nep-ban New Economics Papers
on Banking
Issue of 2015‒10‒17
thirteen papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. Financial Intermediation in a Global Environment By Nuguer Victoria
  2. Welcoming Remarks: Third Annual Community Banking in the 21st Century By Bullard, James B.
  3. Monetary Policy Transmission in Emerging Asia: The Role of Banks and the Effects of Financial Globalization By Nasha Ananchotikul; Dulani Seneviratne
  4. Small Business Borrowing and Peer-to-Peer Lending: Evidence from Lending Club By Adam Nowak; Amanda Ross; Christopher Yencha
  5. Optimal time-consistent macroprudential policy By Javier Bianchi; Enrique G Mendoza
  6. Análisis de Riesgo de los Deudores Hipotecarios en Chile By Andrés Alegría; Jorge Bravo
  7. Household debt and spending in the United Kingdom By Bunn, Philip; Rostom, May
  8. Motivating IT-Mediated Crowds: The Effect of Goal Setting on Project Performance in Online Crowdfunding By Zhuoxin Li; Sirkka L. Jarvenpaa
  9. Impact of E-Commerce on Organization Performance; Evidence from Banking Sector of Pakistan By Azeem, Muhammad Mehtab; Ozari, Assit.Prof. Dr.Cidgem; Marsap, Prof.Dr.Akin; Arhab, Prof. Dr.Said; Jilani, Abdul Haseeb
  10. Procyclicality of credit rating systems: how to manage it By Tatiana Cesaroni
  11. From financial to real economic crisis: Evidence from individual firm-bank relationships in Germany By Dwenger, Nadja; Fossen, Frank M.; Simmler, Martin
  12. Matching and credit frictions in the housing market By Eerola , Essi; Määttänen , Niku
  13. Intermediation in Networks By Siedlarek, Jan-Peter

  1. By: Nuguer Victoria
    Abstract: I develop a two-country DSGE model with global banks (financial intermediaries in one country lend to banks in the other country). Banks are financially constrained on how much they can borrow from households. The main goal is to obtain a framework that captures the international transmission of a financial crisis through the balance sheet of the global banks, as well as to explain the insurance mechanism of the international asset market. A negative shock to the value of the capital in one country generates a global financial crisis through the international interbank market. In this model, unconventional credit policies help to mitigate the effects of a financial disruption. The policies are carried out by the policy maker of the country directly hit by the shock. Consumers of that country are better off with policy than without it, while consumers from the other country are worse off.
    Keywords: Global financial crisis; global banking; asset prices; financial frictions
    JEL: G01 E44 F40 G21
    Date: 2015–03
  2. By: Bullard, James B. (Federal Reserve Bank of St. Louis)
    Abstract: September 30, 2015. St. Louis Fed President James Bullard welcomed attendees to the third annual community banking research and policy conference, hosted by the Federal Reserve System and the Conference of State Bank Supervisors. In addition to welcoming Federal Reserve Chair Janet Yellen to the conference, Bullard discussed regulatory burden and said more can be done to reduce that burden on community banks. He encouraged a healthy debate on these issues at this year's conference.
    Date: 2015–09–30
  3. By: Nasha Ananchotikul; Dulani Seneviratne
    Abstract: Given the heavy reliance on bank lending as the main source of financing in most Asian economies, banks could potentially play a pivotal role in monetary policy transmission. However, we find that Asia’s bank lending channel or, more broadly, credit channel of domestic monetary policy is not very strong at the aggregate level. Using bank-level data for nine Asian economies during 2000–2013, we show that heterogeneity of bank characteristics (e.g., ownership type, financial position), degree of foreign bank penetration of the domestic banking sector, and global financial conditions all have a bearing on the response of domestic credit to changes in domestic monetary policy, and may account for the apparently weak credit channel at aggregate level.
    Keywords: Monetary transmission mechanism;Asia;Emerging markets;Banks;Loans;Financial systems;Banking sector;Globalization;Monetary policy;Monetary policy transmission; bank lending channel; financial globalization
    Date: 2015–09–28
  4. By: Adam Nowak (West Virginia University, Department of Economics); Amanda Ross (West Virginia University, Department of Economics); Christopher Yencha (West Virginia University, Department of Economics)
    Abstract: This study is interested in the ability of borrowers and lenders to signal to each other in the peer-to-peer lending market. We focus on small business loans and investigate the relationship between the loan description that a borrower provides and the impact of this description on the potential funding of the loan by investors. We find that the loan descriptions in the data can be used to predict the probability that the entire loan will be funded. In addition, we also find that an index created from a textual analysis of the loan description can be used to forecast the performance of the loan; a 1 standard deviation increase in the index will decrease the odds of default by 14%. Thus, it appears as if investors are not making investment decisions based on improper signals.
    Keywords: small business borrowing, peer-to-peer lending
    JEL: D53 D82 D83 G14 G21
    Date: 2015–07
  5. By: Javier Bianchi; Enrique G Mendoza
    Abstract: Collateral constraints widely used in models of financial crises feature a pecuniary externality: Agents do not internalize how borrowing decisions taken in "good times" affect collateral prices during a crisis. We show that agents in a competitive equilibrium borrow more than a financial regulator who internalizes this externality. We also find, however, that under commitment the regulator's plans are time-inconsistent, and hence focus on studying optimal, time-consistent policy without commitment. This policy features a state-contingent macroprudential debt tax that is strictly positive at date t if a crisis has positive probability at t + 1. Quantitatively, this policy reduces sharply the frequency and magnitude of crises, removes fat tails from the distribution of returns, and increases social welfare. In contrast, constant debt taxes are ineffective and can be welfare-reducing, while an optimized "macroprudential Taylor rule" is e effective but less so than the optimal policy.
    Keywords: Financial crises, macroprudential policy, systemic risk, collateral constraints
    Date: 2015–10
  6. By: Andrés Alegría; Jorge Bravo
    Abstract: In this paper we characterize the bank mortgage borrowers in Chile and propose models to assess their credit risk. In particular, we study the mortgagors’ payment profile based on an empirical analysis that includes unnamed information of more than 150,000 new debtors during the period 2012-2014. Both the specify features of mortgage debt as initial loan amount and maturities, as well as debtor´s characteristics as credit history, illiquidity and coverage ratio (the number of months of mortgage payments a debtor can cover with his credit line, a proxy for its financial burden) are related to the probability of mortgage default
    Date: 2015–09
  7. By: Bunn, Philip (Bank of England); Rostom, May (Bank of England)
    Abstract: Household debt rose sharply in the United Kingdom in the decade before the financial crisis. This paper uses household level microdata to investigate the relationship between mortgage debt and consumption. We find evidence that more highly indebted groups of households made larger cuts in spending following the financial crisis: spending cuts associated with debt may have reduced the level of aggregate private consumption by up to 2% after 2007. Survey data suggest that large cuts in spending by indebted households after 2007 may reflect a combination of tighter credit conditions and increased concerns about ability to make future debt repayments. The potential for household indebtedness to lead to large adverse impacts on aggregate demand was an important reason why the Bank of England’s Financial Policy Committee took policy action at its June 2014 meeting.
    Keywords: Household spending; debt
    JEL: D10 D11 D14 E21
    Date: 2015–10–06
  8. By: Zhuoxin Li (Carroll School of Management, Boston College, 140 Commonwealth Ave, Chestnut Hill, MA 02467); Sirkka L. Jarvenpaa (McCombs School of Business, The University of Texas at Austin, 2110 Speedway Stop B6500, Austin, TX, 78712)
    Abstract: In traditional organizations, stretch goals - difficult and seemingly unattainable goals - have been much debated for their paradoxical effects. Recently, their use as a managerial instrument in IT-mediated crowds has increased. Using online crowdfunding on Kickstarter as an example, we investigate how the use of stretch goals influences project performance. Empirical results show that the use of stretch goals is associated with better project funding performance. Such positive effect is even stronger for projects with higher levels of community engagement. However, stretch goals are less effective in project categories where stretch goals are less novel. Our empirical results also reveal that the use of stretch goals significantly increases a project’s likelihood of delivery delay. These results shed light on the potential dark side of using stretch goals in IT-mediated crowds.
    Keywords: goal setting; stretch goals; IT-mediated crowds; motivation; crowdfunding; online community; engagement
    JEL: D12 C81 L26 L86
    Date: 2015–09
  9. By: Azeem, Muhammad Mehtab; Ozari, Assit.Prof. Dr.Cidgem; Marsap, Prof.Dr.Akin; Arhab, Prof. Dr.Said; Jilani, Abdul Haseeb
    Abstract: In the recent years, E-banking is one of the most important revolutions in the banking sector of Pakistan. This study measures the impact of e commerce (B2B, B2C, C2C) on organization performance (Business operation, Job performance, Customer satisfaction).The sample of this research is collected from the banking sector of Pakistan from the period of 6 to 8 months by using 50 samples filling online from the period 2012 to 2013. Results show that there is positive relationship between e-commerce and organization performance and by implementing e commerce; organizations improve its performance in terms of business operations, job performance and customer satisfaction. Major research has been withdrawn from MBA thesis subject Impact of foreign banks on domestic banks businesses.
    Keywords: Electronic commerce, organization performance, business to business, business to customer, customer to customer.
    JEL: E5
    Date: 2015–06
  10. By: Tatiana Cesaroni (Bank of Italy)
    Abstract: This paper evaluates the characteristics of a Point in Time (PiT) rating approach for the estimation of firms’ credit risk in terms of procyclicality. To this end I first estimate a logit model for the probability default (PD) of a set of Italian non-financial firms during the period 2006-2012, then, in order to address the issue of rating stability (hedging against rating changes) during the financial crisis, I study the effectiveness of ex post smoothing of PDs in terms of obligors’ migration among rating risk grades. As a by-product I further discuss and analyse the role played by the choice of rating scale in producing ratings stability. The results show that ex post PD smoothing is able to remove business cycle effects on the credit risk estimates and to produce a mitigation of obligors’ migration among risk grades over time. The rating scale choice also has a significant impact on rating stability. These findings have important policy implications in banking sector practices in terms of the stability of the financial system.
    Keywords: procyclicality, business cycle, financial stability, PiT rating system, long run probability default
    JEL: C32 E32 G24 G32
    Date: 2015–09
  11. By: Dwenger, Nadja; Fossen, Frank M.; Simmler, Martin
    Abstract: What began as a financial crisis in the United States in 2007-2008 quickly evolved into a massive crisis of the global real economy. We investigate the importance of the bank lending and firm borrowing channel in the international transmission of bank distress to the real economy - in particular, to real investment and labor employment by nonfinancial firms. We analyze whether and to what extent firms are able to compensate for the shortage in loan supply by switching banks and by using other types of financing. The analysis is based on a unique matched data set for Germany that contains firm-level financial statements for the 2004-2010 period together with the financial statements of each firm's relationship bank(s). We use instrumental variable estimations in first differences to eliminate firm- and bankspecific effects. The first stage results show that banks that suffered losses due to proprietary trading activities at the onset of the financial crisis reduced their lending more strongly than non-affected banks. In the second stage, we find that firms whose relationship banks reduce credit supply downsize their real investment and labor employment significantly. This effect is larger for firms that are unable to provide much collateral. We document that firms partially offset reduced credit supply by establishing new bank relationships, using internal funds, and issuing new equity.
    Keywords: financial crisis,contagion,credit rationing,relationship lending,investment
    JEL: D22 D92 E44 G01 G20 G31 H25 H32
    Date: 2015
  12. By: Eerola , Essi (Bank of Finland Research); Määttänen , Niku (Research Institute of the Finnish Economy, Aalto University and HECER)
    Abstract: We study the interaction of matching and credit frictions in the housing market. In the model, risk-averse households may save or borrow in order to smooth consumption over time and finance owner housing. Prospective sellers and buyers meet randomly and bargain over the price. We analyze how borrowing constraints influence house price determination in the presence of matching frictions. We also show that credit frictions greatly magnify the effects of matching frictions. For instance, in the presence of matching frictions, a moderate tightening of the borrowing constraint increases idiosyncratic price dispersion and the average time-on-the-market substantially.
    Keywords: housing; borrowing constraint; matching
    JEL: C78 E21 R21
    Date: 2015–10–05
  13. By: Siedlarek, Jan-Peter (Federal Reserve Bank of Cleveland)
    Abstract: I study intermediation in networked markets using a stochastic model of multilateral bargaining in which players compete on different routes through the network. I characterize stationary equilibrium payoffs as the fixed point of a set of intuitive value function equations and study efficiency and the impact of network structure on payoffs. There is never too little trade but there may be an inefficiency through too much trade in states where delay would be efficient. With homogeneous trade surplus the payoffs for players that are not essential to a trade opportunity go to zero as trade frictions vanish.
    Keywords: bargaining; financial networks; intermediation; matching; middlemen; networks; over-the-counter markets; stochastic games
    JEL: C73 C78 L14
    Date: 2015–10–09

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