nep-ban New Economics Papers
on Banking
Issue of 2016‒04‒30
eleven papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. Measuring Systemic Risk Across Financial Market Infrastructures By Fuchun Li; Héctor Pérez Saiz
  2. Bank opacity and financial crises By Jungherr, Joachim
  3. The Real Effects of Bank-Driven Termination of Relationships: Evidence from Loan-level Matched Data By Nakashima, Kiyotaka; Takahashi, Koji
  4. An Econometric Evaluation of Bank Recapitalization Programs with Bank- and Loan-level Data By Nakashima, Kiyotaka
  5. What determines how banks respond to changes in capital requirements? By Bahaj, Saleem; Bridges, Jonathan; Malherbe, Frederic; O’Neill, Cian
  6. How Monetary Policy Changes Bank Liability Structure and Funding Cost. By M. Girotti
  7. Multiple Lenders, Temporary Debt Restructuring, and Firm Performance: Evidence from contract-level data By MIYAKAWA Daisuke; OHASHI Kazuhiko
  8. Opaque Assets and Rollover Risk By Toni Ahnert; Benjamin Nelson
  9. Median Response to Shocks: A Model for VaR Spillovers in East Asia By Fabrizio Cipollini; Giampiero Gallo; Andrea Ugolini
  10. Drivers of global liquidity and global bank flows: A view from the euro area By Mary Everett
  11. Does the Geographic Expansion of Banks Reduce Risk? By Goetz, Martin; Laeven, Luc; Levine, Ross

  1. By: Fuchun Li; Héctor Pérez Saiz
    Abstract: We measure systemic risk in the network of financial market infrastructures (FMIs) as the probability that two or more FMIs have a large credit risk exposure to the same FMI participant. We construct indicators of credit risk exposures in three main Canadian FMIs during the period 2007–11 and use extreme value methods to estimate this probability. We find large differences in the contribution to systemic risk across participants. We also find that when participants are in financial distress, they tend to create large credit exposures in two or more FMIs. Our results suggest that an appropriate oversight of FMIs may benefit from an in-depth system-wide analysis, which may have useful implications for the macroprudential regulation of the financial system.
    Keywords: Econometric and statistical methods, Financial stability, Payment clearing and settlement systems
    JEL: G21 G23 C58
    Date: 2016
  2. By: Jungherr, Joachim
    Abstract: This paper studies a model of endogenous bank opacity. In the model, bank opacity is costly for society because it reduces market discipline and encourages banks to take on too much risk. This is true even in the absence of agency problems between banks and the ultimate bearers of the risk. Banks choose to be inefficiently opaque if the composition of a bank’s balance sheet is proprietary information. Strategic behavior reduces transparency and increases the risk of a banking crisis. The model can explain why empirically a higher degree of bank competition leads to increased transparency. Optimal public disclosure requirements may make banks more vulnerable to a run for a given investment policy, but they reduce the risk of a run through an improvement in market discipline. The option of public stress tests is beneficial if the policy maker has access to public information only. This option can be harmful if the policy maker has access to banks’ private information.
    Keywords: bank opacity, bank runs, market discipline, bank competition, stress tests
    JEL: E44 G14 G21 G28
    Date: 2016
  3. By: Nakashima, Kiyotaka; Takahashi, Koji
    Abstract: We examine the effects of bank-driven terminations of bank-borrower relationships on the investments of borrowing firms by exploiting a matched dataset of Japanese banks and listed firms from 1991 to 2010. We find that while bank-driven terminations do not always affect investment, they do when the firms facing termination have difficulty in either establishing a new relationship or increasing borrowings within their existing relationship. Our findings coincide with the prediction of existing theoretical models whereby financial frictions in a matching process in credit markets play an important role in firm investment.
    Keywords: matched lender-borrower data, relationship termination, switching of relationships, establishment of new relationships.
    JEL: G01 G21 G28
    Date: 2016–01–16
  4. By: Nakashima, Kiyotaka
    Abstract: Public capital injections into the banking system are a comprehensive policy program aimed at reducing the financial risks faced by capital-injected banks, thereby stimulating their lending and profitability. This paper evaluates empirically two large-scale bank capital injections in Japan in 1998 and 1999. We begin by extracting the treatment effects of the public injections using bank-level panel data. Using a difference-in-difference estimator in two-way fixed-effects regression models, we find that the public injections significantly reduced the financial risks faced by the capital-injected banks, but did not stimulate their lending and profitability. Next, we investigate the factors that impeded bank lending following the capital injections using a matched sample of Japanese banks and their borrowers. By employing three-way fixed-effects regression models corresponding to the matched sample, we provide evidence that the deterioration of borrower creditworthiness inhibited not only the capital-injected banks, but also other banks, from lending more.
    Keywords: public capital injection, treatment effect, capital crunch, default risk, difference-in-difference estimator, three-way fixed-effects model.
    JEL: G01 G21 G28
    Date: 2015–09–17
  5. By: Bahaj, Saleem (Bank of England); Bridges, Jonathan (Bank of England); Malherbe, Frederic (London Business School and CEPR); O’Neill, Cian (Bank of England)
    Abstract: Legacy asset overhang and incentive to shift risk due to government guarantees can both affect bank capital issuance and lending decisions. We show that such frictions lead to ambiguous predictions on how one should expect a bank to react to a change in capital requirements. One sustained prediction is that lending is less sensitive to a change in capital requirements when lending prospects are good and legacy assets are healthy. Using UK bank regulatory data from 1989 to 2007, we find strong empirical support for this prediction.
    Keywords: Debt overhang; risk-shifting; bank capital; local projections
    JEL: G21 G32
    Date: 2016–04–15
  6. By: M. Girotti
    Abstract: U.S. banks obtain most of their funding from a combination of zero-interest deposits and interest-bearing deposits. Using local demographic variations as instruments for banks' liability composition, I show that when monetary policy tightens, banks with a larger proportion of zero-interest deposits on their balance sheet experience larger increases in their interest-bearing deposit rate. This happens because tight monetary policy reduces the quantity of zero-interest deposits available to banks. Banks react issuing more interest-bearing deposits, but pay an interest rate that increases with the quantity being borrowed. This new evidence supports the existence of the bank lending channel of monetary policy.
    Keywords: Banks, Deposits, Lending Channel, Monetary Policy.
    JEL: E44 E50 G21 L16
    Date: 2016
  7. By: MIYAKAWA Daisuke; OHASHI Kazuhiko
    Abstract: This paper empirically examines the cause and consequence of private debt restructurings out of court. Using unique contract-level data accounting for Japanese bank loans, we employ probit and multinomial logit estimations to study how demand and approval of debt restructuring are determined, as well as under what conditions one specific form of debt restructuring--temporary debt restructuring--is utilized. The results of our estimations show, first, that the demand of debt restructuring is systematically associated with firm characteristics and the relation-specific characteristics. Second, debt restructurings are more likely to take a "temporary" form when the number of lender banks is larger. Using propensity score matching difference-in-difference estimation, we further find that the performance of firms experiencing temporary debt restructuring significantly deteriorates in comparison with that of firms experiencing non-temporary debt restructuring. Furthermore, such pattern is more likely to be observed when lender banks have weaker balance sheet conditions. These results imply that temporary debt restructuring during our sample period was mainly used as de facto evergreening lending, which ended up deteriorating borrower creditworthiness.
    Date: 2016–03
  8. By: Toni Ahnert; Benjamin Nelson
    Abstract: We model the asset-opacity choice of an intermediary subject to rollover risk in wholesale funding markets. Greater opacity means investors form more dispersed beliefs about an intermediary’s profitability. The endogenous benefit of opacity is lower fragility when profitability is expected to be high. However, the endogenous cost of opacity is a “partial run,” whereby some investors receive bad private signals about profitability and run, even though the intermediary is solvent. We find that intermediaries choose to be transparent (opaque) when expected profitability is low (high). Intermediaries with less-volatile profitability are also more likely to choose to be opaque.
    Keywords: Financial Institutions, Financial stability
    JEL: G01 G2
    Date: 2016
  9. By: Fabrizio Cipollini (Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti", Università di Firenze); Giampiero Gallo (Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti", Università di Firenze); Andrea Ugolini (Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti", Università di Firenze)
    Abstract: We propose a procedure for analyzing financial interdependencies within an area of interest, interpreting a negative daily return in an Originator market as a VaR (i.e. the product of a volatility level and the corresponding α-quantile of a time independent probability distribution), and measuring the Median Response in the Destination market through its volatility associated with the one in the Originator and the reconstruction of the correlation structure between the two (through copula functions). We apply our methodology to nine Asian markets, varying the choice of the Originator and deriving a number of indicators which represent the importance of each market as a provider or a receiver of turbulence. Over a 1996-2015 period we confirm the role of traditionally important markets (e.g. Hong Kong or Singapore), while over a rolling three--year estimation period, we can detect rises and declines, the explosion of turbulence in the occasion of the Great Recession and the magnified role of China in the recent years.
    Keywords: Value at Risk, Volatility, copula functions, Spillover, turbulence, financial crisis
    JEL: C58 G01 C22
    Date: 2016–04
  10. By: Mary Everett
    Abstract: This paper exploits a novel bank-level monthly dataset to assess the effects of global liquidity on the global flows of euro area banks. The period associated with the European sovereign debt crisis has witnessed increased growth in euro area bank claims on extra-euro area residents, against a background of contracting euro area credit supply. Controlling for bank risk, global credit demand, and price effects such as interest rate differentials and exchange rates, empirical evidence supports a range of determinants of global liquidity - including global risk, global bank equity and unconventional monetary policy in the US, UK, Japan and euro area - as drivers of the global flows of euro area banks. Moreover, regression analysis indicates heterogeneity in the influence of global liquidity on global flows across euro area bank type, defined by their balance sheet composition and country of residence (stressed versus non-stressed euro area countries). The results highlight the importance of exogenous factors as drivers of global bank flows and the potential for international leakages of unconventional monetary policy.
    Keywords: Global bank flows, cross-border banking, global risk, global liquidity, European sovereign crisis, unconventional monetary policy spillovers, credit supply
    JEL: F60 G15 G21
    Date: 2016–03
  11. By: Goetz, Martin; Laeven, Luc; Levine, Ross
    Abstract: We develop a new identification strategy to evaluate the impact of the geographic expansion of a bank holding company (BHC) across U.S. metropolitan statistical areas (MSAs) on BHC risk. For the average BHC, the instrumental variable results suggest that geographic expansion materially reduces risk. Geographic diversification does not affect loan quality. The results are consistent with arguments that geographic expansion lowers risk by reducing exposure to idiosyncratic local risks and inconsistent with arguments that expansion, on net, increases risk by reducing the ability of BHCs to monitor loans and manage risks.
    Keywords: Bank Regulation; Banking; financial stability; Hedging; risk
    JEL: G11 G21 G28
    Date: 2016–04

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