nep-ban New Economics Papers
on Banking
Issue of 2016‒04‒23
seventeen papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. Small business lending: challenges and opportunities for community banks By Jagtiani, Julapa; Lemieux, Catharine
  2. Asset Encumbrance, Bank Funding and Financial Fragility By Toni Ahnert; Kartik Anand; Prasanna Gai; James Chapman
  3. Termination of Bank-Firm Relationships By Nakashima, Kiyotaka; Takahashi, Koji
  4. The impact of bank capital on economic activity - evidence from a mixed-cross-section GVAR model By Gross, Marco; Kok, Christoffer; Żochowski, Dawid
  5. A Comparison of the Lending Technologies between Private and Public Banks By UCHIDA Hirofumi
  6. Credit Funding and Banking Fragility: An Empirical Analysis for Emerging Economies By Alexander Guarín-López; Ignacio Lozano-Espitia
  7. How does bank capital affect the supply of mortgages? Evidence from a randomized experiment By Valentina Michelangeli; Enrico Sette
  8. Misure del rischio di credito nel finanziamento delle imprese e incidenza dei prestiti in default: un'analisi comparata per le banche europee By Giovanni Ferrii; Zeno Rotondi
  9. Social Capital and the Repayment of Microfinance Group Lending By Luminita Postelnicu
  10. Foreign Bank Identity: Does it Matter for Credit Growth? By Caroline Mehigan;
  11. Factors Affecting on Acceptance of Mobile Banking by Customers (Case Study: The Branches of Tejarat Bank in Guilan Province, Northern of Iran) By Mohammad Taleghani
  12. Pass-Through, Expectations, and Risks. What Affects Chilean Banks’ Interest Rates? By Michael Pedersen
  13. Bank Leverage and Monetary Policy's Risk-Taking Channel: Evidence from the United States By DellAriccia, Giovanni; Laeven, Luc; Suarez, Gustavo
  14. Essays on banking : Various aspects of the interaction between a firm and its creditor banks By Morales Acevedo, Paola
  15. Did bank borrowers benefit from the TARP program : the effects of TARP on loan contract terms By Berger, Allen N.; Makaew, Tanakorn; Roman, Raluca
  16. Corporate Resilience to Banking Crises: The Roles of Trust and Trade Credit By Ross Levine; Chen Lin; Wensi Xie
  17. Non-personal Guaranteed Loans, Credit Availability, and Firm Performance (Japanese) By UESUGI Iichiro; UCHIDA Hirofumi; IWAKI Hiromichi

  1. By: Jagtiani, Julapa (Federal Reserve Bank of Philadelphia); Lemieux, Catharine (Federal Reserve Bank of Chicago)
    Abstract: The recent decline in small business lending (SBL) among U.S. community banks has spurred a growing debate about the future role of small banks in providing credit to U.S. small businesses. This paper adds to that discussion in three key ways. First, this research builds on existing evidence, suggesting that the decline in SBL by community banks is a trend that began at least a decade before the financial crisis. Second, the authors show that in the years preceding the crisis, small businesses increasingly turned to mortgage credit to fund their operations. Finally, this paper illustrates how community banks face an increasingly dynamic competitive landscape, including the entry of deep-pocketed alternative nonbank lenders using technology to find borrowers and to underwrite loans, often using unconventional lending practices. Although these lenders may pose a competitive threat to community banks, the authors explore emerging examples of partnerships and alliances among community banks and nonbank lenders.
    Keywords: Small business lending; Online lending; Lending technology; Shadow banking; Community banks; Large and small banks
    JEL: G21 G23
    Date: 2016–03–21
  2. By: Toni Ahnert; Kartik Anand; Prasanna Gai; James Chapman
    Abstract: How does asset encumbrance affect the fragility of intermediaries subject to rollover risk? We offer a model in which a bank issues covered bonds backed by a pool of assets that is bankruptcy remote and replenished following losses. Encumbering assets allows a bank to raise cheap secured debt and expand profitable investment, but it also concentrates risk on unsecured debt and thus exacerbates fragility and raises unsecured funding costs. Deposit insurance or wholesale funding guarantees induce excessive encumbrance and fragility. To mitigate such risk shifting, we study prudential regulatory tools, including limits on encumbrance, minimum capital requirements and surcharges for encumbrance.
    Keywords: Financial Institutions, Financial stability, Financial system regulation and policies
    JEL: D82 G01 G21 G28
    Date: 2016
  3. By: Nakashima, Kiyotaka; Takahashi, Koji
    Abstract: Using a matched sample of Japanese banks and firms, we examine what factors determine the termination of the bank-firm relationship. The constraints on bank capital in a Japanese banking crisis increased relationship terminations, implying the presence of a capital crunch in it. Moreover, the "flight-to-quality" behavior of bank prevailed instead of "evergreening" in relationship terminations. We also found that a longer duration of the relationship strongly decreased the probability of termination when Japan's banking system was stable. Such duration effects weakened when the system was fragile, however, the longer duration still had the intertemporal smoothing effects of loan prices.
    Keywords: matched lender-borrower data, bank-firm relationship, capital crunch, evergreening, flight to quality, duration effect, long-term contract.
    JEL: G01 G21 G28
    Date: 2016–01–06
  4. By: Gross, Marco; Kok, Christoffer; Żochowski, Dawid
    Abstract: We develop a Mixed-Cross-Section Global Vector Autoregressive (MCS-GVAR) model for the 28 EU economies and a sample of individual banking groups to study the propagation of bank capital shocks to the economy. We conduct various simulations with the model to assess how capital ratio shocks influence bank credit supply and aggregate demand. We distinguish between contractionary and expansionary deleveraging scenarios and confirm the intuitive result that only when banks choose to achieve higher capital ratios by shrinking their balance sheets would economic activity be at risk to contract. The model can be used to establish ranges of impact estimates for capital-related macroprudential policy measures, including counter-cyclical capital buffers, systemic risk buffers, G-SIB buffers, etc., also with a view to assessing the cross-country spillover effects of such policy measures. We highlight the importance for macroprudential policy makers to give clear guidance to banks as to how certain macroprudential policy measures should be implemented – depending on what measure is considered, during which phase in the business cycle, and for what particular purpose. JEL Classification: C33, E51, E58
    Keywords: euro area money markets, financial crisis, network analysis, spatial regressions
    Date: 2016–03
  5. By: UCHIDA Hirofumi
    Abstract: Using very unique data on loan screening by a large public bank and private banks in Japan, this paper empirically compares the lending technologies used for lending to small- and medium-sized enterprises between the two types of banks. We find that the public bank uses financial statement lending, but does not extensively use relationship lending or lending based on collateral or guarantee. These findings are in sharp contrast with those for private banks that extensively use all three types of lending technologies. We also find less frequent visits by loan officers at the public bank to, and the bank's greater geographic distance from, its borrowers, which may contribute to the public bank's less extensive screening. However, we also find uniqueness in the public bank's loan screening in the form of its greater emphasis on borrowers' business plans and on-site visits to borrowers' establishments.
    Date: 2016–03
  6. By: Alexander Guarín-López; Ignacio Lozano-Espitia
    Abstract: This paper proposes an empirical model to identify and forecast banking fragility episodes using information on the credit funding sources. We predict the probability of occurrence of such episodes 0, 3 and 6 months ahead employing a Bayesian Model Averaging of logistic regressions. The exercises use monthly balance sheet data since the middle of the nineties for the banking system of nine merging economies: Brazil, Colombia, Croatia, Czech Republic, Mexico, Peru, Poland, Taiwan and Turkey. Our findings suggest that the increasing use of wholesale funds to support credit expansion provides warning signals of banking frailness. The in-sample and out-of-sample predictions indicate that the proposed technique is a suitable tool for forecasting short-term financial fragility events. Therefore, monitoring these funds through our tool could become useful in prudential practice.
    Keywords: credit cycle, financial stability, wholesale funds, balance sheet, logistic model regression, Bayesian model averaging
    JEL: C11 C52 C53 G01 G21
    Date: 2016–03–04
  7. By: Valentina Michelangeli; Enrico Sette
    Abstract: We study the effect of bank capital on the supply of mortgages. We fully control for endogenous matching between borrowers, loan contracts, and banks by submitting randomized mortgage applications to the major online mortgage broker in Italy. We find that higher bank capital is associated with a higher likelihood of application acceptance and lower offered interest rates; banks with lower capital reject applications by riskier borrowers and offer lower rates to safer ones. Finally, nonparametric estimates of the probability of acceptance and of the offered rate show that the effect of bank capital is stronger when capital is low.
    Keywords: Mortgages, banks, household finance, randomized experiment
    Date: 2016–04
  8. By: Giovanni Ferrii (LUMSA); Zeno Rotondi (Unicredit)
    Abstract: We hypothesize that Italian banks suffer a competitive disadvantage in business lending. We estimate two cross sections of about 100 European banks for 2013: the first on the determinants of exposure to credit risk on performing business loans, the second on the determinants of non performing business loans. The results confirm our hypothesis. The disadvantage of Italian banks on performing business loans depends on four major factors, where there is a systematic reduction in capital required for business loans to banks: 1) from the core Eurozone countries; 2) using IRB models, not widespread in Italy; 3) from countries with "sector" supervision model (instead Italy has a "hybrid" model); 4) from countries that, unlike Italy, have more efficient insolvency procedures. There are three major factors on the incidence of default, which is lower for banks in countries: 1) that are Eurozone core; 2) with higher GDP growth over 2007-2013; 3) with more efficient insolvency procedures. These results call for system solutions to remove Italian banks. competitive disadvantage, to avert the risk that recovery in investment is stifled by a creeping structural credit crunch. Both financial markets development and improvements in the efficiency of insolvency procedures would help. However, the high road is launching a large-scale plan of government guarantees to support business lending. We argue that this public intervention would unlikely generate costs for the treasury and would be compatible with the public finance balances. Showing that the competitive disadvantage in business loans for Italian banks affects not only retail SMEs but also to corporate SMEs and is greatest for large corporates, we argue that it is necessary, as in Germany, to allow also mid-sized enterprises to access public guarantees.
    Date: 2016–04
  9. By: Luminita Postelnicu
    Abstract: Microfinance Performance and Social Capital: A Cross-country AnalysisThis paper investigates the relationship between the extent to which social capital formation is facilitated within different societies, and the financial and social performance of MFIs. We carry out a cross-country analysis on a dataset containing 100 countries. We identify different social dimensions that we use as proxies for how easy social capital can be developed in different countries, and we hypothesize that microfinance is more successful, both in terms of their financial and social aims, in societies that are more conducive to the development of social capital. Our empirical results support our hypothesis.
    Abstract: Defining Social Collateral in Microfinance Group Lending: Microfinance group lending with joint liability allows asset-poor individuals to replace physical collateral by social collateral. This paper provides a theoretical framework to evaluate the impact of social collateral pledged by group borrowers on group lending repayment. We take into account the external ties of group borrowers, i.e. the social ties linking borrowers to non-borrowers from their community, whereas previous work in this field has looked solely at internal ties (i.e. ties between group members). Our model stresses the impact of network configuration on the amount of social capital pledged as collateral. It shows why the group lending methodology works better in rural areas than in urban areas, namely because rural social networks are typically denser than urban ones, which results in higher social collateral.
    Abstract: The Economic Value of Social Capital:Empirical studies on the importance of social capital for poor households show divergent outcomes. This divergence may stem from the lack of a conceptual framework for capturing the social capital dimensions that deliver economic value to individuals. This paper defines individual social capital from an economic perspective and proposes a measurement based on the two dimensions of individual social capital that bring economic value to individuals: (1) informal risk insurance arrangements and (2) information advantages that arise from personal social networks. Using this measurement, I present a numerical application to argue that differing network configurations drive asymmetry of social interactions among individuals.
    Abstract: Social Capital and the Repayment of Microfinance Group Lending: A Case Study of Pro Mujer Mexico:In this paper, we investigate how social networks of group borrowers come into play in joint liability group lending. We use a large, original dataset with 802 mapped social networks of borrowers from Pro Mujer Mexico. We are the first to examine external ties, that is, social ties with individuals outside the borrowing group. We have two main findings. First, borrowers with stronger informal risk insurance arrangements are in better economic shape and have a higher capacity to pay than borrowers with weaker informal risk insurance arrangements. Second, borrowers who pledge valuable ties as social collateral have fewer repayment problems. We postulate that borrowers receive effective help from their ties in cases of need.
    Keywords: microfinance; social collateral; social capital; group lending; social capital measurement
    Date: 2016–01–20
  10. By: Caroline Mehigan (Department of Economics, Trinity College Dublin);
    Abstract: This paper provides robust evidence that the home country identity of a foreign-owned bank is an important consideration for credit growth. Among the set of foreign-owned banks we find significant differences in loan growth between banks from advanced than emerging source countries during the Global Financial Crisis. Further, we provide evidence that the regulatory framework prevailing in the home country is correlated with loan growth in the host economy. We show that foreign-owned banks from source countries with higher capital regulatory requirements were associated with significantly less loan growth pre-crisis, but provided a buffer during the crisis.
    Keywords: Cross-border banking, Foreign-owned banks, Credit growth, Crises.
    JEL: F15 F30 G15 G21
    Date: 2016–04
  11. By: Mohammad Taleghani (Rasht Branch , Islamic Azad University)
    Abstract: This study is conducted to identify factors affecting the acceptance of mobile banking by Tejarat bank customers. The main models used in this study are the adoption of technology model and innovation and publishing model. This research method is descriptive - survey and in terms of purpose is practical. The population of this study is customers of Tejarat Bank city of Rasht, and a sample of 393 of these clients has been investigated. To analyze the data and test hypotheses PLS structural equation modeling methods were used. The results indicate that that perceived usefulness and ease of use are two important factors were identified in the acceptance of mobile banking. While the perceived risk and costs have no impact on the acceptance of mobile banking.
    Keywords: Acceptance mobile bank, perceived usefulness, perceived risk, ease of use and Tejarat Bank.
    JEL: M15 M30 M10
  12. By: Michael Pedersen
    Abstract: The analysis in this paper is focused on how the pass-through of changes in the monetary policy rate (MPR), expectations of MPR changes, and different measures of risks affect banks’ interest rates. Nominal and real lending and deposit rates are examined as are different maturities for the cases of nominal lending rates. Several measures of risk are constructed and incorporated into the analysis to take into account credit, market, liquidity, and interest rate risk. Evidence suggests that the pass-through of MPR changes is symmetric and instantaneous complete for the majority of the lending horizons of commercial and consumer loans with nominal rates. Pass- through is symmetric for commercial loans and deposits with real rates, but not for mortgage loans. Generally, liquidity, market, and credit risks are important for the banks when setting interest rates, while interest rate risks affect mainly consumer loans and deposits with nominal rates. Inflation changes affect the real rates of commercial loans and deposits as well as nominal consumer loans with a long maturity. Inflation expectations are mainly taken into account when setting real rates of commercial and mortgage loans. Expectations of MPR changes affect principally the rates of mortgage loans.
    Date: 2016–03
  13. By: DellAriccia, Giovanni; Laeven, Luc; Suarez, Gustavo
    Abstract: We present evidence of a risk-taking channel of monetary policy for the U.S. banking system. We use confidential data on banks' internal ratings on loans to businesses over the period 1997 to 2011 from the Federal Reserve's survey of terms of business lending. We find that ex-ante risk taking by banks (measured by the risk rating of new loans) is negatively associated with increases in short-term interest rates. This relationship is more pronounced in regions that are less in sync with the nationwide business cycle, and less pronounced for banks with relatively low capital or during periods of financial distress.
    Keywords: banks; interest rates; leverage; Monetary policy; risk
    JEL: E43 E52 G21
    Date: 2016–04
  14. By: Morales Acevedo, Paola (Tilburg University, School of Economics and Management)
    Abstract: This thesis consists of three chapters in banking. The first one studies the impact of emotions on real-world decisions made by loan officers by analyzing the loan conditions of loans granted immediately after a bank branch robbery. The second one analyses the repayment decisions of firms with multiple loans that, for liquidity constraints or strategic reasons, stop making payments in some but not all their loans. The third one analyses the causal link between the length of the credit bureaus retention time and the subsequent behavior by lenders and borrowers. It exploits a variation in retention times, provided by the introduction of the Habeas Data law in Colombia.
    Date: 2016
  15. By: Berger, Allen N.; Makaew, Tanakorn; Roman, Raluca (Federal Reserve Bank of Kansas City)
    Abstract: We study the effects of the Troubled Asset Relief Program (TARP) on loan contract terms to businesses borrowing from recipient banks. Using a difference-in-difference analysis, we find that TARP led to more favorable terms to these borrowers in all five contract terms studied – loan amounts, spreads, maturities, collateral, and covenants. This suggests recipient banks' borrowers benefited from TARP. These findings are statistically and economically significant, and are robust to dealing with potential endogeneity issues and other checks. {{p}} The contract term improvements are concentrated primarily among safer borrowers, consistent with a decrease in the exploitation of moral hazard incentives. Benefits extended to both relationship and non-relationship borrowers, and to term loan, revolver, and other loan borrowers. Results contribute to the TARP benefits-costs debate, by adding to the list of benefits of the program.
    Keywords: Bailout; Bank loans; Financial crisis; TARP
    JEL: G01 G21 G28
    Date: 2015–09–01
  16. By: Ross Levine; Chen Lin; Wensi Xie
    Abstract: Are firms more resilient to systemic banking crises in economies with higher levels of social trust? Using firm-level data in 34 countries from 1990 through 2011, we find that liquidity-dependent firms in high-trust countries obtain more trade credit and suffer smaller drops in profits and employment during banking crises than similar firms in low-trust economies. The results are consistent with the view that when banking crises block the normal banking-lending channel, greater social trust facilitates access to informal finance, cushioning the effects of these crises on corporate profits and employment.
    JEL: D22 G01 G21 G32 Z13
    Date: 2016–04
  17. By: UESUGI Iichiro; UCHIDA Hirofumi; IWAKI Hiromichi
    Abstract: This paper focuses on a non-personal guaranteed loan program introduced by the Small and Medium Enterprise (SME) Unit of Japan Finance Corporation in FY2004 and examines its impact on borrowers' credit availability and ex-post performance to find the following. First, the number of non-personal guaranteed loans had been low since the introduction of the program, but it increased rapidly around the adoption of the Guideline on Personal Guarantees of Business Owners in February 2014. Second, the creditworthiness among non-personal guaranteed loan users, measured by their internal credit ratings and capital ratio, is significantly higher than that of personal guaranteed loan users. Also, the creditworthiness of non-personal guaranteed users after the adoption of the Guideline is even higher than before. Third, the ex-post performance among non-personal guaranteed loan users is better than that among guaranteed loan users except for the period shortly after the start of the program. Surprisingly, the above results contrast with those that our previous study (Uesugi, Uchida, and Iwaki (2015, in Japanese)) found for users of the non-collateralized loan program. They are actually less creditworthy and perform worse than collateralized loan users, while being less credit constrained. One of the possible reasons for the "success" of non-personal guaranteed loan program is the requirement of a debt covenant contract, which is effective in screening eligible borrowers. It was also an additional change in the program in February 2014 in which creditworthy firms are exempt from additional interest payment for their non-personal guaranteed loans that further improved the creditworthiness of the non-personal guaranteed loan users. The contrasting results for the non-personal guaranteed and non-collateralized loan programs reiterate the importance of careful design of loan programs.
    Date: 2016–03

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