Ireland from September 2012 to 2014 have a PG attached, with the most recent data suggesting that this rate was decreasing in 2014. Consistent with banks using PGs as a deterrent to default for borrowers perceived to be riskier, we find that PG usage is higher for new loans to smaller firms (in terms of both employment and turnover), younger firms, innovative firms, non-exporting firms and firms that made a loss in the previous six months. PGs are more prevalent among higher-value loans, suggesting PGs may also be used to reduce potential Loss Given Default. We also find that firms in the construction and wholesale/retail sector are most likely to have a PG attached to new lending. Finally, we find strong evidence that PGs are used in tandem with other forms of tangible business collateral such as land, buildings, machinery and other assets. |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:ecolet:06/el/15&r=ban |
| By: | Schuh, Scott (Federal Reserve Bank of Boston); Stavins, Joanna (Federal Reserve Bank of Boston) |
| Abstract: | In 2012, the number of consumer payments did not change significantly from 2010 as the economy settled into steady expansion following the financial crisis and recession. After increasing by 28 percent from 2008 to 2010, cash payments by consumers fell back by 10 percent from 2010 to 2012, while the share of cash payments dropped for a third straight year to 26.8 percent. However, the number and dollar value of cash withdrawals and the dollar value of cash holdings by consumers increased in 2012. Credit and charge card payments by consumers, which declined in 2009, rebounded further, increasing by 14 percent from 2010 to 2012. The steady trend decline in paper check payments by consumers continued. Debit cards and cash continued to account for the two largest shares of consumer payments in 2012 (29.9 and 26.8 percent, respectively), but the credit share reached 21.6 percent—surpassing its highest level recorded in the SCPC in 2008. The 2011 and 2012 SCPC include methodological improvements to the measurement of prepaid cards and mobile banking and payments. In 2012, 52 percent of consumers had at least one type of prepaid card, up slightly from 2011; also in 2012, 36 percent of consumers used mobile banking and 18 percent made a mobile payment. The 2008–2012 SCPC contains results that may help researchers and policymakers identify potential indirect effects of Regulation II (the Durbin Amendment) on consumers and may help to inform the Federal Reserve’s new strategic plan for the payment system. |
| JEL: | D12 D14 E42 |
| Date: | 2014–09–29 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbdr:14-1&r=ban |
| By: | Frame, W. Scott (Federal Reserve Bank of Atlanta); Gerardi, Kristopher S. (Federal Reserve Bank of Atlanta); Willen, Paul S. (Federal Reserve Bank of Boston) |
| Abstract: | In the aftermath of the global financial crisis, policymakers in the United States and elsewhere have adopted stress testing as a central tool for supervising large, complex, financial institutions and promoting financial stability. Although supervisory stress testing may confer substantial benefits, such tests are vulnerable to model risk. This paper studies the risk-based capital stress test conducted by the Office of Federal Housing Enterprise Oversight (OFHEO) for Fannie Mae and Freddie Mac, the two government-sponsored enterprises (GSEs) that are central to the U.S. housing finance system. This research aims to identify the sources of the stress test's spectacular failure to detect the growing risk and ultimate financial distress at these GSEs as mortgage market conditions deteriorated in 2007 and 2008. The analysis focuses on a key element of OFHEO's stress test, the models used to predict default and prepayment of 30-year fixed-rate mortgages. |
| Keywords: | bank supervision; stress test; model risk; residential mortgages; government-sponsored enterprises |
| JEL: | G21 G23 G28 |
| Date: | 2015–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:15-4&r=ban |