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on Banking |
| By: | Miguel Sarmiento; Jorge E. Galán |
| Abstract: | We present a stochastic frontier model with random inefficiency parameters which is able to capture the influence of risk-taking on bank efficiency and that distingues those effects among banks with different characteristics. Cost and profit efficiency are found to be over- and underestimated when risk measures are not accurately modeled. We find that more capitalized banks are more cost and profit efficient, while banks assuming more credit risk are less cost efficient but more profit efficient. The magnitude of these effects vary with bank’s size and affiliation. Liquidity is found to affect cost efficiency only for domestic banks. Large and foreign banks benefit more from higher credit and market risk exposures, while small and domestic banks find more advantageous to be more capitalized. We identify some channels that explain these differences and provide insights for macroprudential regulation. |
| Keywords: | Bank Efficiency, Bayesian Inference, Heterogeneity, Random Parameters, Risk-Taking, Stochastic Frontier Models. |
| JEL: | C11 C23 C51 D24 G21 G32 |
| Date: | 2015–07–09 |
| URL: | http://d.repec.org/n?u=RePEc:col:000094:013254&r=ban |
| By: | Morais, Bernardo (Board of Governors of the Federal Reserve System (U.S.)); Peydro, Jose Luis (Universitat Pompeu Fabra); Ruiz, Claudia (World Bank) |
| Abstract: | We identify 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. We find 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 QE. Moreover, low foreign monetary policy rates and expansive QE 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 QE increases risk-taking in emerging markets more than it improves the real outcomes of firms. |
| Keywords: | Credit channel of monetary policy; financial globalization; quantitative easing (QE); credit supply; risk-taking; foreign banks. |
| JEL: | E44 E52 E58 G01 G21 G28 |
| Date: | 2015–07–02 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1137&r=ban |
| By: | Tomiyuki Kitamura (Bank of England); Ichiro Muto (Bank of Japan); Ikuo Takei (Bank of Japan) |
| Abstract: | We estimate interest rate pass-through in the loan market using an individual bank-based panel dataset from Japan. Previous studies using data from European countries have presented a number of common findings, including that banks with a high proportion of relationship lending tend to set lower pass-through. In this respect, we have obtained similar results using a dataset for Japan going back to the early 2000s. We further examine the influence of borrowing firms' balance sheet characteristics on loan interest rate pass-through, and find that these factors are also important determinants for pass-through dispersion. However, we also find that after the recent global financial crisis, even banks with a high proportion of relationship lending have largely lowered loan interest rates by raising pass-through, and that pass-through has not necessarily been determined in accordance with borrowing firms' balance sheet characteristics. These results differ from those of recent studies on European countries. Possible background factors explaining this change are that (i) pressure to lower loan interest rates has risen due to extensive monetary easing and greater lending competition among banks, while Japan's banking system as a whole has maintained its resilience in the post-crisis period; (ii) demand for bank loans has increased substantially due to disruptions in the market for alternative funding sources, such as commercial paper and corporate bonds; and (iii) public measures to increase bank loans have been broadly introduced in Japan. |
| Keywords: | Loan Interest Rate; Pass-Through; Relationship Lending; Financial Crisis |
| JEL: | E43 E44 G21 |
| Date: | 2015–07–10 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojwps:wp15e06&r=ban |
| By: | Juliane Begenau; Monika Piazzesi; Martin Schneider |
| Abstract: | This paper studies U.S. banks' exposure to interest rate and credit risk. We exploit the factor structure in interest rates to represent many bank positions in terms of simple factor portfolios. This approach delivers time varying measures of exposure that are comparable across banks as well as across the business segments of an individual bank. We also propose a strategy to estimate exposure due to interest rate derivatives from regulatory data on notional and fair values together with the history of interest rates. We use the approach to document stylized facts about the recent evolution of bank risk taking. |
| JEL: | E4 E43 E58 G0 G2 G21 |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21334&r=ban |
| By: | Heather D. Gibson; Stephen G. Hall,; George S. Tavlas |
| Abstract: | We quantify the linkages among banks’ equity performance and indicators of sovereign stress by using panel GMM to estimate a three-equation system that examines the impact of sovereign stress, as reflected in both sovereign spreads and sovereign ratings, on bank share prices. We use data for a panel of five euro-area stressed countries. Our findings indicate that a long-run recursive relationship between sovereigns and banks operated during the euro-area crisis. Specifically, for the five crisis countries considered shocks to sovereign spreads fed-through to sovereign ratings, which affected commercial banks’ equity-prices. Our results also point to the importance of using levels of equity prices -- rather than rates of return -- in measuring banks’ performance. The use of levels allows us to derive the determinants of long-run equity prices. |
| Keywords: | euro-area financial crisis; sovereign-bank linkages; banks’ performance; banking stability |
| JEL: | E3 G01 G14 G21 |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:lec:leecon:15/13&r=ban |
| By: | Kopoin, Alexandre |
| Abstract: | This paper studies the link between cross-border banking activities and the international propagation of real and financial shocks. We develop a two-country DSGE model with a bank capital channel and a financial accelerator, in which banks grant loans to domestic as well as to foreign firms. The model economy is calibrated to data from the U.S. and Canada. Our results suggest that following a positive technology shock and a tightening of home monetary policy, the existence of cross-border banking activities tends to amplify the transmission channel in both the domestic and the foreign country. However, cross-border banking activities tend to weaken the impact of shocks on foreign and home consumption because of the cross-border saving possibility between the two countries. Finally, our simulations suggest that under cross-border banking, correlations between macroeconomic variables of both countries become greater than in the absence of international banking activities. Overall, our results show sizable spillover effects of cross-border banking on macroeconomic dynamics and suggest cross border banking is an important source of the synchronization of business cycles between the U.S. and Canada. |
| Keywords: | Cross-border banking; bank capital, interest rate and exchange rate channels; business cycle synchronization. |
| JEL: | E44 E52 G21 |
| Date: | 2015–02–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:65515&r=ban |
| By: | Fernando Alvarez; Gadi Barlevy |
| Abstract: | This paper explores whether mandatory disclosure of bank balance sheet information can improve welfare. In our benchmark model, mandatory disclosure can raise welfare only when markets are frozen, i.e. when investors refuse to fund banks in the absence of balance sheet information. Even then, intervention is only warranted if there is sufficient contagion across banks, in a sense we make precise within our model. In the same benchmark model, if in the absence of balance sheet information investors would fund banks, mandatory disclosure cannot raise welfare and it will be desirable to forbid banks to disclose their financial positions. When we modify the model to allow banks to engage in moral hazard, mandatory disclosure can increase welfare in normal times. But the case for intervention still hinges on there being sufficient contagion. Finally, we argue disclosure represents a substitute to other financial reforms rather than complement them as some have argued. |
| JEL: | G01 G18 G33 |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21328&r=ban |
| By: | Sergio Lagoa (Instituto Universitário de Lisboa – ISCTE and Dinamia’Cet-IUL.); Abdul Suleman (Instituto Universitário de Lisboa – ISCTE and BRU-IUL) |
| Abstract: | The profit-oriented financial sector has grown in importance and influence, leading some authors to talk about a financialised economy. The question we raise in this paper is what is the role of non-profit oriented financial institutions and public programmes in the microfinance segment. We conclude that in this market there is a large diversity of institutions and non-for profit organisations have a significant role. Our analysis also shows that the diversity of institutional forms is important to foster market dimension, guarantee a good cover of the several vulnerable groups and a diversified offer of other services besides microcredit. Moreover, some specific institutions have an effect on the composition of the market in terms of personal and business loans, on loans terms, loans size, credit to targeted clients, and offer of other financial services. Moreover, we study how financial institutions cluster around some key variables. Finally, we fuzzy cluster microcredit national markets and describe how institutions types differ across the clusters. |
| Keywords: | microfinance, financial institutions |
| JEL: | G21 |
| Date: | 2014–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:fes:wpaper:wpaper72&r=ban |
| By: | Manuel Adelino; Antoinette Schoar; Felipe Severino |
| Abstract: | This paper addresses two critiques by Mian and Sufi (2015a, 2015b) that were released in response to the results documented in Adelino, Schoar and Severino (2015). We confirm that none of the results in our previous paper are affected by the issues put forward in these critiques; in particular income overstatement does not drive any of our results. Our analysis shows that the origination of purchase mortgages increased across the whole income distribution during the 2002-2006 housing boom, and did not flow disproportionately to low-income borrowers. In addition, middle- and high-income, as well as middle- and high-credit-score borrowers (not the poor), represent a larger fraction of delinquencies in the crisis relative to earlier periods. The results are inconsistent with the idea that distortions in the origination of credit caused the housing boom and the crisis and are more consistent with an expectations-based view where both home buyers and lenders were buying into increasing housing values and defaulted once prices dropped. |
| JEL: | D30 G21 R30 |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21320&r=ban |
| By: | Wajid Hasan Shah (United Nations Economic and Social Commission for Asia and the Pacific (ESCAP)) |
| Abstract: | This policy brief discovers, for example, that SMEs are vital for growth and jobs in Bangladesh, accounting for 40 per cent of all employment. In comparison with large enterprises and microenterprises, SMEs have traditionally been underserved in terms of access to credit. However, more recently collateral-free loans through bank lending have become available to SMEs with the central bank’s growing focus on SME financing. Although official statistics suggest that the SME loan default rate is about two per cent, it is acknowledged that overall SME loan default figures in Bangladesh may have reached five or six per cent. |
| Keywords: | Small and medium enterprise, loan defaults, entrepreneurs, obstacles |
| JEL: | F1 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:unt:arpobr:apb41&r=ban |