nep-ban New Economics Papers
on Banking
Issue of 2016‒02‒04
thirteen papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. Implicit rating: A potential new method to alert crisis on the interbank lending market By Berlinger, Edina
  2. Does Bank Branch Competition Alleviate Household Credit Constraints?Evidence from Korean Household Data By Saeyeon Oh; Jungsoo Park
  3. The countercyclical capital buffer in spain: an analysis of key guiding indicators By Christian Castro; Ángel Estrada; Jorge Martínez
  4. On the length of bank-firm relationships: An empirical application to a major French bank By Vítor Castro; Abdellah Bouchellal
  5. Short-Selling Bans and Bank Stability By Alessandro Beber; Daniela Fabbri; Marco Pagano
  6. Consumer revolving credit and debt over the life cycle and business cycle By Fulford, Scott L.; Schuh, Scott
  7. The role of bank credit in business financing in Poland By Anna Białek-Jaworska; Natalia Nehrebecka
  8. Are financial cooperatives crowded out by commercial banks in the process of financial sector development? By Anaïs Périlleux; Annabel Vanroose; Bert D’Espallier
  9. Liquidity and Equity Short term fragility: Stress-tests for the European banking system By Guillaume Arnould; Catherine Bruneau; Zhun Peng
  10. The Sovereign-Bank Diabolic Loop and ESBies By Marcus K. Brunnermeier; Luis Garicano; Philip R. Lane; Marco Pagano; Ricardo Reis; Tano Santos; David Thesmar; Stijn Van Nieuwerburgh; Dimitri Vayanos
  11. Bank Organization and Loan Contracting in Small Business Financing By Andrea Bellucci; Alexander Borisov; Alberto Zazzaro
  12. Risk Shifting with Fuzzy Capital Constraints By Simon Dubecq; Xavier Ragot; Benoit Mojon
  13. Credit Booms in Developing Countries: Are They Different from Those in Advanced and Emerging Market Countries? By Channarith Meng; Roberto Leon-Gonzalez

  1. By: Berlinger, Edina
    Abstract: A new measure called “implicit rating” is introduced which might be a component of an early warning system. The proposed methodology relies on the aggregation of experts’ knowledge hidden in the transactional data of the interbank market of unsecured loans. Banks are simultaneously assessing the creditworthiness of each other which is reflected in the partner limits and in the interest rates. In the Hungarian interbank market the overall trading volume and the average interest rate did not show any negative trends before the crisis of 2008, however the average implicit partner limit started to decrease several months earlier, hence it might serve as a stress indicator.
    Keywords: financial crisis, credit rationing, counterparty risk, partner limits, risk adjusted interest rate, network analysis
    JEL: D85 E42 G01 G15 G21
    Date: 2016–01–20
  2. By: Saeyeon Oh (Department of Economics, Sogang University, Seoul); Jungsoo Park
    Abstract: This paper provides empirical evidence on how bank branch competition affects household credit constraints based on Korean household and nation-wide bank branch data. The main findings are as follow. First, regression results show that banks alleviate household credit constraint when bank branch competition is strong. Second, relaxation of credit constraint occurs at the internal margin, while external margin is not affected. Finally, main beneficiaries from increase in banking competition are older households with head age 35 or above. These results are consistent with the fact that most Korean banks are multi-branch nation-wide banks transacting based on hard information. Banks are compelled to provide more household credit in order to compensate for the lower profitability in competitive market.
    Keywords: Bank branch competition, credit constraints, information asymmetry
    JEL: G01 G21 E44
    Date: 2015
  3. By: Christian Castro (Banco de España); Ángel Estrada (Banco de España); Jorge Martínez (Banco de España)
    Abstract: This paper analyses a group of quantitative indicators to guide the Basel III countercyclical capital buffer (CCB) in Spain. Using data covering three stress events in the Spanish banking system since the early 1960s, we describe a number of conceptual and practical issues that may arise with the Basel benchmark buffer guide (i.e. the credit-to-GDP gap) and study alternative specifications plus a number of complementary indicators. In this connection, we explore ways to deal with structural changes that may lead to some shortcomings in the indicators. Overall, we find that indicators of credit ‘intensity’ (where we propose the ratio of changes in credit to GDP), private sector debt sustainability, real estate prices and external imbalances can usefully complement the credit-to-GDP gap when taking CCB decisions in Spain.
    Keywords: countercyclical capital buffer, credit-to-GDP gap, guiding indicators, build-up phase, credit intensity, real estate prices, external imbalances, private sector debt sustainability, macroprudential policy
    JEL: E58 G01 G21 G28 G32
    Date: 2016–01
  4. By: Vítor Castro (Faculty of Economics, University of Coimbra, and Economic Policies Research Unit (NIPE)); Abdellah Bouchellal (Laboratoire d'Economie d'Orléans 2, Université d'Orléans, CNRS)
    Abstract: In this paper, we analyse whether the likelihood of the bank-firm relationships ending is dependent on their age or not and whether the respective behaviour is smooth or changes over their length. A parametric duration analysis is employed in this analysis. We start by estimating a continuous-time Weibull duration model over the duration of the relationships between 1185 firms and one of the major French banks. Our findings show that the likelihood of the relationships between them ending increases over their duration, but other specific factors to the firms, to the bank, to their own relationship and certain pricing conditions also play an important role in the duration of those relationships. Additionally, we extend the baseline Weibull duration model in order to allow for changepoints in the duration dependence parameter. The empirical findings support the presence of a change-point: positive duration dependence is observed for those relationships that last less than 23 years, but no evidence of duration dependence is found for longer events. Hence, we conclude that the likelihood of these relationships ending increases over time, but only until about 23 years of duration; then the relations become stronger and the likelihood of they ending is no longer dependent on its duration but on other conditionings.
    Keywords: Bank-firm relationships, duration analysis, duration dependence, change-points
    JEL: C41 G21
    Date: 2016
  5. By: Alessandro Beber (Cass Business Schooland CEPR); Daniela Fabbri (Cass Business School); Marco Pagano (Università di Napoli Federico II, CSEF, EIEF and CEPR)
    Abstract: In both the 2008-09 crisis and the 2011-12 euro debt crisis, security regulators imposed short selling bans, targeting them mainly at financial institutions. Their motivation was that a collapse in the stock price of banks could lead them to experience funding problems, which would trigger further price drops: short-selling bans of bank stocks would break this loop, stabilizing banks and enhancing their solvency. We test this hypothesis by canvassing the evidence produced by both crises, by estimating panel data regressions for 13,473 stocks in 2008 and 16,424 stocks in 2011 from 25 countries, taking also the endogeneity of short-selling bans into account. Contrary to the regulators’ intentions, in neither crisis short-selling bans have been associated with increased bank stability: upon being subject to a short-selling ban, financial institutions featured larger stock price drops, return volatility and probability of default, these effects being larger for more vulnerable banks. Moreover, the 2011 ban did not help to mitigate the “diabolic loop” between bank and sovereign insolvency risk during the euro-area sovereign debt crisis
    Keywords: short selling, ban, financial crisis, bank stability, systemic risk
    JEL: G01 G12 G14 G18
    Date: 2015–12–31
  6. By: Fulford, Scott L. (Boston College); Schuh, Scott (Federal Reserve Bank of Boston)
    Abstract: Despite the centrality of credit and debt in the financial lives of Americans, little is known about how U.S. consumers' access and utilization of credit changes in the short and long term, and how these changes are related to changes in U.S. consumers' debt. This paper uses data from the Federal Reserve Bank of New York Consumer Credit Panel (CCP), which contains a 5 percent sample of every credit account in the United States from 1999 to 2014 from the credit reporting agency Equifax. It examines how changing credit availability, debt, and utilization over the business cycle and the life cycle and across individuals relate to U.S. consumers' patterns of incurring, carrying, and paying off their debts. Much of this paper focuses on credit cards, since these have observable limits and are widely held, but the paper also briefly examines other forms of debt over the consumer life cycle.
    JEL: D14 D91 E21
    Date: 2015–10–01
  7. By: Anna Białek-Jaworska (Faculty of Economic Sciences, University of Warsaw); Natalia Nehrebecka (Faculty of Economic Sciences, University of Warsaw; National Bank of Poland)
    Abstract: The purpose of the paper is to verify the applicability of the pecking order theory to Polish non-finance companies’ inclination to use credit-based financing, as well as to indicate the long-term and short-term bank credit use determinants, including the monetary policy impact and the year effect. The analysis covers a sample of 800,000 observations across the period 1995-2011, using the GMM sys-tem method. The impact of foreign and government ownership, the share of exports, profitability, liquidity, fixed assets collateral and monetary policy are the determinants of the long-term and short-term bank loan in business financing investigated in the study. For small and medium-sized enterprises, a negative correlation is found between profitability and both long- and short-term loan financing, as well as between liquidity and short-term loan financing, ac-cording to what the pecking order theory assumes. A negative impact of restrictive monetary policy effected via interest rate and rate of exchange channels on Polish firms’ decisions as regards financing their business with short-term bank loan is found. The effect of the current and previous period payment gridlocks on short-term bank loan financing experienced by small and medium-sized enterprises should help banks adjust their loan offer to SMEs’ needs. The correlation between the bankruptcy risk level and companies’ short-term borrowing decisions – positive in the group of large firms and ad-verse among SMEs – should guide banks’ loan committees when modifying their creditworthiness analysis and loan application verification procedures. The use of (S)VAR panel method for investigating the response of the bank loan financing level to the interest rate, exchange rate and credit risk disturbance (shock) are the original aspects of the study. The empirical evidence that a higher share of liquid securities in assets reduces the use of short-term loan and that in small firms its level in a previous period is positively correlated with the use of short-term bank loan financing is the added value of the paper.
    Keywords: bank loan, long-term bank loan, short-term bank loan, pecking order theory, system GMM, (S)VAR
    JEL: G32 E52 G21 C23 C33
    Date: 2016
  8. By: Anaïs Périlleux (UNIVERSITE CATHOLIQUE DE LOUVAIN, Centre Interdisciplinaire de Recherche Travail, État et Société (CIRTES), Institut de Recherches Economiques et Sociales (IRES) and CERMi); Annabel Vanroose (Université libre de Bruxelles (ULB), CERMi and Vrije Universiteit Brussel (VUB)); Bert D’Espallier (KU LEUVEN, CERMi)
    Abstract: This paper investigates whether financial cooperatives are crowded out by commercial banks in the process of financial sector development. We use a self-constructed database (1990-2011) of financial cooperatives in 55 developing countries. Our empirical results are threefold. First, financial cooperatives tend to reach more members in countries where the commercial banking sector is weak. This validates their role as a market failure solution. Second, in the process of commercial bank expansion, financial cooperatives run the risk of being crowded out. Third, financial cooperatives seem to benefit from some kind of bank presence, especially as far as savings mobilization is concerned.
    Keywords: Financial cooperatives, Microfinance, Competition, Crowding out, Financial Sector Development
    JEL: G21 L31 O16 P13
    Date: 2016–01–06
  9. By: Guillaume Arnould (Centre d'Economie de la Sorbonne); Catherine Bruneau (Centre d'Economie de la Sorbonne); Zhun Peng (Université d'Evry - EPEE)
    Abstract: This paper investigates the impact of extreme shocks on stock and bond markets on listed European banks. The originality of our approach consists in dealing jointly with stock and bond markets and taking into account their interdependencies in case of extreme events by using a specific CVRF (CVine Risk Factor) model which combines copulas and a factorial structure. Moreover, contrary to what is generally done in the literature, we do not focus only on the responses of the stock returns but we also examine the response of the balance sheets of the banks and particularly of their short term assets in order to assess their fragility in terms of liquidity. Our main findings are the following: 1) the nature of the banks' fragility has changed: today, the interest rate risk should be the first concern before the equity risk, as the banks have extensively increased their exposition to bond market due to flight-to-quality reactions and to large investments in governments bonds after the rescue operations the banks have benefited; 2) in case of a surge in the interest rate and in the links between stock and bond returns, the portfolios of the biggest banks in Europe would experience very severe shortfalls for both equity and liquidity buffers. Accordingly regulators should monitor the evolution of dependencies between assets and should pay utmost attention to the positive links between stock and bond returns
    Keywords: Stress-test; Financial Stability; Extreme Risks; Bank Balance Sheet; Systemic Risk; Copula; Risk factors
    JEL: F32 G17 G21
    Date: 2015–12
  10. By: Marcus K. Brunnermeier (Princeton University); Luis Garicano (London School of Economics); Philip R. Lane (Trinity College Dublin); Marco Pagano (University of Naples Federico II and EIEF); Ricardo Reis (Columbia University); Tano Santos (Columbia Business School); David Thesmar (HEC Paris); Stijn Van Nieuwerburgh (New York University Stern Business School); Dimitri Vayanos (London School of Economics)
    Abstract: We propose a simple model of the sovereign-bank diabolic loop, and establish four results. First, the diabolic loop can be avoided by restricting banks domestic sovereign exposures relative to their equity. Second, equity requirements can be lowered if banks only hold senior domestic sovereign debt. Third, such requirements shrink even further if banks only hold the senior tranche of an internationally diversified sovereign portfolio known as ESBies in the euro-area context. Finally, ESBies generate more safe assets than domestic debt tranching alone; and, insofar as the diabolic loop is defused, the junior tranche generated by the securitization is itself risk-free.
    Date: 2016
  11. By: Andrea Bellucci (Institute for Applied Economic Research (IAW), Germany, MoFiR, Italy); Alexander Borisov (University of Cincinnati, USA, MoFiR, Italy); Alberto Zazzaro (Universit… Politecnica delle Marche, MoFiR - Ancona, Italy, CSEF, Naples, Italy)
    Abstract: Academic research recognizes that the organizational structure of banks could have implications for the financing of small businesses and entrepreneurial firms. In this chapter, we start by reviewing the underlying theoretical motivation and then summarize existing evidence. Overall, it is confirmed that the organization of lending institutions is important for the use and transmission of information, as well as credit availability for small businesses. Moreover, using a unique dataset of bank loans, we empirically document that loan contract characteristics such as interest rates and collateral requirements are sensitive to the hierarchical allocation of decision-making authority within the bank's organization.
    Keywords: Authority allocation, Bank organization structure, Small business financing
    Date: 2016–01
  12. By: Simon Dubecq (Banque centrale européenne); Xavier Ragot (OFCE); Benoit Mojon (Banque de France)
    Abstract: We construct a model where risk shifting can be moder-ated by capital requirements. Imperfect information about the level of capital per unit of risk, however, introduces uncertaintyabout the risk exposure of intermediaries. Over-estimation ofthe capital held by financial intermediaries, or the extent ofregulatory arbitrage, may induce households to wrongly infer from higher asset prices that the fundamentals of risky assets have improved. This mechanism can notably explain the lowrisk premia paid by U.S. financial intermediaries between 2000 and 2007 in spite of their increased exposure to risk through higher leverage. Moreover, the lower the level of the risk-free interest rate, the more risk is under-estimated
    Keywords: Risk shifting; Capital requirements
    JEL: G14 G21 E52
    Date: 2015–01
  13. By: Channarith Meng (National Bank of Cambodia); Roberto Leon-Gonzalez (National Graduate Institute for Policy Studies; Rimini Center for Economic Analysis (RCEA, Italy))
    Abstract: While earlier studies focus on credit booms in advanced and emerging market countries, this paper examines the characteristics and determinants of credit booms in developing countries. The results find that credit booms in developing countries are less likely to be associated with systemic banking crises. Rather, they are more likely to be the result of financial deepening than of dangerous buildups of financial risks; the prevention of credit booms in developing countries may thus be associated with higher opportunity costs in terms of foregone growth opportunities. Random effect probit and tobit regressions find some evidence that size of financial system and favorable macroeconomic conditions are among the determinants of credit booms. Although monetary and fiscal policies do not help in preventing credit booms in developing countries, we find that prudential regulations and supervision can play a much more effective role in preventing “bad” booms, while incurring substantially lower costs. Although “bad” booms are hard to identify ahead of time, the duration and size of booms, as well as the level of credit aggregates, appear to be useful indicators in determining them.

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