nep-ban New Economics Papers
on Banking
Issue of 2017‒02‒19
sixteen papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. Lending Conditions in EU: The Role of Credit Demand and Supply By Svatopluk Kapounek
  2. Competition and Bank Opacity By Liangliang Jiang; Ross Levine; Chen Lin
  3. What Broker Charges Reveal about Mortgage Credit Risk By Berndt, Antje; Hollifield, Burton; Sandås, Patrik
  4. Pricing Corporate Bonds With Interest Rates Following Double Square-root Process By Kelvin Ho; Eric Wong; Edward Tan
  5. Do banks extract informational rents through collateral? By Bing Xu; Honglin Wang; Adrian van Rixtel
  6. Capital Flows and the International Credit Channel By Baskaya, Yusuf Soner; di Giovanni, Julian; Kalemli-Ozcan, Sebnem; Peydró, José Luis; Ulu, Mehmet Fatih
  7. Unconventional Monetary Policy Effects on Bank Lending in the Euro Area By Stefan Behrendt
  8. The Role of Nonbank Financial Institutions in the Monetary Transmission Mechanism: Theory and Evidence By Sung-Eun Yu
  9. Drilling into Bank Balance Sheets: Examining Portfolio Responses to an Oil Shock By Bidder, Rhys; Krainer, John; Shapiro, Adam Hale
  10. Full disclosure and financial stability: how does the market digest the transparency shock? By Fausto Pacicco; Luigi Vena; Andrea Venegoni
  11. Global Banking: Recent Developments and Insights from Research By Claessens, Stijn
  12. Financial Risk, Main Bank System, and Cost Behavior: Empirical Evidence from Japan By Mami Koyama; Tomohisa Kitada; Takehisa Kajiwara
  13. The Role of Foreign Banks in Trade By Claessens, Stijn; Hassib, Omar; Van Horen, Neeltje
  14. A hybrid approach for risk assessment of loan guarantee network By Zhibin Niu; Dawei Cheng; Junchi Yan; Jiawan Zhang; Liqing Zhang; Hongyuan Zha
  15. Credit Default Swaps, Exacting Creditors and Corporate Liquidity Management By Marti G. Subrahmanyam; Dragon Yongjun Tang; Sarah Qian Wang
  16. The (Unintended?) Consequences of the Largest Liquidity Injection Ever By Matteo Crosignani; Miguel Faria-e-Castro; Luis Fonseca

  1. By: Svatopluk Kapounek (Mendel University in Brno, Czech Republic)
    Abstract: We analyse the bank lending activity after the financial crisis and focus on bank-specific supply factors. Using a rich microeconomic dataset from Bankscope and macroeconomic shocks data, we employ OLS and 2SLS fixed effects models with banking controls, macroeconomic shocks and institutional quality. The banks’ loan-rate spreads increased despite the recent policy of low interest rates and quantitative easing. We use the bank asset quality as instruments to capture exogenous changes in loan supply. The empirical evidence shows that loan-rate spread and through this the supply of loans is negatively affected by a low asset quality and capital ratios.
    Keywords: bank lending; loans; financial vulnerability; loan-rate spreads; institutions; macroeconomic shocks
    JEL: E58 G21 G28
    Date: 2017–01
  2. By: Liangliang Jiang (Lingnan University); Ross Levine (Haas School of Business, University of California, Berkeley); Chen Lin (Faculty of Business and Economics, University of Hong Kong)
    Abstract: Did regulatory reforms that lowered barriers to competition increase or decrease the quality of information that banks disclose to the public? By integrating the gravity model of investment with the state-specific process of bank deregulation that occurred in the United States from the 1980s through the 1990s, we develop a bank-specific, time-varying measure of deregulation-induced competition. We find that an intensification of competition reduced abnormal accruals of loan loss provisions and the frequency with which banks restate financial statements. The results suggest that competition reduces bank opacity, potentially enhancing the ability of markets to monitor banks.
    JEL: G21 G28 G34 G38
    Date: 2016–04
  3. By: Berndt, Antje (Australian National University); Hollifield, Burton (Carnegie Mellon University); Sandås, Patrik (SIFR)
    Abstract: Prior to the subprime crisis, mortgage brokers charged higher percentage fees for loans that turned out to be riskier ex post, even when conditioning on other risk characteristics. High conditional fees reveal borrower attributes that are associated with high borrower risk, such as suboptimal shopping behavior, high valuation for the loan or high borrower-specific broker costs. Borrowers who pay high conditional fees are inherently more risky, not just because they pay high fees. We find a stronger association between conditional fees and delinquency risk when lenders have fewer incentives to screen bor- rowers, for purchase rather than refinance loans, and for loans originated by brokers who have less frequent interactions with the lender. Our findings shed light on the pro- posed QRM exemption criteria for risk retention requirements for residential mortgage securitizations.
    Keywords: Mortgage brokers; Loan performance; Subprime crisis; Credit risk retention; Qualied residential mortgages
    JEL: G12 G18 G21 G32
    Date: 2017–02–01
  4. By: Kelvin Ho (Hong Kong Monetary Authority); Eric Wong (Hong Kong Monetary Authority); Edward Tan (Hong Kong Monetary Authority)
    Abstract: Using a confidential dataset of foreign bank affiliates (FBA) in Hong Kong, this study finds evidence of an international transmission of prudential policies through banks¡¯ balance sheets from a host country perspective. Specifically, in response to tighter capital requirements in the home country, parent banks with a higher Tier 1 capital ratio tend to sustain higher loan growth by their FBAs in Hong Kong than their peers. When a tighter liquidity requirement is considered, differences in parent banks¡¯ core deposit shares and reliance on net intragroup funding are found to significantly affect the loan response of FBAs in Hong Kong. One implication is that from a host supervisor¡¯s perspective, understanding the balance sheet structure of a FBA¡¯s parent bank is important in assessing the international transmission of prudential policies. Regarding the impact on the loan supply of the Hong Kong banking sector, our findings show that the size of the spillover effects for the overall capital requirement and reserve requirement are larger than those for sector-specific prudential measures. The relatively smaller spillover effects for sector-specific prudential measures can be partly explained by a significant portfolio rebalancing effect both across and within affiliates of international banks, making the net impact on the host country less clear.
    Date: 2016–07
  5. By: Bing Xu (University Carlos III of Madrid); Honglin Wang (Hong Kong Institute for Monetary Research); Adrian van Rixtel (Bank for International Settlements)
    Abstract: This paper investigates if relationship lending and bank market concentration permit informational rent extraction through collateral. We use equity IPOs as informational shocks that erode rent seeking opportunities. Using unique loan data from China, we find collateral incidence increases with relationship intensity and bank market concentration for pre-IPO loans, while these effects are moderated post-IPO. We further discover after an IPO, rent extraction is moderated for safe firms but intensified for risky firms. These results are not driven by differences or changes in financial risks. Ours is the first investigation on collateral determinants for China with loan-level data.
    Date: 2016–01
  6. By: Baskaya, Yusuf Soner; di Giovanni, Julian; Kalemli-Ozcan, Sebnem; Peydró, José Luis; Ulu, Mehmet Fatih
    Abstract: We examine the role of the international credit channel in Turkey over 2005-2013. We show that larger, more capitalised banks with higher non-core liabilities increase credit supply when capital inflows are higher. This result is stronger for domestic banks relative to foreign banks and survives during the crisis period of post 2008, when foreign banks in general stop lending in emerging markets and retreat to their home countries. By decomposing capital inflows into bank and non-bank flows, we show the importance of domestic banks' external borrowing for domestic credit growth.
    Keywords: Bank Heterogeneity ; Bank-Lending Channel; Capital Flows
    JEL: E0 F0 F1
    Date: 2017–02
  7. By: Stefan Behrendt (Friedrich Schiller University Jena, School of Economics and Business Administration)
    Abstract: This paper employs a structural VAR framework with sign restrictions to estimate the effects of unconventional monetary policies of the European Central Bank since the Global Financial Crisis, mainly in their effectiveness towards bank lending. Using a variable for newly issued credit instead of the outstanding stock of credit, the effects on bank lending are smaller than found in previous similar studies for the Euro area.
    Keywords: unconventional monetary policy, zero lower bound, bank lending, SVAR
    JEL: C32 E30 E44 E51 E52 E58
    Date: 2017–02–08
  8. By: Sung-Eun Yu
    Abstract: Nonbank financial institutions (NBFIs) have substantially increased their market share since 1980s. In spite of the growing importance of NBFIs, they have received much less attention in the monetary transmission mechanism. This paper examines if monetary policy affects NBFIs in the similar way as banks. First, I theoretically explain how monetary policy influences the loan supply of all financial intermediaries (banks and NBFIs) through changes in their net worth. Then, I empirically test whether these two kinds of lending institutions decrease their net worth and the intermediated loans in response to a tight monetary shock. I find that, at the statistically significant level, NBFIs shrink their net worth and a type of loan, especially C&I loans?but not all types of loans decrease, as predicted?in the same way as banks. In particular, NBFIs’ C&I loans “decrease” substantially in the beginning periods; however, NBFIs’ mortgages and consumer credit “increase” in the middle periods, showing a statistically significant level. These evidences suggest that the theoretical explanation is, at least, consistent with the evidence of C&I loans?but not mortgages and consumer loans. One possible explanation is that, while banks reject mortgages and consumer loans, NBFIs may increase mortgages and consumer loans by picking up the demand for these two types of loans.
    Keywords: monetary policy, nonbank financial institutions, net worth, loan supply JEL Classification: E51, E52, E58
    Date: 2017
  9. By: Bidder, Rhys (Federal Reserve Bank of San Francisco); Krainer, John (Federal Reserve Bank of San Francisco); Shapiro, Adam Hale (Federal Reserve Bank of San Francisco)
    Abstract: Using detailed bank balance sheet data obtained under the United States’ stress testing programs we examine how a shock to banks’ net worth affects their portfolio decisions. We focus on the supply of credit (the bank lending channel) and the ultimate effect on borrowers (the credit channel), but also examine how the shock affects banks’ overall risk profile and security holdings. Our shock is derived from variation across banks in their loan exposure to industries adversely affected by the precipitous oil price declines of 2014. For corporate lending, we find significant evidence of a bank lending channel. Banks more exposed to the shock appear to have tightened credit as evidenced by tightening lending standards and reductions in lending to firms. We do not find significant evidence of a credit channel. The effect of the tightening of credit on firms’ scale seems minimal. This appears to be because firms are able to substitute to alternative financing from other banks or by drawing down pre-existing lines of credit. In terms of residential lending, the story is more subtle. Affected banks tightened credit on mortgages that they would ultimately hold in their portfolio but appear to have expanded credit for those mortgages that would predominantly be securitized. This tendency is reflected in a contemporaneous expansion in their holdings of MBS after the shock. While affected banks substantially de-risked their portfolios through adjusting their residential lending in this way, we again find that the ultimate effect on borrowers was minimal.
    Date: 2017–01–20
  10. By: Fausto Pacicco; Luigi Vena; Andrea Venegoni
    Abstract: Since macro-prudential stress tests have become the main instruments of the supervisory authorities’ toolkit, the debate on the effect of their results disclosure inflamed. Our work aims at providing a framework that, via a dynamic estimation of the betas, allows to observe the impact of the new information flow on the stability of the banking system. What we find is that, contrary to literature wisdom, almost all banks betas decrease, as the transparency shock contributes to an overall systemic risk drop.
    Date: 2017–02
  11. By: Claessens, Stijn
    Abstract: Following recent crises, cross-border capital flows have declined considerably, and many advanced countries' banks are retrenching. At the same time, banks from emerging and developing countries continue to expand abroad, and banking has become more regional. Research highlights that long-term debt flows are less volatile and that foreign banks with larger presence, more domestic funding, and closer relationships provide more finance and share risks better. While ongoing changes in global banking influence its overall benefits, the crises also revealed the need for a consistent framework for supervising and resolving globally active banks, with the European Banking Union an important model.
    Keywords: capital flows; foreign banks; global banking; Resolution; Risk-Sharing
    JEL: F21 F23 F33 F36 F38
    Date: 2017–02
  12. By: Mami Koyama (Graduate School of Business Administration, Kobe University); Tomohisa Kitada (Graduate School of Business Administration, Kobe University); Takehisa Kajiwara (Graduate School of Business Administration, Kobe University)
    Abstract: We examine the relationship between financial risk and cost behavior, both theoretically and empirically. We suggest that financial risk will affect the degree of discretion in managerial resource adjustment decisions by its impacts on financial flexibility. As expected, our results show that financial risk increases the degree of cost anti-stickiness in the case of a prior activity decrease. On the other hand, financial risk appears to have no statistically significant influence on cost behavior in the case of a prior activity increase. This result is not consistent with our prediction. We also examine the moderating effect of the close relationships between firms and banks on the association between financial risk and asymmetric cost behavior using data on the main bank system in Japan. Consistent with our prediction, our results show that firms’ close ties with the main banks mitigate the adverse impacts of financial risk and allow managers to adjust resources flexibly in response to sales changes, even if the firms face high financial risk.
    Keywords: Cost Stickiness, Cost Behavior, Financial Risk, Main Bank System
    JEL: M41 D24 D81 G32 G33
    Date: 2016–12
  13. By: Claessens, Stijn; Hassib, Omar; Van Horen, Neeltje
    Abstract: This paper provides new insights into how financial globalization relates to international trade. Exploiting unique, time-varying, bilateral data on foreign bank ownership for many countries, we show that greater local foreign bank presence, especially from the importing country, is associated with higher exports in sectors more dependent on external finance. The association, which only arises for emerging markets, is stronger when these countries' institutions are weaker. The presence of a bank from the importing country is also associated with higher exports in sectors with more opaque products. Results are robust to controlling for domestic financial development and a full set of fixed effects. An event study confirms findings and shows impacts to be more pronounced when a foreign bank enters through an M&A. Imports also increase after entry, but less so. Overall, results suggest that foreign banks facilitate trade by increasing the availability of external finance and helping overcome information asymmetries.
    Keywords: credit constraints; Financial Development; foreign banks; International Trade
    JEL: F14 F15 F21 F36 G21
    Date: 2017–02
  14. By: Zhibin Niu; Dawei Cheng; Junchi Yan; Jiawan Zhang; Liqing Zhang; Hongyuan Zha
    Abstract: Groups of Small and Medium Enterprises (SME) back each other and form guarantee network to obtain loan from banks. The risk over the networked enterprises may cause significant contagious damage. To dissolve such risks, we propose a hybrid feature representation, which is feeded into a gradient boosting model for credit risk assessment of guarantee network. Empirical study is performed on a ten-year guarantee loan record from commercial banks. We find that often hundreds or thousands of enterprises back each other and constitute a sparse complex network. We study the risk of various structures of loan guarantee network, and observe the high correlation between defaults with centrality, and with the communities of the network. In particular, our quantitative risk evaluation model shows promising prediction performance on real-world data, which can be useful to both regulators and stakeholders.
    Date: 2017–02
  15. By: Marti G. Subrahmanyam (Stern School of Business, New York University); Dragon Yongjun Tang (Faculty of Business and Economics, University of Hong Kong); Sarah Qian Wang (Warwick Business School, University of Warwick)
    Abstract: We investigate the liquidity management of firms following the inception of credit default swaps (CDS) markets on their debt, which allow hedging and speculative trading on credit risk to be carried out by creditors and other parties. We find that reference firms hold more cash after CDS trading commences on their debt. The increase in cash holdings is more pronounced for CDS firms that do not pay dividends and have a higher marginal value of liquidity. For CDS firms with higher cash ow volatility, these increased cash holdings do not entail higher leverage. Overall, our findings are consistent with the view that CDS-referenced firms adopt more conservative liquidity policies to avoid negotiations with more exacting creditors.
    Keywords: Credit default swaps; Cash; Liquidity; Empty creditors
    JEL: G32
    Date: 2016–12
  16. By: Matteo Crosignani; Miguel Faria-e-Castro; Luis Fonseca
    Abstract: We study the design of lender of last resort interventions and show that the provision of long-term liquidity incentivizes purchases of high-yield short-term securities by banks. Using a unique security-level data set, we find that the European Central Bank’s three-year Long-Term Refinancing Operation incentivized Portuguese banks to purchase short-term domestic government bonds that could be pledged to obtain central bank liquidity. This "collateral trade" effect is large, as banks purchased short-term bonds equivalent to 8.4% of amount outstanding. The resumption of public debt issuance is consistent with a strategic reaction of the debt agency to the observed yield curve steepening.
    Keywords: Lender of Last Resort ; Sovereign Debt ; Unconventional Monetary Policy
    JEL: E58 G21 G28 H63
    Date: 2017–01

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