nep-ban New Economics Papers
on Banking
Issue of 2016‒09‒04
eight papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. Warehouse Banking By Giorgia Piacentino; Anjan Thakor; Jason Donaldson
  2. Banks and Sovereigns: A Model of Mutual Contagion By Gruber, Alexander; Kogler, Michael
  3. Understanding Bank Payouts during the Crisis of 2007-2009 By Cziraki, Peter; Laux, Christian; Lóránth, Gyöngyi
  4. Optimal Bank Capital Regulation, the Real Sector, and the State of the Economy By Kogler, Michael
  5. Banking Across Borders With Heterogeneous Banks By Niepmann, Friederike
  6. Relational capital in lending relationships: Evidence from European family firms By Marco Cucculelli; Valentina Peruzzi; Alberto Zazzaro
  7. The role of collateral in supporting liquidity By Baranova, Yuliya; Liu, Zijun; Noss, Joseph
  8. The Impact of Macroprudential Housing Finance Tools in Canada: 2005–10 By Jason Allen; Timothy Grieder; Brian Peterson; Tom Roberts

  1. By: Giorgia Piacentino (Olin Business School at Washington Unive); Anjan Thakor (olin school of business); Jason Donaldson (Washington University in St Louis)
    Abstract: This paper develops a theory of banking that is rooted in the evolution of banks from warehouses of commodities and precious goods, which occurred even before the invention of coinage or fiat money. The theory helps to explain why modern banks offer warehousing (custodial and deposit-taking) services within the same institutions that provides lending services and how banks create funding liquidity by creating private money. In our model, the warehouse endogenously becomes a bank because its superior storage technology allows it to enforce loan repayment most effectively. The warehouse makes loans by issuing “fake†warehouse receipts—those not backed by actual deposits— rather than by lending out deposited goods. The model provides a rationale for banks that take deposits, make loans, and have circulating liabilities, even in an environment without risk or asymmetric information. Our analysis provides new perspectives on narrow banking, liquidity ratios and reserves requirements, capital regulation, and monetary policy.
    Date: 2016
  2. By: Gruber, Alexander; Kogler, Michael
    Abstract: The recent crisis has revealed that bank and sovereign risks are inherently intertwined. This paper develops a model of the bank-sovereign nexus to identify the main spillovers and to study the implications of guarantees and capital regulation. We show how banks’ asset risk may trigger a sovereign default through taxation and deposit insurance. The latter can be contagious because of its cost or stabilizing by avoiding liquidation losses. Since sovereign risks receive preferential regulatory treatment, banks purchase government bonds. This creates the opportunity for adverse feedback loops such that a sovereign default is the very reason for bank failure.
    Keywords: Sovereign Debt Crisis, Financial Risk, Contagion, Deposit Insurance
    JEL: G11 G21 G28 H63
    Date: 2016–08
  3. By: Cziraki, Peter; Laux, Christian; Lóránth, Gyöngyi
    Abstract: We provide an extensive analysis of the payout policy of U.S. banks in 2007-2008 to identify the main drivers of their payout decisions. We use established models that relate dividends to fundamentals to provide a benchmark for the normal level of payouts. Based on these models, bank dividends appear excessive in 2007, but not in 2008. We exploit cross-sectional heterogeneity to examine why bank payouts change during the crisis. Banks with low capital ratios have low abnormal payouts during the crisis, and banks with high managerial ownership also have lower payouts. Managers of banks that reduce dividends in 2008 buy more shares than before the crisis. Finally, we examine the correlation between dividends and future performance, as well as announcement returns around dividend changes and repurchases. We find that banks that reduce dividends in 2008 perform worse in 2009, but we do not find that announcements of dividend cuts are associated with a significant negative price reaction in 2007-2008. Our results in general do not support the active wealth transfer hypothesis and provide mixed evidence on banks fearing the adverse effect of dividend cuts.
    Keywords: dividends; financial crisis; insider trading; total payout
    JEL: G21 G24 G28 G32 G35
    Date: 2016–08
  4. By: Kogler, Michael
    Abstract: Concerns about the procyclicality of bank regulation have motivated recent reforms that include countercyclical measures. This paper analyzes how optimal capital requirements, which balance a trade-off between financial stability and investment of the real sector, adjust during a downturn. Adding an endogenous loan market reveals equilibrium effects that strongly influence the adjustment and allows studying the implications of real shocks. The results suggest a nuanced adjustment depending on the shock: In a capital crunch, capital requirements are relaxed to prevent a sharp decline in investment. If productivity decreases, they are tightened as preserving financial stability entails a smaller cost.
    Keywords: Capital Regulation, Credit Markets, Banking Crisis, Business Cycle
    JEL: G21 G28
    Date: 2016–08
  5. By: Niepmann, Friederike
    Abstract: This paper develops a model of banking across borders where banks differ in their efficiencies that can replicate key patterns in the data. More efficient banks are more likely to have assets, liabilities and affiliates abroad and have larger foreign operations. Banks are more likely to be active in countries that have less efficient domestic banks, are bigger and more open to foreign entry. In the model, banking sector integration leads to bank exit and entry and convergence in the return on loans and funding costs across countries. Bank heterogeneity matters for the associated welfare gains. Results suggest that differences in bank efficiencies across countries drive banking across borders, that fixed costs are crucial for foreign bank operations and that globalization makes larger banks even larger.
    Keywords: Cross-border banking ; Heterogeneity ; Multinational banks ; Trade in services
    JEL: F12 F21 F23 G21
    Date: 2016–07–19
  6. By: Marco Cucculelli (Università Politecnica delle Marche); Valentina Peruzzi (Università Politecnica delle Marche); Alberto Zazzaro (Università di Napoli Federico II)
    Abstract: In this paper we empirically investigate the effects of active family involvement in the company’s management on bank-firm lending relationships and access to credit. Based on the trade-off between relational and management human capital, we explore whether the relational capital embodied in the family leadership of the company influences the lending relationships with the main bank in terms of information sensitivity and duration. Then, we test whether family firms with family CEOs are more likely to experience a credit restriction from banks than family firms appointing professional CEOs external to the family. Results indicate that family businesses appointing family managers are significantly more likely to maintain soft-information-based and longer-lasting lending relationships. However, having family executives does not have a negative impact on firm’s access to credit, while the creation of soft-information-based and long-lasting lending relationships significantly reduces the likelihood of experiencing credit restrictions. In view of these findings, family relational capital seems to have a univocal beneficial impact on bank-firm relationship in our sample.
    Keywords: Family firm, family CEO, soft-information, relational capital, relationship lending, credit rationing.
    JEL: D22 G21 G22
    Date: 2016–08
  7. By: Baranova, Yuliya (Bank of England); Liu, Zijun (Bank of England); Noss, Joseph (Bank of England)
    Abstract: Collateral plays an important role in supporting a vast range of transactions that help ensure the efficient functioning of the financial system. But collateral markets also have the potential to exacerbate risks to financial stability, not least given that during periods of market stress demand for high-quality collateral may increase, whilst collateral availability may fall. This paper offers a means to estimate how this potential imbalance between collateral supply and demand is likely to vary as a function of market stress. In doing so, it offers an estimate of the increase in market volatility sufficient to cause a dislocation in the market for collateral and a subsequent deterioration in market functioning. It suggests that — from the perspective of financial stability — the implications of an imbalance between the supply and demand of collateral are likely to be comparatively benign, but that the implications of a reduction in the willingness and/or ability of market participants to act as intermediaries in collateral markets are likely to have more serious consequences for market functioning. This work also provides a framework through which policymakers might be able to investigate how regulations might affect the proximity of these risks.
    Keywords: Collateral; securities financing transactions; derivatives; regulation; liquidity
    JEL: G13 G17 G29
    Date: 2016–08–16
  8. By: Jason Allen; Timothy Grieder; Brian Peterson; Tom Roberts
    Abstract: This paper combines loan-level administrative data with household-level survey data to analyze the impact of recent macroprudential policy changes in Canada using a microsimulation model of mortgage demand of first-time homebuyers. Policies targeting the loan-to-value ratio are found to have a larger impact than policies targeting the debt-service ratio, such as amortization. This is because there are more wealth-constrained borrowers than income-constrained borrowers entering the housing market.
    Keywords: Financial system regulation and policies
    JEL: D14 G28 C63
    Date: 2016

This nep-ban issue is ©2016 by Christian Calmès. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.