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on Banking |
| By: | O. de Bandt; B. Camara; A. Maitre; P. Pessarossi |
| Abstract: | The recent implementation of the Basel III framework has re-ignited the debate around the link between capital, performance and capital requirements in the banking sector. There is a dominant view in the earlier empirical literature in favor of a positive effect of capital on banking performance. Using panel data gathered for the supervision of French banks, we also find evidence of the beneficial effect of higher capital, but try to go one step further by distinguishing between regulatory and voluntary capital. Using a two-step estimation procedure, taking advantage of the variability of data since the crisis, and controlling for many factors (risk, asset composition, etc), we show that voluntary capital, i.e. capital held by banks irrespective of their regulatory requirements, turns out to be the sole component of capital that positively affects performance, as measured by the return on asset (ROA). In contrast, the effect of regulatory capital on the ROA appears insignificant, indicating that over the 2007-2014 period increasing capital requirements have not been detrimental to banking performance in France. |
| Keywords: | Bank capital; Performance; ROA, Capital requirements; Financial crisis. |
| JEL: | G01 G21 G28 G32 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:decfin:24&r=ban |
| By: | Wix, Carlo; Schüwer, Ulrich |
| Abstract: | This paper explores how credit demand affects the pass-through of monetary policy to bank lending. We employ a novel identification strategy based on exploiting exogenous cross-sectional variation in local mortgage credit demand across U.S. counties following the occurrence of large natural disasters. First, we show that large natural disasters cause increased local credit demand in the short-term and reduced local credit demand in the medium-term, which we interpret as intertemporal substitution. We then test whether the effect of monetary policy on bank lending is different for unaffected counties and counties subject to an exogenously reduced credit demand following a natural disaster. We find that credit growth associated with a one percentage point decrease in the federal funds rate is 9 percentage points higher in counties with reduced credit demand relative to unaffected counties. Hence, our results suggest that monetary policy is more effective when credit demand is low. |
| JEL: | E52 G21 Q54 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145943&r=ban |
| By: | Joseph P. Hughes (Rutgers University) |
| Abstract: | Capital regulation has become increasingly complex as the largest financial institutions arbitrage differences in requirements across financial products to increase expected return for any given amount of regulatory capital, as financial regulators amend regulations to reduce arbitrage opportunities, and as financial institutions innovate to escape revised regulations – a regulatory dialectic. This increasing complexity makes monitoring bank risk-taking by markets and regulators more difficult and does not necessarily improve the risk sensitivity of measures of capital adequacy. Explaining the arbitrage incentive of some banks, several studies have found evidence of dichotomous capital strategies for maximizing value: a relatively low-risk strategy that minimizes the potential for financial distress to protect valuable investment opportunities and a relatively high-risk strategy that, in the absence distress costs due to valuable investment opportunities, “reaches for yield” to exploit the option value of implicit and explicit deposit insurance. In the latter case, market discipline rewards risk-taking and, in doing so, tends to undermine financial stability. The largest financial institutions, belonging to the latter category, maximize value by arbitraging capital regulations to “reach for yield.” This incentive can be curtailed by imposing “pre-financial-distress” costs that make less risky capital strategies optimal for large institutions. Such potential costs can be created by requiring institutions to issue contingent convertible debt (COCOs) that converts to equity to recapitalize the institution well before insolvency. The conversion rate significantly dilutes existing shareholders and makes issuing new equity a better than than conversion. The trigger for conversion is a particular market-value capital ratio. Thus, the threat of conversion tends to reverse risk-taking incentives – in particular, the incentive to increase financial leverage and to arbitrage differences in capital requirement across investments. |
| Keywords: | banking, capital regulation, contingent convertible debt |
| JEL: | G21 G28 |
| Date: | 2017–02–22 |
| URL: | http://d.repec.org/n?u=RePEc:rut:rutres:201704&r=ban |
| By: | Koetter, Michael; Podlich, Natalia; Wedow, Michael |
| Abstract: | We test if unconventional monetary policy instruments influence the competitive conduct of banks. Between q2:2010 and q1:2012, the ECB absorbed €218 billion worth of government securities from five EMU countries under the Securities Markets Programme (SMP). Using detailed security holdings data at the bank level, we show that banks exposed to this unexpected (loose) policy shock mildly gained local loan and deposit market shares. Shifts in market shares are driven by banks that increased SMP security holdings during the lifetime of the program and that hold the largest relative SMP portfolio shares. Holding other securities from periphery countries that were not part of the SMP amplifies the positive market share responses. Monopolistic rents approximated by Lerner indices are lower for SMP banks, suggesting a role of the SMP to re-distribute market power differentially, but not necessarily banking profits. JEL Classification: C30, C78, G21, G28, L51 |
| Keywords: | competition, security markets program, unconventional monetary policy |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20172017&r=ban |
| By: | Breitenlechner, Maximilian; Scharler, Johann |
| Abstract: | The bank lending channel (BLC) holds that monetary policy is transmitted through the supply of bank loans. While the original formulation of the BLC stresses an imperfect substitution between reservable and non-reservable sources of banks' funding, as the transmission mechanism, recent contributions highlight changes of banks' risk premia as a more relevant link between monetary policy and loan supply. Using U.S. data, we quantify the relative importance of these two complementary channels with a SVAR approach. The differently transmitted monetary policy shocks are identified with sigh restrictions that disentangle different dynamics on the market for banks' wholesale funding. We find that policy shocks associated with dynamics on the wholesale funding market that are consistent with the traditional BLC or changes in banks' risk premia, contribute both to the variation of total loans, with the latter mechanism being nearly twice as strong as the traditional BLC. |
| JEL: | E44 E52 C32 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145679&r=ban |
| By: | Toni Beutler; Robert Bichsel; Adrian Bruhin; Jayson Danton |
| Abstract: | In this paper, we empirically analyze the transmission of realized interest rate risk - the gain or loss in a bank's economic capital caused by movements in interest rates - to bank lending. We exploit a unique panel data set that contains supervisory information on the repricing maturity profiles of Swiss banks and provides us with an individual measure of interest rate risk exposure net of hedging. Our analysis yields two main results. First, the impact of an interest rate shock on bank lending significantly depends on the individual exposure to interest rate risk. The higher a bank's exposure to interest rate risk, the higher the impact of an interest rate shock on its lending. Our estimates indicate that a year after a permanent 1 percentage point upward shock in nominal interest rates, the average bank in 2013Q3 would, ceteris paribus, reduce its cumulative loan growth by approximately 300 basis points. An estimated 12.5% of the impact would result from realized interest rate risk weakening the bank's economic capital. Second, bank lending appears to be mainly driven by capital rather than liquidity, suggesting that a higher capitalized banking system can better shield its creditors from shocks in interest rates. |
| Keywords: | Interest Rate Risk, Bank Lending, Monetary Policy Transmission |
| JEL: | E44 E51 E52 G21 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2017-04&r=ban |
| By: | Samangi Bandaranayake; Kuntal Das (University of Canterbury); W. Robert Reed (University of Canterbury) |
| Abstract: | This study replicates Schaeck, Čihák, and Wolfe (2009), henceforth SCW, and performs a variety of robustness checks. Using a cross-country, time series sample of 45 countries from 1980-2005, SCW investigate the relationship between competition and concentration in the banking system, and the occurrence of country-level systemic crises. Their primary measure of competition in the banking industry is Panzar and Rosse’s H-statistic. Concentration is measured using a concentration ratio of the three largest banks. They conclude that (i) competition and concentration measure two separate dimensions of the banking sector, and (ii) greater competition is associated with fewer systemic crises. Using data and code provided by the authors, we are able to exactly reproduce the original results of SCW. However, we find that their results are not generally robust. While we confirm their results on concentration, when we extend the data to the current period and use updated variable values, we find that competition, as measured by the H-statistic, is consistently insignificant across both duration and logit models. |
| Keywords: | Systemic risk, Bank competition, concentration, H-statistic, Replication |
| JEL: | C41 G21 G28 L11 |
| Date: | 2017–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:cbt:econwp:17/01&r=ban |
| By: | Kyriakos T. Chousakos; Gary B. Gorton |
| Abstract: | Economic growth is persistently low following a financial crisis, possibly because of a continuing weal banking system. In a financial crisis bank health is significantly damaged. Post-crisis regulatory changes have aimed at restoring bank health, but measuring bank health by Tobin's Q, we find that the ill health of banks in the recent U.S. financial crisis and the Euro crisis has persisted, especially compared to other crises in advanced economies. The low Q's cannot be explained by the state of the macro-economy. The results seem to suggest that bank regulatory changes may be repressive. |
| JEL: | E32 E44 G01 G2 G21 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23167&r=ban |
| By: | Mazelis, Falk |
| Abstract: | This paper investigates the heterogeneous impact of monetary policy shocks on financial intermediaries. I distinguish between traditional banks and shadow banks based on their ability to raise debt and equity funding. The functional form for both intermediaries imposes no constraints ex ante, but a Bayesian estimation of key parameters results in traditional banks having a comparative advantage at raising debt while shadow banks are better at raising equity. In line with empirical observations, shadow bank lending moves in the opposite direction to bank lending following monetary policy shocks, which mitigates aggregate credit responses. The recognition of a distinct shadow banking sector results in an amplified propagation of real shocks and a muted propagation of financial shocks. This identification can help in assessing effects of financial regulation on the economy. A historical shock decomposition highlights the roles of traditional banks and shadow banks in the run-up to the 2008 financial crisis. |
| JEL: | E32 E44 G20 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145763&r=ban |
| By: | Mert Demirer; Francis X. Diebold; Laura Liu; Kamil Yılmaz |
| Abstract: | We use LASSO methods to shrink, select and estimate the high-dimensional network linking the publicly-traded subset of the world's top 150 banks, 2003-2014. We characterize static network connectedness using full-sample estimation and dynamic network connectedness using rolling-window estimation. Statically, we find that global bank equity connectedness has a strong geographic component, whereas country sovereign bond connectedness does not. Dynamically, we find that equity connectedness increases during crises, with clear peaks during the Great Financial Crisis and each wave of the subsequent European Debt Crisis, and with movements coming mostly from changes in cross-country as opposed to within-country bank linkages. |
| JEL: | C01 C32 G21 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23140&r=ban |
| By: | Felipe Restrepo; Lina Cardona Sosa; Philip E. Strahan |
| Abstract: | In 2011, Colombia instituted a tax on repayment of bank loans, thereby increasing the cost of short-term bank credit more than long-term credit. Firms responded by cutting their short-term loans for liquidity management purposes and increasing their use of cash and trade credit. In industries where trade credit is more accessible (based on U.S. Compustat firms), we find substitution into accounts payable and little effect on cash and investment. Where trade credit is less available, firms increase cash and cut investment. Thus, trade credit offers a substitute source of liquidity that can insulate some firms from bank liquidity shocks. |
| JEL: | G21 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23179&r=ban |
| By: | Colangelo, Antonio |
| Abstract: | Cash pooling is a bank service that allows corporates to externalise the intra-group cash management, and thus manage their global liquidity effectively with lower costs. Although there is little quantitative information on the significance of the phenomenon, cash pooling appears to have become increasingly popular after the onset of the financial crisis when, in an environment characterised by limited access to capital markets, reduced bank lending, low returns and higher risks on banks' deposits, corporate groups started to maximise their use of internal sources of financing. In particular, cash pooling is currently very relevant in Western and Northern European countries, and is mainly offered in the United Kingdom, France and the Netherlands. This paper first analyses cash pooling agreements with a focus on the aspects that are relevant from a statistical viewpoint. It then addresses their statistical recording in compliance with ESA 2010 and, specifically, the methodological framework of Monetary Financial Institutions (MFI) balance sheet item statistics. It is proposed that positions related to cash pooling shall be recorded on a gross basis vis-à-vis the actual beneficiaries and obligors of the corresponding accounts. However, the proposed treatment goes beyond MFI balance sheet statistics and affects other data domains as well, ranging from financial accounts to balance of payments and international investment positions. While the statistical approach may seem straightforward, applying it in practice is more difficult, not least because of the treatment of cash pooling contracts in accounting terms. The analysis is complemented by numerical examples and also includes data for the Netherlands, which show the importance of clarifying the statistical treatment of cash pooling in light of the large impact it may have on macroeconomic aggregates. JEL Classification: G21, G32, E51, E43, M41 |
| Keywords: | accounting standards, cash management, cash pooling, credit, MFI balance sheet statistics, monetary aggregates, statistical standards |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbsps:201616&r=ban |
| By: | Link, Thomas; Neyer, Ulrike |
| Abstract: | This paper introduces a theoretical model of an interbank market and a central bank that implements an interest corridor system in order to exert control over the overnight interbank rate. We analyze in how far interbank market frictions in the form of broadly defined transaction costs influence banks' demand for excess reserves and the interbank market outcome under different corridor regimes. The friction costs might stem from asymmetric information about counterparty credit risks, reflect differing borrowing/lending conditions in fragmented money markets, or result from new regulatory capital rules affecting interbank exposures. We show that the transaction cost effect on banks' demand for excess reserves and on the interbank market outcome, as well as the importance of bank transaction cost heterogeneity and of the corridor width in this context, depend crucially on whether the central bank runs a standard or a floor operating system. |
| JEL: | E52 E58 G21 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145853&r=ban |
| By: | Hüser, Anne-Caroline; Hałaj, Grzegorz; Kok, Christoffer; Perales, Cristian; van der Kraaij, Anton |
| Abstract: | We present a tractable framework to assess the systemic implications of bail-in. To this end, we construct a multi-layered network model where each layer represents the securities cross holdings of a specific seniority among the largest euro area banking groups. On this basis, the bail-in of a bank can be simulated to identify the direct contagion risk to the other banks in the network. We find that there is no direct contagion to creditor banks. Spill-overs also tend to be small due to low levels of securities cross-holdings in the interbank network. We also quantify the impact of a bail-in on the different liability holders. In the baseline scenario, shareholders and subordinated creditors are always affected by the bail-in, senior unsecured creditors in 75% of the cases. Finally, we compute the effect of the bail-in on the network topology in each layer. We find that a bail-in significantly reshapes interbank linkages within specific seniority layers. JEL Classification: G01, G18, G21, C63 |
| Keywords: | bail-in, financial networks, policy simulation, resolution regimes, systemic risk |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20172010&r=ban |
| By: | Stéphane Moyen; Josef Schroth |
| Abstract: | We study constrained-efficient bank capital regulation in a model with market-imposed equity requirements. Banks hold equity buffers to insure against sudden loss of access to funding. However, in the model, banks choose to only partially self-insure because equity is privately costly. As a result, equity requirements are occasionally binding. Constrained-efficient regulation requires banks to build up additional equity buffers and compensates them for the cost of equity with a permanent increase in lending margins. When buffers are depleted, regulation relaxes the market-imposed equity requirements by raising bank future prospects through temporarily elevated lending margins. |
| Keywords: | Credit and credit aggregates, Financial Institutions, Financial stability, Financial system regulation and policies |
| JEL: | E13 E32 E44 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:17-6&r=ban |
| By: | Kreiser, Swetlana; Kick, Thomas; Merkl, Christian; Ruprecht, Benedikt |
| Abstract: | In this paper, we modify the model by Gertler and Karadi (2011) such that it can be calibrated to the empirical elasticity of bank loan supply with respect to bank capital changes. We estimate this elasticity based on microeconomic data for all German banks. Their business model resembles that of the banks in the model. We find that the estimated elasticity is 0.3, which is substantially lower than the implied elasticity of 1 in the baseline model. Nevertheless, even when calibrating the model to the significantly lower partial equilibrium elasticity, the banking sector remains an important source and amplifier for the macroeconomy. This is due to general equilibrium effects, which play an important role in the transmission of the shocks. We show that the lower elasticity has a dampening effect but the precise quantitative implications depend on the responsiveness of the banks’ loan supply to different aggregate shocks. |
| JEL: | D53 G01 G21 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145921&r=ban |
| By: | Teng Wang |
| Abstract: | Exploiting the heterogeneity in legal constraints on local bank employees' mobility, I show that access to local information influences banks' modes of expansion. Banks entering a new market typically establish new branches directly when interbank labor mobility is less restrictive but acquire incumbent branches otherwise. The treatment effect is strengthened when information asymmetries between local and entrants are severe. Furthermore, I find a surge in the total amount of local small business and mortgage loans granted, a higher mortgage approval rate, and a reduction of mortgage rates by surrounding incumbent branches, precisely around the period of entrants establishing new branches, which indicate intensified competition among banks. |
| Keywords: | Credit market development ; Labor mobility ; Local information |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2017-13&r=ban |
| By: | Lining Yu; Wolfgang Karl Härdle; Lukas Borke; Thijs Benschop |
| Abstract: | In this paper we propose a new measure for systemic risk: the Financial Risk Meter (FRM). This measure is based on the penalization parameter () of a linear quantile lasso regression. The FRM is calculated by taking the average of the penalization parameters over the 100 largest US publicly traded financial institutions. We demonstrate the suitability of this risk measure by comparing the proposed FRM to other measures for systemic risk, such as VIX, SRISK and Google Trends. We find that mutual Granger causality exists between the FRM and these measures, which indicates the validity of the FRM as a systemic risk measure. The implementation of this project is carried out using parallel computing, the codes are published on www.quantlet.de with keyword FRM. The R package RiskAnalytics is another tool with the purpose of integrating and facilitating the research, calculation and analysis methods around the FRM project. The visualization and the up-to-date FRM can be found on http://frm.wiwi.hu-berlin.de. |
| Keywords: | Systemic Risk, Quantile Regression, Value at Risk, Lasso, Parallel Computing |
| JEL: | C21 C51 G01 G18 G32 G38 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2017-003&r=ban |
| By: | B. Camara; P. Pessarossi; T. Philippon |
| Abstract: | We provide a first evaluation of the quality of banking stress tests in the European Union. We use stress tests scenarios and banks’ estimated losses to recover bank level exposures to macroeconomic factors. Once macro outcomes are realized, we predict banks’ losses and compare them to actual losses. We find that stress tests are informative. Model-based losses are good predictors of realized losses and of banks’ equity returns around announcements of macroeconomic news. When we perform our tests for the Union as a whole, we do not detect biases in the construction of the scenarios, or in the estimated losses across banks of different sizes and ownership structures. There is, however, some evidence that exposures are underestimated in countries with ex-ante weaker banking systems. Our results have implications for the modeling of credit losses, quality controls of supervision, and the political economy of financial regulation. |
| Keywords: | stress test, credit losses, back-testing. |
| JEL: | E2 G2 N2 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:decfin:26&r=ban |
| By: | J. Idier; T. Piquard |
| Abstract: | We propose in this paper a simulation framework of pandemic in financial system composed of banks, asset markets and interbank markets. This framework aims at complementing the usual stress-test strategies that evaluate the impact of shocks on individual balance-sheets without taking into account the interactions between several components of the financial system. We build on the network model of Gourieroux, Heam, and Monfort (2012) for the banking system, adding some asset market channels as in Greenwood, Landier, and Thesmar (2015) and interbank markets characterized by collateralized debt and margin calls. We show that rather small shocks can be amplified and destabilize the entire financial system. In our framework, the fact that the system enters in an adverse situation comes from first round losses amplification triggered by asset depreciation, interbank contraction and bank failures in chain. From our simulations, we explain how the different channels of transmission play a role in weakening the financial system, and measure the extent to which each channel could make banks more vulnerable. |
| Keywords: | Bank network, systemic risk, contagion, stress-testing |
| JEL: | E52 E44 G12 C58 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:621&r=ban |
| By: | Spiros Bougheas; Tim Worrall |
| Abstract: | A common practice of banks has been to pool assets of different qualities and then sell a fraction of the newly created portfolios to investors. We extend the signaling model for single sales of risky assets to portfolio sales. We identify conditions under which signaling at the portfolio level dominates signaling at the single asset level. In particular, when banks have better information about loan types on their books, and some commitment power to sales, can profit by pooling assets whilst retaining a skin in the game. |
| Keywords: | Securitization, Skin in the game, Signaling, Tranching |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:not:notcfc:17/01&r=ban |
| By: | David A. Cimon; Corey Garriott |
| Abstract: | We present a model of market makers subject to recent banking regulations: liquidity and capital constraints in the style of Basel III and a position limit in the style of the Volcker Rule. Regulation causes market makers to reduce their intermediation by refusing principal positions. However, it can improve the bid-ask spread because it induces new market makers to enter. Since market makers intermediate less, asset prices exhibit a liquidity premium. Costs of regulation can be assessed by measuring principal positions and asset prices but not by measuring bid-ask spreads. |
| Keywords: | Financial markets, Financial system regulation and policies, Market structure and pricing |
| JEL: | G14 G20 L10 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:17-7&r=ban |
| By: | Yusuf Soner Baskaya; Julian di Giovanni; Sebnem Kalemli-Ozcan; Mehmet Fatih Ulu |
| Abstract: | We show that capital inflows are important drivers of domestic credit cycles using a firm-bank-loan level dataset for a representative emerging market. Instrumenting inflows by changes in global risk appetite (VIX), we find that a fall in VIX leads to a large decline in real borrowing rates and an expansion in credit supply. Estimates explain 40% of observed cyclical corporate credit growth. The OLS-elasticity of interest rates vis-á-vis capital inflows is smaller than the IV-elasticity. Banks with higher noncore funding offer relatively lower rates to low net worth firms, but do not extend more credit to them given collateral constraints |
| JEL: | E0 F2 F3 F4 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23149&r=ban |
| By: | Loipersberger, Florian |
| Abstract: | This paper investigates how the introduction of the Single Supervisory Mechanism, the European Union’s implementation of harmonized banking supervision, has affected the banking sector in Europe. I perform an event study on banks’ stock returns and find evidence for small but significant positive effects. A potential hypothesis for this result is the fact that a single supervisory authority can take spillover effects between countries into account and is therefore able to stabilize the European banking sector. Splitting the sample by an indicator for supervisory power, an indicator for corruption and by Debt/GDP reveals that the positive impact of the SSM was stronger for banks in countries that perform poorly with respect to these measures. |
| Keywords: | Banks; event study; supervision; SSM; harmonization |
| JEL: | G28 H77 F55 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:34610&r=ban |
| By: | Alexandre, Michel; Antônio Silva Brito, Giovani; Cotrim Martins, Theo |
| Abstract: | The aim of this paper is to assess the impact of the default of some personal credit modality in the future default of the other modalities. Using Brazilian microdata, we run a logistic regression to estimate the probability of default in a given credit modality, including among the explanatory variables the personal overdue exposure in the other credit modalities. Our results show that such effect is positive and significant, although quantitatively heterogeneous. We also discuss the rationale behind these results. Specifically, it was found that financing credit modalities (vehicle and real estate financing) contaminate more the other credit modalities, as their default may bring to the debtor the loss of the financed good. Moreover, riskier loan categories (overdraft, non-payroll-deducted personal credit and credit card) are more contaminated by the default of other modalities, what is explained by the fact that defaulted individuals have a limited access to less risky credit modalities. |
| Keywords: | Credit default contagion; debtor approach; transaction approach |
| JEL: | C58 G17 G28 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:76859&r=ban |
| By: | E. Avisoa |
| Abstract: | This paper analyses the technical efficiency of European co-operative banks compared to European commercial banks from 2006 to 2014. For this we use the B-convexity method, an innovative approach in frontier efficient models estimation, to measure banks’ technical efficiency; we also analyse the influence of certain variables on the level of efficiency. Our findings show that: a) a principal component analysis indicates that cooperative banks’ balance sheet are oriented towards lending activities while commercial banks are more oriented towards securities and derivatives activities; b) on average, the technical efficiency of the banks in our sample significantly decreased between 2007 and 2009, before recovering markedly between 2010 and 2012 and stabilizing over the period 2013-2014; c) there is no significant difference in technical efficiency between European cooperative banks and commercial banks, although we observe a slight superiority of commercial banks; d) French cooperative banks have higher levels of technical efficiency than their European peers; and (e) technical efficiency is positively impacted by the banks’ size, suggesting that large banks tend to have higher technical efficiency than smaller banks. This is in line with a trend towards concentration to improve technical efficiency in the European banking sector. |
| Keywords: | European banking; cooperative banks; technical efficiency; B-convexity; non-parametric frontier approach. |
| JEL: | C14 C67 G21 G30 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:decfin:25&r=ban |
| By: | Rosnan, Chotard (CREAR - Center of Research in Econo-finance and Actuarial sciences on Risk / Centre de Recherche Econo-financière et Actuarielle sur le Risque); Michel, Dacorogna (SCOR SE); Marie, Kratz (Essec Business School) |
| Abstract: | In this study we empirically explore the capacity of historical VaR to correctly predict the future risk of a financial institution. We observe that rolling samples are better able to capture the dynamics of future risks. We thus introduce another risk measure, the Sample Quantile Process, which is a generalization of the VaR calculated on a rolling sample, and study its behavior as a predictor by varying its parameters. Moreover, we study the behavior of the future risk as a function of past volatility. We show that if the past volatility is low, the historical computation of the risk measure underestimates the future risk, while in period of high volatility, the risk measure overestimates the risk, confirming that the current way financial institutions measure their risk is highly procyclical. |
| Keywords: | backtest; risk measure; sample quantile process; stochastic model; VaR; volatility |
| JEL: | C13 C22 C52 C53 G01 G33 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:essewp:dr-16018&r=ban |