nep-ban New Economics Papers
on Banking
Issue of 2017‒01‒22
eleven papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. Essential Information Sharing Thresholds for Reducing Market Power in Financial Access: A Study of the African Banking Industry By Asongu, Simplice; Le Roux, Sara; Tchamyou, Vanessa
  2. The Economic Impact of Changes in the Local Bank Presence By Iftekhar Hasan; Krzysztof Jackowicz; Oskar Kowalewksi; Lukasz Kozlowski
  3. Risk Taking and Interest Rates : Evidence from Decades in the Global Syndicated Loan Market By Seung Jung Lee; Lucy Qian Liu; Viktors Stebunovs
  4. Learning from financial crisis: the experience of Nordic banks By Berglund, Tom; Mäkinen, Mikko
  5. Invisible hand discipline from informed trading: Does market discipline from trading affect bank capital structure? By Mamatzakis, Emmanuel; Zhang, Xiaoxiang; Wang, Chaoke
  6. Optimal Monitoring of Long-Term Loan Contracts. By A. Penalver
  7. Financial Inclusion, Bank Concentration and Firm Performance. By L. Chauvet; L. Jacolin
  8. Modeling the Revolving Revolution: The Debt Collection Channel By Drozd, Lukasz A.; Serrano-Padial, Ricardo
  9. Specialisation in mortgage risk under Basel II By Eckley, Peter; Benetton, Matteo; Latsi, Georgia; Garbarino, Nicola; Kirwin, Liam
  10. Impact of capital regulation on SMEs credit By Jose Felix Izquierdo; Santiago Muñoz; Ana Rubio; Camilo Ulloa
  11. Whose Credit Line is it Anyway; An Update on Banks' Implicit Subsidies By Tryggvi Gudmundsson

  1. By: Asongu, Simplice; Le Roux, Sara; Tchamyou, Vanessa
    Abstract: This study investigates the role of information sharing offices (public credit registries and private credit bureaus) in reducing market power for financial access in the African banking industry. The empirical evidence is based on a panel of 162 banks from 42 countries for the period 2001-2011. Three simultaneity-robust empirical strategies are employed, namely: (i) Two Stage Least Squares with Fixed Effects in order to account for simultaneity and the observed heterogeneity; (ii) Generalised Method of Moments (GMM) to control for simultaneity and time-invariant omitted variables and (iii) Instrumental Variable Quantile regressions to account for simultaneity and initial levels of financial access. In order to ensure that information sharing offices influence market power for loan price (quantity) to decrease (increase), public credit registries should have between 3.156% and 3.3% coverage, while private credit bureaus should have between 1.443 and 18.4% coverage. The established thresholds are cut-off points at which information sharing offices completely neutralise the negative effect of market power on financial access. The thresholds are contingent on the dimension (loan price versus loan quantity) and distribution (conditional mean versus conditional distribution) of financial access.
    Keywords: Financial access; Market power; Information sharing
    JEL: G20 G29 L96 O40 O55
    Date: 2016–09
  2. By: Iftekhar Hasan (Fordham University and Bank of Finland); Krzysztof Jackowicz (Kozminski University); Oskar Kowalewksi (IESEG School of Management (LEM-CNRS-UMR 9221)); Lukasz Kozlowski (Kozminski University)
    Abstract: The study analyses the economic consequences of changes in the local bank presence. Using a unique dataset of banks, firms, and counties in Poland over the period 2009-2014, we show that changes in local banking that increase the role of the relationship banking model are associated with improvements in local labour markets and easier access of SMEs to bank debt. Moreover, radical changes in the ownership structure of large commercial banks result in a more rapid new firm creation. Finally, we document that young companies’ performance is more sensitive to the instability of local banking markets.
    Keywords: local economic activity, SMEs, entrepreneurship, local banks
    JEL: G21 G32 R11
    Date: 2017–01
  3. By: Seung Jung Lee; Lucy Qian Liu; Viktors Stebunovs
    Abstract: We study how low interest rates in the United States affect risk taking in the market for cross-border corporate loans. Because banks tend to originate these loans with intent to sell to nonbank investors, we examine risk taking by the broad financial system. To the extent that actions of the Federal Reserve affect U.S. interest rates, our analysis provides evidence of cross-border spillover effects of U.S. monetary policy and highlights the global lending and risk-taking channels. We find that movements in the U.S. interest rates have an important effect on ex-ante credit risk of cross-border corporate loans, though the channels are different in the pre- and post-crisis periods. Before the crisis, banks made ex-ante riskier loans to non-U.S. borrowers in response to a decline in U.S. short-term interest rates, and, after it, banks and nonbanks originated such loans in response to a decline in U.S. longer- term interest rates. Economic uncertainty, risk appetite, and the U.S. dollar exchange rate appear to play a limited role in explaining ex-ante credit risk. Our results highlight the potential policy challenges faced by central banks in affecting credit risk cycles in their own jurisdictions.
    Keywords: Syndicated loans ; Risk taking ; Monetary policy ; International spillovers
    JEL: E44 E52 F30 F42 G15 G20
    Date: 2017–01
  4. By: Berglund, Tom; Mäkinen, Mikko
    Abstract: To study whether banks retain their lessons from the experience of a severe financial crisis, we examine the effects of the systemic banking crisis of the early 1990s in three Nordic countries (Finland, Norway, and Sweden). While this crisis largely bypassed the rest of Europe, we hypothesize that banks in the three affected Nordic countries took their crisis experiences to heart and as a result outperformed other European banks during the 2008 global financial crisis. Based on a large panel data set of Nordic and European banks for the period 1994–2010, our findings support our main hypothesis that the Nordic banks learned from the 1990s crisis and adjusted their business models accordingly. Our descriptive analysis of Nordic banks finds evidence of “lessons learned” in such precautions as robust capital cushions, improvements in management efficiency and higher credit quality demands relative to the rest of Europe.
    JEL: G01 G21 G34
    Date: 2016–12–09
  5. By: Mamatzakis, Emmanuel; Zhang, Xiaoxiang; Wang, Chaoke
    Abstract: A bank generally hold more equity capital than required by their regulators. We hypothesize that stock market has a disciplining role vis-à-vis bank managers that forces them to increase their capital level. For market discipline to be effective, market factors such as changes in firm equity values and returns, would influence bank decision making. We apply the model to annual panel data for publicly traded bank holding companies in three stock markets over a sample period from 2006 to 2015. Using OLS and fixed effect, we find a significantly positive relationship between market discipline and bank capital structure. In addition, we find that market discipline is a more effective to enhance bank capital when bank perform efficiently. Robust tests based on instrumental variable and dynamic GMM evidence of a causal link between market discipline and bank capital structure. The results have certain policy implications for understanding the role of stock market in affecting bank operation that in turn could improve bank prudency and assist the design of an enhanced regulation framework.
    Keywords: Market discipline, Informed trading, PIN, Bank capital
    JEL: C61 G14 G21
    Date: 2016–12–01
  6. By: A. Penalver
    Abstract: This paper presents a theoretical model of the monitoring behaviour of a bank-intermediated financial system with a rolling portfolio of long-term loans. The projects funded by the loans are subject to persistent idiosyncratic shocks that are freely observed by the borrowers. Borrowers pay entry costs in order to produce and liquidation costs to exit and therefore are willing to pay a higher interest rate for greater security of funding. However, they also have limited liability and will make continuation choices that shift risk to the bank in the absence of monitoring. To limit its exposure to risk, the bank applies a continuation threshold of its own, labeled a covenant. The bank has an incentive to acquire information both to enforce the covenant in the current period and update its monitoring intensity in future periods. But information is costly to acquire and reduces the value of the loan contract to the borrower because it passes more of the continuation right to the bank and therefore lowers the equilibrium interest rate. The paper uses numerical methods to calculate the optimal monitoring rate and covenant threshold as well as the associated loan interest rate and default rate.
    Keywords: Credit Standards, Credit Risk, Monitoring
    JEL: G21
    Date: 2016
  7. By: L. Chauvet; L. Jacolin
    Abstract: This study focuses on the impact of financial inclusion and bank concentration on the performance of firms in developing and emerging countries. Using firm-level data for a sample of 55,596 firms in 79 countries, we find that financial inclusion, i.e. the distribution of financial services across firms, has a positive impact on firm growth. This positive impact is magnified when bank markets are less concentrated, a proxy for more competition among banks. We also find that more competitive banks favor firm growth only at high levels of financial inclusion, while bank concentration is particularly favorable to foreign and state-owned firms, and increases firm growth for low levels of financial inclusion. In countries with limited financial deepening, the quality of the banking system (financial inclusion and bank competition) may be as important to promote firm performance as its overall size.
    Keywords: Financial inclusion, Bank concentration, Firm performance
    JEL: G10 O16 O50
    Date: 2016
  8. By: Drozd, Lukasz A. (Federal Reserve Bank of Philadelphia); Serrano-Padial, Ricardo (Drexel University)
    Abstract: We investigate the role of information technology (IT) in the collection of delinquent consumer debt. We argue that the widespread adoption of IT by the debt collection industry in the 1990s contributed to the observed expansion of unsecured risky lending such as credit cards. Our model stresses the importance of delinquency and private information about borrower solvency. The prevalence of delinquency implies that the costs of debt collection must be borne by lenders to sustain incentives to repay debt. IT mitigates informational asymmetries, allowing lenders to concentrate collection efforts on delinquent borrowers who are more likely to repay.
    Keywords: debt collection; credit cards; consumer credit; unsecured credit; revolving credit; moral hazard; costly state verification; informal bankruptcy; information technology
    JEL: D91 E21 G20
    Date: 2017–01–12
  9. By: Eckley, Peter (Bank of England); Benetton, Matteo (LSE); Latsi, Georgia (Independent); Garbarino, Nicola (Bank of England); Kirwin, Liam (Bank of England)
    Abstract: Since Basel II was introduced in 2008, two approaches to calculating bank capital requirements have co-existed: lenders’ internal models, and a less risk-sensitive standardised approach. Using a unique dataset covering 7 million UK mortgages for 2005–15, and novel identification, we provide empirical evidence that the differences between these approaches cause lenders to specialise. This leads to systemic concentration of high-risk mortgages in lenders with less sophisticated risk management. Our results have broad implications for the design of the international bank capital framework.
    Keywords: Capital regulation; banking; mortgages; specialisation; risk-taking; Basel II
    JEL: G01 G21 G28
    Date: 2017–01–13
  10. By: Jose Felix Izquierdo; Santiago Muñoz; Ana Rubio; Camilo Ulloa
    Abstract: The Supporting Factor was introduced in Basel III with the aim of avoiding a reduction in the flow of new credit to SMEs, and the CRR revision published in November 2016 even proposes enlarging its scope to exposures above €1.5bn (but with a lower parameter).
    Keywords: Financial regulation , Spain , Working Paper
    JEL: G20 G21
    Date: 2017–01
  11. By: Tryggvi Gudmundsson
    Abstract: The post-crisis financial sector framework reform remains incomplete. While capital and liquidity requirements have been strengthened, doubts remain over other aspects, including the fact that expectations of government support for systemically-important banks (SIBs) remain intact. In this paper, we use a jump diffusion option-pricing approach to provide estimates of implicit subsidies gained by these banks due to the expectation of protection to creditors provided by governments. While these subsidies have declined in the post-crisis era as volatility has declined and capital levels have increased, they remain non-trivial. Even conservative parameterizations of default and loss probabilities lead to macroeconomically significant figures.
    Keywords: Banks;Subsidies;Systemically important financial institutions;Capital requirements;Econometric models;Implicit subsidies, systemically-important banks, capital regulation
    Date: 2016–11–16

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