nep-ban New Economics Papers
on Banking
Issue of 2017‒10‒01
six papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. The Decline of Big-Bank Lending to Small Business: Dynamic Impacts on Local Credit and Labor Markets By Brian S. Chen; Samuel G. Hanson; Jeremy C. Stein
  2. Optimal Bank Regulation in the Presence of Credit and Run Risk By Anil K. Kashyap; Dimitrios P. Tsomocos; Alexandros Vardoulakis
  3. The Effect of House Prices on Household Borrowing: A New Approach By James Cloyne; Kilian Huber; Ethan Ilzetzki; Henrik Kleven
  4. International Credit Supply Shocks By Ambrogio Cesa-Bianchi; Andrea Ferrero; Alessandro Rebucci
  5. User Cost of Credit Card Services under Risk with Intertemporal Nonseparability By William Barnett; Jinan Liu
  6. The Number of Bank Relationships and Bank Lending to New Firms: Evidence from firm-level data in Japan By OGANE Yuta

  1. By: Brian S. Chen; Samuel G. Hanson; Jeremy C. Stein
    Abstract: Small business lending by the four largest banks fell sharply relative to others in 2008 and remained depressed through 2014. We explore the dynamic adjustment process following this credit supply shock. In counties where the largest banks had a high market share, the aggregate flow of small business credit fell, interest rates rose, fewer businesses expanded, unemployment rose, and wages fell from 2006 to 2010. While the flow of credit recovered after 2010 as other lenders slowly filled the void, interest rates remain elevated. Although unemployment returns to normal by 2014, the effect on wages persists in these areas.
    JEL: G01 G21 G23
    Date: 2017–09
  2. By: Anil K. Kashyap; Dimitrios P. Tsomocos; Alexandros Vardoulakis
    Abstract: We modify the Diamond and Dybvig (1983) model of banking to jointly study various regulations in the presence of credit and run risk. Banks choose between liquid and illiquid assets on the asset side, and between deposits and equity on the liability side. The endogenously determined asset portfolio and capital structure interact to support credit extension, as well as to provide liquidity and risk-sharing services to the real economy. Our modifications create wedges in the asset and liability mix between the private equilibrium and a social planner's equilibrium. Correcting these distortions requires the joint implementation of a capital and a liquidity regulation.
    Keywords: Bank runs ; Capital ; Credit risk ; Limited liability ; Liquidity ; Regulation
    JEL: E44 G01 G21 G28
    Date: 2017–09–22
  3. By: James Cloyne; Kilian Huber; Ethan Ilzetzki; Henrik Kleven
    Abstract: We investigate the effect of house prices on household borrowing using administrative mortgage data from the UK and a new empirical approach. The data contain household-level information on house prices and borrowing in a panel of homeowners, who refinance at regular and quasi-exogenous intervals. The data and setting allow us to develop an empirical approach that exploits house price variation coming from idiosyncratic and exogenous timing of refinance events around the Great Recession. We present two main results. First, there is a clear and robust effect of house prices on borrowing, but the responsiveness is smaller than recent US estimates. Second, the effect of house prices on borrowing can be explained largely by collateral effects. We study the collateral channel in two ways: through a multivariate and non-parametric heterogeneity analysis of proxies for collateral and wealth effects, and through a test that exploits interest rate notches that depend on housing collateral.
    JEL: D14 E21 E32 E43 E51 G21
    Date: 2017–09
  4. By: Ambrogio Cesa-Bianchi; Andrea Ferrero; Alessandro Rebucci
    Abstract: House prices and exchange rates can potentially amplify the expansionary effect of capital inflows by inflating the value of collateral. We first set up a model of collateralized borrowing in domestic and foreign currency with international financial intermediation in which a change in leverage of global intermediaries leads to an international credit supply increase. In this environment, we illustrate how house price increases and exchange rates appreciations contribute to fueling the boom by inflating the value of collateral. We then document empirically, in a Panel VAR model for 50 advanced and emerging countries estimated with quarterly data from 1985 to 2012, that an increase in the leverage of US Broker-Dealers also leads to an increase in cross-border credit flows, a house price and consumption boom, a real exchange rate appreciation and a current account deterioration consistent with the transmission in the model. Finally, we study the sensitivity of the consumption and asset price response to such a shock and show that country differences are associated with the level of the maximum loan-to-value ratio and the share of foreign currency denominated credit.
    JEL: C33 E44 F3 F44 R0
    Date: 2017–09
  5. By: William Barnett (Department of Economics, The University of Kansas; Center for Financial Stability, New York City; IC2 Institute, University of Texas at Austin); Jinan Liu (Department of Economics, The University of Kansas;)
    Abstract: This paper derives the user cost of monetary assets and credit card services with interest rate risk under the assumption of intertemporal non-separability. Barnett and Su (2016) derived theory permitting inclusion of credit card transaction services into Divisia monetary aggregates. The risk adjustment in their theory is based on CCAPM1 under intertemporal separability. The equity premium puzzle focusses on downward bias in the CCAPM risk adjustment to common stock returns. Despite the high risk of credit card interest rates, the risk adjustment under the CCAPM assumption of intertemporal separability might nevertheless be similarly small. While the known downward bias of CCAPM risk adjustments are of little concern with Divisia monetary aggregates containing only low risk monetary assets, that downward bias cannot be ignored, once high risk credit card services are included. We believe that extending to intertemporal non-separability could provide a non-negligible risk adjustment, as has been emphasized by Barnett and Wu (2015)
    Keywords: Divisia monetary aggregation, monetary aggregation theory, multilateral aggregation.
    JEL: C43 C82 D12 E51 F33
    Date: 2017–09
  6. By: OGANE Yuta
    Abstract: This paper examines how the number of bank relationships affects bank lending to new firms using a unique firm-level data set of more than 1,000 small and medium-sized enterprises (SMEs) incorporated in Japan between April 2003 and June 2008. We employ a two-stage least squares (2SLS) estimator—one of the instrumental variables estimators—to address the possible bias caused by omitted variables and/or reverse causality. We find that an increase in the number of bank relationships increases long-term lending to new firms. We also find that this rise may boost total lending to such firms. Furthermore, the findings in this paper suggest that the most significant difference in the effects of the number of bank relationships on bank lending is the difference between a single bank relationship and multiple bank relationships. We show that these results are unlikely to be driven by omitted variables and/or reverse causality.
    Date: 2017–09

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