nep-ban New Economics Papers
on Banking
Issue of 2017‒01‒15
twelve papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. Non-performing loans in the euro area: are core-periphery banking markets fragmented? By Dimitrios Anastasiou; Helen Louri; Mike G. Tsionas
  2. The Currency Dimension of the Bank Lending Channel in International Monetary Transmission By Elod Takats; Judit Temesvary
  3. Determinants of Bank Lending in Europe and the US. Evidence from Crisis and Post Crisis Years By Brunella Bruno; Alexandra D’Onofrio; Immacolata Marino
  4. Numerical analysis of an extended structural default model with mutual liabilities and jump risk By Vadim Kaushansky; Alexander Lipton; Christoph Reisinger
  5. Spillovers of the United States’ Unconventional Monetary Policy to Emerging Asia: The Bank Lending Channel By Xu, Ying; La, Hai Anh
  6. Empirical Evidence on "Systemic as a Herd": The Case of Japanese Regional Banks By Naohisa Hirakata; Yosuke Kido; Jie Liang Thum
  7. Show Me Yours and I’ll Show You Mine: Sharing Borrower Information in a Competitive Credit Market By Jaap Bos; Ralph De Haas; Matteo Millone
  8. Sectoral Loan Concentration and Bank Performance (2001-2014) By Regehr, Kristen; Sengupta, Rajdeep
  9. The Impact of Merger Legislation on Bank Mergers By Carletti, Elena; Ongena, Steven; Siedlarek, Jan-Peter; Spagnolo, Giancarlo
  10. Intergenerational Linkages in Household Credit By Ghent, Andra C.; Kudlyak, Marianna
  12. Bank Profitability and Capital Regulation: Evidence from Listed and non-Listed Banks in Africa By Ozili, Peterson, K

  1. By: Dimitrios Anastasiou (Athens University of Economics); Helen Louri (Athens University of Economics, Bank of Greece and Research Associate LSE EI/HO); Mike G. Tsionas (Athens University of Economics and Business)
    Abstract: The objective of this study is to examine the causes of non-performing loans (NPLs) in the banking system of the euro area for the period 2003-2013 and distinguish between core and periphery country determinants. The increase in NPLs post crisis has put into question the robustness of many European banks and the stability of the whole sector. It still remains a serious challenge, especially in peripheral countries which are hardest hit by the financial crisis. By employing both Fully Modified OLS and Panel Cointegrated VAR we estimate that NPLs are affected by the same macroeconomic and bank-specific conditions but the responses are stronger in the periphery. Following the FMOLS estimations NPLs in the euro area have performed an upward (much higher in the periphery) shift after 2008 and are mostly related to worsening macroeconomic conditions especially with respect to unemployment, growth and taxes. Fiscal consolidation and interest rate margins are significant for the periphery while credit to GDP is significant only for the core. Quality of management and loans to deposits play an important role, while size is negatively significant only in the periphery. Most of these findings were confirmed by the panel Cointegrated VAR results. A chi-square test comparing the estimated coefficients for the core and periphery NPLs rejects the hypothesis of equality revealing another aspect of banking fragmentation in the euro area. Such findings can be helpful when designing macro-prudential as well as NPL resolution policies, which should be adjusted appropriately to the different responses between core and periphery banks.
    Keywords: Non-performing loans; Macroeconomic determinants; Bank-specific determinants; Financial Fragmentation; FMOLS estimation; Panel Cointegrated VAR
    JEL: C23 C51 G21 G2
    Date: 2016–12
  2. By: Elod Takats; Judit Temesvary
    Abstract: We investigate how the use of a currency transmits monetary policy shocks in the global banking system. We use newly available unique data on the bilateral cross-border lending flows of 27 BIS-reporting lending banking systems to over 50 borrowing countries, broken down by currency denomination (USD, EUR and JPY). We have three main findings. First, monetary shocks in a currency significantly affect cross-border lending flows in that currency, even when neither the lending banking system nor the borrowing country uses that currency as their own. Second, this transmission works mainly through lending to non-banks. Third, this currency dimension of the bank lending channel works similarly across the three currencies suggesting that the cross-border bank lending channel of liquidity shock transmission may not be unique to lending in USD.
    Keywords: Bank lending channel ; Cross-border bank lending ; Currency denomination ; Monetary transmission
    JEL: E5 F42 G21
    Date: 2016–12
  3. By: Brunella Bruno (Università Bocconi); Alexandra D’Onofrio (Assonime); Immacolata Marino (Università di Napoli Federico II and CSEF)
    Abstract: We investigate bank lending patterns and their determinants in Europe and the US over 2008-2014. Precisely, we relate bank characteristics prior to the financial crisis to their lending behaviour during and after the crisis period. Our analyis confirms the existence of a bank lending channel, that is stronger in Europe than in the US and especially if we look at corporate loans rather than at the whole loan portfolio.
    Keywords: bank loans, corporate loans, bank lending channel, crisis.
    JEL: G21 G18 G01
    Date: 2017–01–09
  4. By: Vadim Kaushansky; Alexander Lipton; Christoph Reisinger
    Abstract: We consider a structural default model in an interconnected banking network as in Lipton [International Journal of Theoretical and Applied Finance, 19(6), 2016], with mutual obligations between each pair of banks. We analyse the model numerically for two banks with jumps in their asset value processes. Specifically, we develop a finite difference method for the resulting two-dimensional partial integro-differential equation, and study its stability and consistency. We then compute joint and marginal survival probabilities, as well as prices of credit default swaps (CDS), first-to-default swaps (FTD), credit and debt value adjustments (CVA and DVA). Finally, we calibrate the model to market data and assess the impact of jump risk.
    Date: 2016–12
  5. By: Xu, Ying (Asian Development Bank Institute); La, Hai Anh (Asian Development Bank Institute)
    Abstract: This paper assesses the spillover effects of the United States’ unconventional monetary policy (i.e., quantitative easing programs adopted during 2008–2014) on the Asian credit market. With a focus on cross-border bank lending, we employed firm-level loan data with regard to the syndicated loan market and measured the international bank lending channel through changes in United States dollar-denominated loans extended to Asian borrowers. We found that the growth of dollar credit in Asia increased substantially in response to quantitative easing in the United States financial market. The results of this study confirm the existence of the bank lending channel in Asia and emphasize the role of credit flows in transmitting financial conditions. The paper also provides new evidence of cross-border liquidity spillover in the syndicated loan market. We found that the overall spillover effect was large but differed significantly in Asia by types of borrowing firms, financing purposes, and loan terms at different stages of the quantitative easing programs. The paper concludes with a discussion of relevant policy implications for the region.
    Keywords: Spillovers; unconventional monetary policy; UMP; United States; Asian credit market; credit flows; spillover effects; cross-border liquidity; bank lending channel
    JEL: F21 F36 G01 G21 G28
    Date: 2016–12–31
  6. By: Naohisa Hirakata (Bank of Japan); Yosuke Kido (Bank of Japan); Jie Liang Thum (Monetary Authority of Singapore)
    Abstract: We examine a sample of Japanese regional banks and explore whether exposure to market risk factors affects systemic risk through a banks' portfolio composition or revenue source, using Adrian and Brunnermeier's (2016) CoVaR to proxy for systemic risk. We find evidence of "systemic as a herd" behavior among Japanese regional banks, as portfolio and revenue components associated with market activities exert positive and significant impacts on systemic risk by generating higher comovement among banks, even though they reduce standalone bank risk through portfolio diversification. Further, the marginal effect of an increase in a given banks' market-related components on systemic risk is larger when the share of the corresponding components is already high among other banks. Our results have important implications from the macro-prudential perspective.
    Keywords: Systemic risk; Herd behavior; Market risk factors; CoVaR
    JEL: D21 G28 G32 G38
    Date: 2017–01–12
  7. By: Jaap Bos; Ralph De Haas; Matteo Millone
    Abstract: We exploit detailed data on approved and rejected small business loans to assess the impact of the introduction of a credit registry in Bosnia and Herzegovina. Our findings are threefold. First, mandatory information sharing tightens lending at the extensive margin as more applications are rejected, in particular in areas with strong credit market competition. These rejections are increasingly based on hard information—especially positive borrower information from the new registry—and less on soft information. Second, lending standards also tighten at the intensive margin: the registry leads to smaller, shorter and more expensive loans. Third, the tightening of lending along both margins improves loan quality. Default rates go down in particular in high competition areas and for first-time borrowers. This suggests that a reduction in adverse selection is an important channel through which information sharing affects loan quality.
    Keywords: Information sharing, credit market competition, hazard model
    JEL: D04 D82 G21 G28
    Date: 2015
  8. By: Regehr, Kristen (Federal Reserve Bank of Kansas City); Sengupta, Rajdeep (Federal Reserve Bank of Kansas City)
    Abstract: Sectoral loan concentration can influence the size-profitability relationship for banks and the likelihood of bank survival. Switching specializations increases the hazard of failure but decreases the odds of being acquired.
    Keywords: Commercial banks; Loan concentration; Bank failures; Acquisitions
    JEL: G21 G33 G34
    Date: 2016–11–01
  9. By: Carletti, Elena; Ongena, Steven; Siedlarek, Jan-Peter; Spagnolo, Giancarlo
    Abstract: We study the impact on bank merger activity of the strengthening in merger control legislation introduced in Europe between 1989 and 2004. We find that strengthening merger control increases the abnormal returns on bank target stocks in the days around the merger announcement by 7 percentage points relative to before the new legislation.We discuss several potential explanations for this effect of the change in legislation by studying changes in merger characteristics. We find a weak increase in the pre-merger profitability of target banks, a decrease in the size of acquirers and a decrease in the share of transactions in which banks are acquired by other banks. Other merger properties, including the size and risk profile of targets, the geographic overlap of merging banks and the stock market response of rival banks in the country appear unaffected. The evidence is consistent with legislation changes leading to transactions being undertaken that are more profitable and more pro-competitive.
    Date: 2015–11
  10. By: Ghent, Andra C. (University of Wisconsin-Madison); Kudlyak, Marianna (Federal Reserve Bank of San Francisco)
    Abstract: We document novel, economically important correlations between children’s future credit risk scores, default, and homeownership status and their parents’ credit characteristics measured when the children are in their late teens. A one standard deviation higher parental credit risk score when the child is 19 is associated with a 24 percent reduction in the likelihood that the child goes bankrupt by age 29, a 36 percent lower likelihood of other serious default, a 35 point higher child credit score, and a 23 percent higher chance of the child becoming a homeowner. The linkages persist after controlling for parental income. The linkages are stronger in cities with lower intergenerational income mobility, implying that common factors might drive both. Existing measures of state-level educational policy have limited effects on the strength of the linkages. Evidence from a sample of siblings suggests that the linkages might be largely due to family fixed effects.
    JEL: D14 E21 G10
    Date: 2017–01–05
  11. By: Malgorzata Olszak (Department of Banking and Money Markets, Faculty of Management, University of Warsaw, Poland); Iwona Kowalska (Department of Mathematics and Statistical Methods, Faculty of Management, University of Warsaw, Poland); Sylwia Roszkowska (Faculty of Economic and Social Sciences, University of £ódŸ, National Bank of Poland, Poland)
    Abstract: In this paper we ask about the capacity of macroprudential policies to reduce the positive association between loans growth and the capital ratio. We focus on aggregated macroprudential policy measures and on individual instruments and test whether their effect on the association between lending and capital depends on bank size, the economic development of a country as well as on the extent of capital account openness. Applying the GMM 2-step Blundell and Bond approach to a sample covering over 60 countries, we find that macroprudential policy instruments reduce the impact of capital on bank lending during both crisis and non-crisis times. This result is stronger in large banks than in other banks. Of individual macroprudential instruments, only borrower-targeted LTV caps and DTI ratio weaken the association between lending and capital. Our results also show that the effect of macroprudential policies on the association between lending and the capital ratio in non-crisis periods is stronger in advanced countries than in emerging countries. Additionally, differentiating by the level of capital account openness, we find that macroprudential policies are more effective in increasing the resilience of banks and thus weakening the association between loan supply and capital ratio for relatively closed economies but less effective for relatively open economies. Generally, with our study we are able to support the view that macroprudential policy has the potential to curb the procyclical impact of bank capital on lending and therefore, the introduction of more restrictive international capital standards included in Basel III and of macroprudential policies are fully justified.
    Keywords: loan supply, capital ratio, procyclicality, macroprudential policy
    JEL: E32 G21 G28 G32
    Date: 2016–08
  12. By: Ozili, Peterson, K
    Abstract: This study investigates the determinants of African bank profitability while controlling for bank capital regulation. Using static and dynamic panel estimation techniques, the findings indicate that bank size, total regulatory capital, and loan loss provisions are significant determinants of the return on assets of listed banks compared to non-listed banks. Also, regulatory capital has a more significant (and positive) impact on the return on assets of listed banks than non-listed banks particularly when listed banks have sufficient regulatory capital ratio. We also find that higher regulatory thresholds have a negative impact on the return on asset of non-listed banks.
    Keywords: Bank profitability, Africa, listed banks, panel regression, capital regulation, GMM dynamic panel
    JEL: D2 D22 E3 E6
    Date: 2016–12–21

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