nep-ban New Economics Papers
on Banking
Issue of 2017‒08‒13
thirteen papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. The Effect of Reducing Information Asymmetry on Loan Price and Quantity in the African Banking Industry By Asongu, Simplice
  2. Capital Injection and Japanese Regional Bank Lending (Japanese) By NAGATA Kunikazu
  3. Burning Money? Government Lending in a Credit Crunch By Gabriel Jiménez; José-Luis Peydró; Rafael Repullo; Jesús Saurina
  4. The Relative Importance of Macroeconomic Shocks, Regional Shocks and Idiosyncratic Risk on Large and Small Banks By Fischer, Jack R.; McPhail, Joseph E.; Rodrigues, Nathan; Orazem, Peter
  5. Leaning Against Windy Bank Lending By Giovanni Melina; Stefania Villa
  6. Household Credit and Local Economic Uncertainty By DiMaggio, Marco; Kermani, Amir; Ramcharan, Rodney; Yu, Edison
  7. Ownership structure and bank performance: An emerging market perspective By Mamatzakis, Emmanuel; Zhang, Xiaoxiang; Wang, Chaoke
  8. Do Branch Network Sizes of Regional Banks Influence Their Management Performances Positively? (Japanese) By KONDO Kazumine
  9. Bank Consolidation, Efficiency, and Profitability in Italy By Anke Weber
  10. Which Banks Recover From Large Adverse Shocks? By Emilia Bonaccorsi di Patti; Anil Kashyap
  11. Banking Panics and Output Dynamics By Sanches, Daniel R.
  12. Distributional Implications of Government Guarantees in Mortgage Markets By Gete, Pedro; Zecchetto, Franco
  13. Capital Injection and Japanese Regional Bank Lending (Japanese) By HARIMAYA Kozo; OZAKI Yasufumi

  1. By: Asongu, Simplice
    Abstract: The purpose of this study is to assess how information sharing offices affect loan price and quantity in the African banking industry. The empirical evidence is based on a panel of 162 banks in 42 countries for the period 2001-2011. From the Generalised Method of Moments, public credit registries decrease loan price. With instrumental Quantile Regressions, two main findings are established. Public credit registries consistently decrease the price of loans whereas private credit bureaus consistently have the opposite effect. Public credit registries increase loan quantity in bottom quintiles (or banks associated with lower loan quantities) while private credit bureaus increase loan quantity in top quintiles (or banks associated with higher loan quantities).
    Keywords: Information Asymmetry; Financial Access; Africa
    JEL: G20 G29 O16 O55
    Date: 2017–01
  2. By: NAGATA Kunikazu
    Abstract: This paper empirically examines the effects of capital injection polices into Japanese regional banks on bank lending. The major results of this paper are as follows. First, the capital-injected banks stimulate their lending (especially, small and mid-sized enterprise (SME) lending). Second, the ratios of collateralized and guaranteed loan of capital-injected banks tend to decrease. The capital-injected banks stimulate their lending without using collateral and guaranty, so we can conclude that Japanese capital injection policy is effective. Third, because the banks that have received capital injections based on special earthquake-related provisions of the Act on Special Measures for Strengthening Financial Functions increase their loans to SMEs without using collateral, we can show the special earthquake-related provisions of this act support earthquake reconstruction. Fourth, in prefectures where the economy is declining, capital-injected banks stimulate their lending, but do not reduce collateralized loans.
    Date: 2017–08
  3. By: Gabriel Jiménez; José-Luis Peydró; Rafael Repullo; Jesús Saurina
    Abstract: We analyze new lending to firms by a state-owned bank in crisis times, the potential adverse selection faced by the bank, and the causal real effects associated to its lending. For identification, we exploit: (i) a new credit facility set up in Spain by its state-owned bank during the credit crunch of 2010-2012; (ii) the bank’s continuous scoring system, together with firms’ individual credit scores and the threshold for granting vs. rejecting loan applications; (iii) the rich credit register matched with firm- and bank-level data. We show that, compared to privately-owned banks, the state-owned bank faces a worse pool of applicants, is tighter (softer) in lending to firms with observable (unobservable) riskier characteristics, and has substantial higher loan defaults. Using a regression discontinuity approach around the threshold, we show that the supply of credit causes large positive real effects on firm survival, employment, investment, total assets, sales, and productivity, as well as crowding-in of new credit by private banks.
    Keywords: adverse selection, real effects of credit supply, crowding-in, state-owned, banks, credit crunch, credit scoring, loan defaults, countercyclical policies
    JEL: E44 G01 G21 G28 H81
    Date: 2017–08
  4. By: Fischer, Jack R.; McPhail, Joseph E.; Rodrigues, Nathan; Orazem, Peter
    Abstract: Mandatory stress testing has been acclaimed by banking regulators as a key response to preventing future financial crises. Each year banks in the United States with over $50 Billion in assets must perform a Comprehensive Capital Analysis and Review (CCAR) . Banks with over $10 Billion are subject to Dodd-Frank Act Stress Testing (DFAST). This study examne the relative importance of international or national macroeconomic shocks, state-level shocks, and idiosyncratic shocks on mortgage rate charge-offs for the universe of all banks for the 2002-2014 period. We find tha banks with over $10 billion in assets have charge-off rates that are very sensitive to macroeconomic shocks, while those aggregate shocks have almost no power to explain the charge-off rates of smaller banks. The results suggests that bank stress tests are appropriately targeted at only the largest banks whose assets are most responsive to macroeconomic shocks.Smaller bank portfolio performance is driven by idiosyncratic shocks of the sort identified in traditional bank examination. State-level shocks are as or more important in explaining small bank charge-off rates as are national shocks. The findings also support the view that the largest banks are subject to added risk compared to small banks because of the high correlation between large bank loan performance and aggregate shocks, implying that large banks require larger capital reserves.
    Date: 2017–07–13
  5. By: Giovanni Melina; Stefania Villa
    Abstract: Using an estimated dynamic stochastic general equilibrium model with banking, this paper first provides evidence that monetary policy reacted to bank loan growth in the US during the Great Moderation. It then shows that the optimized simple interest-rate rule features no response to the growth of bank credit. However, the welfare loss associated to the empirical responsiveness is small. The sources of business cycle fluctuations are crucial in determining whether a “leaning-against-the-wind” policy is optimal or not. In fact, the predominant role of supply shocks in the model gives rise to a trade-off between inflation and financial stabilization.
    Date: 2017–07–31
  6. By: DiMaggio, Marco (Harvard Business School and NBER); Kermani, Amir (University of California, Berkeley, and NBER); Ramcharan, Rodney (University of Southern California); Yu, Edison (Federal Reserve Bank of Philadelphia)
    Abstract: This paper investigates the impact of uncertainty on consumer credit outcomes. We develop a local measure of economic uncertainty capturing county-level labor market shocks. We then exploit microeconomic data on mortgages and credit-card balances together with the crosssectional variation provided by our uncertainty measure to show strong borrower-specific heterogeneity in response to changes in uncertainty. Among high risk borrowers or areas with more high risk borrowers, increased uncertainty is associated with housing market illiquidity and a reduction in leverage. For low risk borrowers, these effects are absent and the cost of mortgage credit declines, suggesting that lenders reallocate credit towards safer borrowers when uncertainty spikes. A similar pattern is observed in the unsecured credit market. Taken together, local uncertainty might independently affect aggregate economic activity through consumer credit markets and could engender greater inequality in consumption and housing wealth accumulation across households.
    Keywords: consumer credit; mortgages; credit cards; lending practices;
    JEL: D14 D80 E52 G21
    Date: 2017–08–03
  7. By: Mamatzakis, Emmanuel; Zhang, Xiaoxiang; Wang, Chaoke
    Abstract: This study investigates whether ownership type does matter for bank performance in an emerging market. By tracing the identity of top owners, I group large shareholder of China’s commercial banks into government, state owned enterprises (SOEs), domestic private investors and foreign investors. These distinct types of shareholders have multiple motivations and incentives, in turn, this will affect how they perform their control rights and monitor over the invested banks. The main findings regarding the impact of ownership structure on bank performance suggest that banks with high state shareholding tend to have poorer performance and low profitability, consistent with much of the literature. In addition, banks with higher domestic privately shareholders are generally operated more profitably. Furthermore, higher foreign ownership may negatively affect bank performance. Moreover, ownership type diversity is positively associated with bank performance, and banks with concentrated ownership are worse performing. My findings are robustness under the different measures of bank performance.
    Keywords: Banks, Ownership structure, Corporate governance
    JEL: G21 G28 G32
    Date: 2017–07–01
  8. By: KONDO Kazumine
    Abstract: This paper investigates whether branch network sizes of regional banks influence their management performances positively under the region-based relationship banking policy. Specifically, the effect of branch numbers of regional banks on their credit businesses and profits are empirically examined. As a result, it was found that regional banks with more branches can increase their loans and bills discounted as well as their small and mid-sized enterprises (SME) loans and bills. Thus, establishing more branches is effective in increasing the sum of loans and bills discounted of each bank because regional banks with many branches can come in contact with more customers. On the other hand, it was found that return on assets (ROA) and return on equity (ROE) of regional banks with more branches are lower. When we focus on the cost performances of regional banks, establishing too many branches and keeping branch networks that are too large might have negative effects on regional banks.
    Date: 2017–07
  9. By: Anke Weber
    Abstract: This paper examines the case for efficiency-driven banking sector consolidation in Italy, evaluates its potential effects on profitability, and discusses policy options to facilitate a consolidation process that is as effective as possible. A bottom-up analysis of 386 Italian banks suggests that while profitability is expected to improve as the economy gradually recovers, operational efficiency gains are nonetheless needed to restore large parts of the banking system to healthy profitability. Banking system consolidation can play a role in facilitating such efficiency gains, but its effectiveness is likely to be most as part of a comprehensive strategy that includes complementary reforms to clean up bank balance sheets. Cross-country experience indicates that efficiency gains are more likely to follow consolidations where careful viability analyses are conducted of the synergies and operational improvements that can be achieved.
    Date: 2017–07–27
  10. By: Emilia Bonaccorsi di Patti; Anil Kashyap
    Abstract: We analyze the fate of 110 Italian banks that experienced abrupt drops in profitability, from which about 1/3 recover. Recovery depends primarily on post-shock adjustments made by the banks, particularly to their loan portfolios. Matched bank-borrower data shows that recovering banks are significantly more aggressive in managing their riskiest clients. The risk management differences are consistent with some banks cutting credit to very riskiest clients while others appear to be gambling for reclamation by continuing to extend credit to high risk borrowers.
    JEL: G21 G28
    Date: 2017–08
  11. By: Sanches, Daniel R. (Federal Reserve Bank of Philadelphia)
    Abstract: This paper develops a dynamic general equilibrium model with an essential role for an illiquid banking system to investigate output dynamics in the event of a banking crisis. In particular, it considers the ex-post efficient policy response to a banking crisis as part of the dynamic equilibrium analysis. It is shown that the trajectory of real output following a panic episode crucially depends on the cost of converting long-term assets into liquid funds. For small values of the liquidation cost, the recession associated with a banking panic is protracted as a result of the premature liquidation of a large fraction of productive banking assets to respond to a panic. For intermediate values, the recession is more severe but short-lived. For relatively large values, the contemporaneous decline in real output in the event of a panic is substantial but followed by a vigorous rebound in real activity above the long-run level.
    Keywords: Banking panic; deposit contract; suspension of convertibility; time-consistent policies
    JEL: E32 E42 G21
    Date: 2017–07–24
  12. By: Gete, Pedro; Zecchetto, Franco
    Abstract: We analyze the removal of the credit-risk guarantees provided by the government sponsored enterprises (GSEs) in a model with agents heterogeneous in income and house price risk. We find that wealth inequality increases, driven by higher mortgage spreads and housing rents. Housing holdings become more concentrated. Foreclosures fall. The removal benefits high-income households, while hurting low- and mid-income households (renters and highly leveraged mortgagors with conforming loans). GSE reform requires compensating transfers, sufficiently high elasticity of rental supply, or linking GSE reform with the elimination of the mortgage interest deduction.
    Keywords: Default, Loan Guarantees, Housing, Inequality, Mortgages, Rents
    JEL: E51 G21 H81 R2
    Date: 2017–04
  13. By: HARIMAYA Kozo; OZAKI Yasufumi
    Abstract: Under the setup of the Shinzo Abe administration's regional revitalization policy, various expectations are placed on the role of regional financial institutions. On the other hand, regional financial institutions have been promoting the strengthening of the function of relationship banking since the mid 2000s, and various initiatives aimed at revitalizing regional economies are under way. However, the regional economy is still in recession, and the number of closed business establishments exceeds the number of businesses opened except for some large cities over the past decades. In addition, since many regional financial institutions have been expanding their branch networks, there is a high possibility that the relationships with local business partners are becoming weak. In this paper, we examine how the competitiveness of regional financial institutions affects the entry and exit rates of private enterprises, using municipality-based data of "economic census." We find that as the degree of competition falls, the firm entry rate rises and the firm exit rate falls. Consistent results were obtained even when the number of employees is used instead of the number of establishments. Our main findings support the previous studies which predict that low bank competition will increase access to credit, and indicate the significance of the existence of regional financial institutions in rural areas.
    Date: 2017–08

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