nep-ban New Economics Papers
on Banking
Issue of 2017‒06‒11
fifteen papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. The Interplay between Εx-post Credit Risk and the Cycles: Evidence from the Italian banks By Anastasiou, Dimitrios
  2. Acquiring Banking Networks By Ross Levine; Chen Lin; Zigan Wang
  3. Spillover Effects of Institutions on Cooperative Behavior, Preferences and Beliefs By Engl, Florian; Riedl, Arno; Weber, Roberto A.
  4. Macroprudential policy and the revolving door of risk: lessons from leveraged lending guidance By Kim, Sooji; Plosser, Matthew; Santos, Joao A. C.
  5. Did Negative Interest Rates Impact Bank Lending? By Phil Molyneux; Rue Xie; John Thornton; Alessio Reghezza
  6. The Effects of the Financial Crisis on Cooperative Banks in Europe – A Critical Comparison – By Henselmann, Klaus; Ditter, Dominik; Lupp, Philipp
  7. The Impact of Bank Expansion on Self-Employed Business Owners: Evidence from US States By Anindo Sarker; Bulent Unel
  8. Systemic banks, capital composition and CoCo bonds issuance: The effects on bank risk By Victor Echevarria-Icaza; Simón Sosvilla-Rivero
  9. Panic bank runs By Hubert Janos Kiss; Ismael Rodriguez-Lara; Alfonso Rosa-Garcia
  10. Socioeconomic determinants of the mobile money adoption process: the case of Togo By Komivi Afawubo; Messan Agbaglah; Mawuli K. Couchoro; Tchapo Gbandi
  11. Transformation of corporate scope in U.S. banks: patterns and performance implications By Cetorelli, Nicola; Jacobides, Michael G.; Stern, Samuel
  12. Can Italy Grow Out of Its NPL Overhang? A Panel Threshold Analysis By Mohaddes, K.; Raissi, M.; Weber, A.
  13. Blockchain Cryptocurrency Backed with Full Faith and Credit By John P. Conley
  14. Bank’s Lending Growth in Chile: The Role of the Senior Loan Officers Survey By Alejandro Jara; Juan-Francisco Martínez; Daniel Oda
  15. Deep Learning Bank Distress from News and Numerical Financial Data By Paola Cerchiello; Giancarlo Nicola; Samuel Rönnqvist; Peter Sarlin

  1. By: Anastasiou, Dimitrios
    Abstract: The objective of this research is to empirically examine if both credit and business cycle affect the ex-post credit risk (i.e. non-performing loans) in the banking system of Italy. My sample includes 47 Italian banks for the period 1995Q1-2015Q1. The increase in NPLs post-2008 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 Italy which is one of the countries that has been hit by the financial crisis more than other economies. By employing Fixed Effects, Random Effects and GMM as econometric methodologies I find a positive (negative) association between credit cycle (business cycle) and NPLs. Higher NPLs in Italy are due to adverse macroeconomic conditions (i.e. downward phase of the business cycle) and due to excess credit (i.e. upward phase of the credit cycle). Another important finding is that the Italian NPLs have a symmetric sensitivity between both business and credit cycle. Such findings may be helpful for both senior bank loan officers and policy makers when designing macro-prudential as well as NPL resolution policies.
    Keywords: Non-performing loans; Ex-post credit risk; Business cycle; Credit cycle; Macro-prudential policy; Italian Banks.
    JEL: C23 C51 E3 G0 G1 G2
    Date: 2017–05
  2. By: Ross Levine; Chen Lin; Zigan Wang
    Abstract: Does the pre-deal geographic overlap of the subsidiaries and branches of two banks affect the probability that they merge and post-merger value creation and synergies? We compile comprehensive information on U.S. bank acquisitions from 1986 through 2014, construct several measures of network overlap, and design and implement a new identification strategy. We find that greater pre-deal network overlap (1) increases the likelihood that two banks merge, (2) boosts the cumulative abnormal returns of the acquirer, target, and combined banks, and (3) is associated with larger labor cost reductions, managerial turnover, loan quality improvements, and revenue enhancements at target banks.
    JEL: G21 G28 G34
    Date: 2017–06
  3. By: Engl, Florian (University of Cologne); Riedl, Arno (Maastricht University); Weber, Roberto A. (University of Zurich)
    Abstract: Institutions are an important means for fostering prosocial behaviors, but in many contexts their scope is limited and they govern only a subset of all socially desirable acts. We use a laboratory experiment to study how the presence and nature of an institution that enforces prosocial behavior in one domain affects behavior in another domain and whether it also alters prosocial preferences and beliefs about others' behavior. Groups play two identical public good games. We vary whether, for only one game, there is an institution enforcing cooperation and vary also whether the institution is imposed exogenously or arises endogenously through voting. Our results show that the presence of an institution in one game generally enhances cooperation in the other game thus documenting a positive spillover effect. These spillover effects are economically substantial amounting up to 30 to 40 percent of the direct effect of institutions. When the institution is determined endogenously spillover effects get stronger over time, whereas they do not show a trend when it is imposed exogenously. Additional treatments indicate that the main driver of this result is not the endogeneity but the temporal trend of the implemented institution. We also find that institutions of either type enhance prosocial preferences and beliefs about others' prosocial behavior, even toward strangers, suggesting that both factors are drivers of the observed spillover effects.
    Keywords: public goods, institutions, spillover effect, social preferences, beliefs
    JEL: C92 D02 D72 H41
    Date: 2017–05
  4. By: Kim, Sooji (Federal Reserve Bank of New York); Plosser, Matthew (Federal Reserve Bank of New York); Santos, Joao A. C. (Federal Reserve Bank of New York, Nova School of Business and Economics)
    Abstract: We investigate the U.S. experience with macroprudential policies by studying the interagency guidance on leveraged lending. We find that the guidance primarily impacted large, closely supervised banks, but only after supervisors issued important clarifications. It also triggered a migration of leveraged lending to nonbanks. While we do not find that nonbanks had more lax lending policies than banks, we unveil important evidence that nonbanks increased bank borrowing following the issuance of guidance, possibly to finance their growing leveraged lending. The guidance was effective at reducing banks’ leveraged lending activity, but it is less clear whether it accomplished its broader goal of reducing the risk that these loans pose for the stability of the financial system. Our findings highlight the importance of supervisory monitoring for macroprudential policy goals, and the challenge that the revolving door of risk poses to the effectiveness of macroprudential regulations.
    Keywords: macroprudential regulation; leveraged loans; banks; enforcement; supervision; shadow banking
    JEL: G18 G21 G23
    Date: 2017–05–01
  5. By: Phil Molyneux (Bangor University); Rue Xie (Bangor University); John Thornton (Bangor University); Alessio Reghezza (Bangor University)
    Abstract: Since 2012 several central banks have introduced a negative interest rate policy (NIRP) aimed at boosting real spending by facilitating an increase in the supply and demand for bank loans. We employ a bank-level dataset comprising 16,675 banks from 33 OECD member countries over 2012-2016 and a difference-in-differences methodology to analyze whether NIRP resulted in a change in bank lending in NIRP-adopter countries compared to those that did not adopt the policy. Our results suggest that following the introduction of negative interest rates, bank lending was weaker in NIRP-adopter countries than in countries that did not adopt the policy. The result is robust to a wide range of checks. This adverse NIRP effect appears to have been stronger for banks that were smaller, more dependent on retail deposit funding, less well capitalized, had business models reliant on interest income, and operate in more competitive markets. NIRP also appears to have canceled out the stimulus impact of other forms of unconventional monetary policy
    Keywords: Negative interest rates, monetary policy transmission, bank lending, difference in differences estimation
    JEL: E43 E44 E52 G21 F34
    Date: 2017–05
  6. By: Henselmann, Klaus; Ditter, Dominik; Lupp, Philipp
    Abstract: The financial crisis has highlighted the necessity of discussions on the adequacy of banking regulation and accounting standard-setting for financial institutions. We compare the development of several variables in this context between commercial banks, cooperative banks and savings banks from 2005 through 2013, in order to investigate whether smaller banks such as cooperative banks or savings banks tended to be more robust to the financial crisis. We find that the volume of lending (loan loss provisioning) remained stable or increased (decreased) for smaller financial institutions. Furthermore, there is no significant increase in loss avoidance behavior specifically for cooperative banks. Cooperative banks are also the group of banks that showed the least pro-cyclical effects and the most income smoothing behavior. Our results suggest that cooperative banks were the group of banks being most stable during the years surrounding the financial crisis in 2007/2008. This demonstrates the importance that policy makers consider the broad range of financial institutions for discussions on policy adjustments.
    Keywords: Cooperative Banks,Financial Crisis,Loan Loss Provisioning,IFRS
    JEL: M41 M48 G21 G28 G18
    Date: 2016
  7. By: Anindo Sarker; Bulent Unel
    Abstract: We use state-level bank branch deregulations to study the impact of changes in credit on entrepreneurship at the individual-owner level. We classify self-employed individuals into incorporated and unincorporated business owners. Exploiting the variation in the staggered timing of banking deregulations, we find that branching reforms affected the entry and exit rates of the incorporated self-employed. Further, the branching reforms encouraged unincorporated businesses to incorporate. Finally, the effects of reforms are different across groups based on gender, race, and age. We find stronger effects on incorporated business creation among minorities, and higher exit rates among the young and minorities.
  8. By: Victor Echevarria-Icaza (Instituto Complutense de Estudios Internacionales (ICEI). Universidad Complutense de Madrid.); Simón Sosvilla-Rivero (Instituto Complutense de Estudios Internacionales (ICEI). Universidad Complutense de Madrid.)
    Abstract: This paper shows that systemic banks are prone to increase their regulatory capital ratio through a decline in risk-weighted assets density and an intense use of lower level capital. The market access of systemic banks, and the fact that they were singled out for higher capital requirements seem to have biased them towards lower level capital, consistent with the theory that asymmetric information drives capital decisions. These effects are particularly strong for institutions that had a rather low level of capitalization at the start of the period and for those that exhibited a strong use of Additional Tier I capital before the regulatory changes. Strict capital composition requirements for firms with lower buffers would be an improvement.
    Keywords: Contingent capital; Banking regulation; Risk-taking incentives; Asset substitution; Systemic risk.
    Date: 2017
  9. By: Hubert Janos Kiss (Institute of Economics, Research Centre for Economic and Regional Studies and Eötvös Loránd University); Ismael Rodriguez-Lara (Middlesex University London, Department of Economics, Business School); Alfonso Rosa-Garcia (Universidad Catolica de Murcia, Facultad de Ciencias Juridicas y de la Empresa)
    Abstract: We provide experimental evidence that panic bank runs occur in the absence of problems with fundamentals and coordination failures among depositors, the two main culprits identified in the literature. Depositors withdraw when they observe that others do so, even when theoretically they should not. Our findings suggest that panic also manifests itself in the beliefs of depositors, who overestimate the probability that a bank run is underway. Loss-aversion has a predictive power on panic behavior, while risk or ambiguity aversion do not.
    Keywords: bank runs, beliefs, panic, coordination, observability, loss aversion
    JEL: C7 C9 D8 G2
    Date: 2017–04
  10. By: Komivi Afawubo (CEREFIGE-Universite de Lorraine;CRESE-Universite de Franche-Comte); Messan Agbaglah (Labour Program, Government of Canada; GREDI); Mawuli K. Couchoro (CERFEG-Universite de Lome); Tchapo Gbandi (INSEED-Togo)
    Abstract: Togo is lagging in the adoption of mobile money in the West African Economic and Monetary Union (WAEMU). The country’s share in the WAEMU is less than one percent of account opening, volume, and level of transactions. To understand this delay, it is essential to identify the socioeconomic factors that determine the adoption of the usage of mobile money services in Togo. Departing from the traditional literature which considers the adoption of mobile money as a one-shot phenomenon, this paper models the adoption of mobile money as a five-step process and identifies the likelihood of its adoption based on an Ordered Logit model applied on data from a survey conducted on a sample of 5,197 individuals. We find that social groups, including religious groups and student associations, are powerful vehicles for the adoption of mobile money in Togo. In addition, the ability to read and write and being a customer of a bank or a Microfinance Institution (MFI) positively impact the mobile money adoption process. In contrast, being unemployed decreases the likelihood to adopt mobile money.
    Keywords: Mobile money; Innovation; Adoption; Process.
    JEL: O31 O33 Z13
    Date: 2017–04
  11. By: Cetorelli, Nicola (Federal Reserve Bank of New York); Jacobides, Michael G. (London Business School); Stern, Samuel (University of Michigan)
    Abstract: Using a novel database containing the time-series details of the organizational structure of individual bank holding companies, this paper presents the first population-wide study of the transformation in business scope of U.S. banks. Expanding scope has a negative impact on performance on average. However, we find that firms whose expansion keeps them closer to the prevailing “modal bank” are better off compared with those pursuing generic diversification. Moreover, we find that early expanders into particular activities benefit more, whereas late adopters, rather than benefitting by “fitting the norm,” lose out.
    Keywords: business scope; performance; diversification
    JEL: G21 L22 L25
    Date: 2017–05–01
  12. By: Mohaddes, K.; Raissi, M.; Weber, A.
    Abstract: This paper examines whether a tipping point exists for real GDP growth in Italy above which the ratio of non-performing loans (NPLs) to total loans falls significantly. Estimating a heterogeneous dynamic panel-threshold model with data on 17 Italian regions over the period 1997.2014, we provide evidence for the presence of growth-threshold effects on the NPL ratio in Italy. More specifically, we and that real GDP growth above 1.2 percent, if sustained for a number of years, is associated with a significant decline in the NPLs ratio. Achieving such growth rates requires decisively tackling long-standing structural rigidities and improving the quality of fiscal policy. Given the modest potential growth outlook, however, under which banks are likely to struggle to grow out of their NPL overhang, further policy measures are needed to put the NPL ratio on a firm downward path over the medium term.
    Keywords: Italy, non-performing loans, real output growth, panel tests of threshold effects.
    JEL: C23 E44 G33
    Date: 2017–06–17
  13. By: John P. Conley (Vanderbilt University)
    Abstract: The major advantages of blockchain based cryptocurrencies are the independent verifiability of transactions and the anonymity that they allow. Blockchains can also process transactions at much lower cost than banks and credit card companies. On the other hand, the value of cryptocurrencies is quite volatile. In addition, the crypto-ecosystem is not easy to access for many less technologically savvy consumers and it is especially difficult to make financial connections to the outside world. These factors limit the utility of cryptocurrencies as a store of value and a medium of exchange, respectively. This paper proposes the creation of CryptoBucks, a cryptocurrency backed 100% by dollars. CryptoBucks solve the problem of volatility and offer various levels of privacy and anonymity depending on how the system is implemented.
    Keywords: Blockchain, Cryptocurrency, Tokenization, Fiat Currency, AML, KYC, PPK, PKI, Encryption, Bitcoin
    JEL: E5 G1
    Date: 2017–06–06
  14. By: Alejandro Jara; Juan-Francisco Martínez; Daniel Oda
    Abstract: In order to understand the influence of banks' perceptions on their lending and thus, contribute to the understanding of the transmission of monetary policy, we studied the role of the Senior Loan Officers Survey (SLOS, hereafter), published quarterly by the Central Bank of Chile. The SLOS accounts for changes in the supply of loans and factors affecting the willingness to lend, as well as variations in the demand for credit and its motivations. By including the SLOS in the analysis, we can go beyond the traditional determinants of credit growth rates that appear in the literature. After controlling for macroeconomic factors and idiosyncratic characteristics of banks, we found that the perceptions reported in the SLOS are statistically and economically significant in explaining the dynamics of credit. This result holds for all market segments, and is robust to several specifications. Moreover, we establish that the impact of credit standards and demand perceptions in credit growth rates is asymmetrical and non-linear, being more significant when conditions are tightening.
    Date: 2017–06
  15. By: Paola Cerchiello (Department of Economics and Management, University of Pavia); Giancarlo Nicola (Department of Economics and Management, University of Pavia); Samuel Rönnqvist (Turku Centre for Computer Science - TUCS, Åbo Akademi University); Peter Sarlin (Hanken School of Economics, RiskLab Finland)
    Abstract: In this paper we focus our attention on the exploitation of the information contained in financial news to enhance the performance of a classifier of bank distress. Such information should be analyzed and inserted into the predictive model in the most efficient way and this task deals with all the issues related to text analysis and specifically analysis of news media. Among the different models proposed for such purpose, we investigate one of the possible deep learning approaches, based on a doc2vec representation of the textual data, a kind of neural network able to map the sequential and symbolic text input onto a reduced latent semantic space. Afterwards, a second supervised neural network is trained combining news data with standard financial figures to classify banks whether in distressed or tranquil states, based on a small set of known distress events. Then the final aim is not only the improvement of the predictive performance of the classifier but also to assess the importance of news data in the classification process. Does news data really bring more useful information not contained in standard financial variables? Our results seem to confirm such hypothesis.
    Keywords: behavioural finance, financial news, deep learning, bank distress, Word2vec.
    JEL: C83 C12 E58 E61 G02 G14
    Date: 2017–05

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