nep-ban New Economics Papers
on Banking
Issue of 2018‒01‒08
twenty papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. Why do banks bear interest rate risk? By Memmel, Christoph
  2. Syndicated loans and CDS positioning By Iñaki Aldasoro; Andreas Barth
  3. Basel III and Bank-Lending: Evidence from the United States and Europe By Sami Ben Naceur; Caroline Roulet
  4. International Financial Integration and Funding Risks: Bank-Level Evidence from Latin America By Luis Catão; Valeriya Dinger; Daniel Marcel te Kaat
  5. Can macroprudential measures make cross-border lending more resilient? By Előd Takáts; Judit Temesvary
  6. Bank business models: popularity and performance By Rungporn Roengpitya; Nikola Tarashev; Kostas Tsatsaronis; Alan Villegas
  7. Credit Crunches from Occasionally Binding Bank Borrowing Constraints By Tom D. Holden; Paul Levine; Jonathan M. Swarbrick
  8. The Effect of Bank Monitoring on the Demand for Earnings Quality in Bond Contracts By Akinobu Shuto; Norio Kitagawa; Naoki Futaesaku
  9. Quantitative easing and bank risk taking: evidence from lending By John Kandrac; Bernd Schlusche
  10. Credit Risk Transfer and Bank Insolvency Risk By Maarten van Oordt
  11. Systemic risk and systemic importance measures during the crisis By Sergio Masciantonio; Andrea Zaghini
  12. A Macroeconomic Model with Financial Panics By Gertler, Mark; Kiyotaki, Nobuhiro; Prestipino, Andrea
  13. Social aspirations in European banks: peer-influenced risk behavior By Lyócsa, Štefan; Výrost, Tomáš; Baumöhl, Eduard
  14. Banks’ maturity transformation: risk, reward, and policy By Pierluigi Bologna
  15. Dirty Money Coming Home: Capital Flows into and out of Tax Havens By Lukas Menkhoff; Jakob Miethe
  16. Bank Lending in the Knowledge Economy By Giovanni Dell'Ariccia; Dalida Kadyrzhanova; Camelia Minoiu; Lev Ratnovski
  17. Credit Supply Shocks, Network Effects, and the Real Economy By Laura Alfaro; Manuel García; Enrique Moral-Benito
  18. Essays on finance : Drivers of bank performance and the international cost of equity By van Toor, Joris
  19. External financing constraints and firm's innovative activities during the financial crisis By Giebel, Marek; Kraft, Kornelius
  20. Loanable funds vs money creation in banking: A benchmark result By Faure, Salomon A.; Gersbach, Hans

  1. By: Memmel, Christoph
    Abstract: This paper investigates determinants of banks' structural exposure to interest rate risk in their banking book. Using bank-level data for German banks, we find evidence that a bank's exposure to interest rate risk depends on its presumed optimization horizon. The longer the presumed optimization horizon is, the more the bank is exposed to interest rate risk in its banking book. Moreover, there is evidence that banks hedge their earnings risk resulting from falling interest levels with exposure to interest rate risk. The more a bank is exposed to the risk of a decline in the interest rate level, the higher its exposure to interest rate risk.
    Keywords: interest rate risk,banks' business model,hedging
    JEL: G21
    Date: 2017
  2. By: Iñaki Aldasoro; Andreas Barth
    Abstract: This paper analyzes banks' usage of CDS. Combining bank-firm syndicated loan data with a unique EU-wide dataset on bilateral CDS positions, we find that stronger banks in terms of capital, funding and profitability tend to hedge more. We find no evidence of banks using the CDS market for capital relief. Banks are more likely to hedge exposures to relatively riskier borrowers and less likely to sell CDS protection on domestic firms. Lead arrangers tend to buy more protection, potentially exacerbating asymmetric information problems. Dealer banks seem insensitive to firm risk, and hedge more than non-dealers when they are more profitable. These results allow for a better understanding of banks' credit risk management.
    Keywords: syndicated loans, CDS, speculation, capital regulation, EMIR, cross-border lending, asymmetric information
    JEL: G21 G28
    Date: 2017–12
  3. By: Sami Ben Naceur; Caroline Roulet
    Abstract: Using data on commercial banks in the United States and Europe, this paper analyses the impact of the new Basel III capital and liquidity regulation on bank-lending following the 2008 financial crisis. We find that U.S. banks reinforce their risk absorption capacities when expanding their credit activities. Capital ratios have significant, negative impacts on bank-retail-and-other-lending-growth for large European banks in the context of deleveraging and the “credit crunch” in Europe over the post-2008 financial crisis period. Additionally, liquidity indicators have positive but perverse effects on bank-lending-growth, which supports the need to consider heterogeneous banks’ characteristics and behaviors when implementing new regulatory policies.
    Date: 2017–11–15
  4. By: Luis Catão; Valeriya Dinger; Daniel Marcel te Kaat
    Abstract: Using a sample of over 700 banks in Latin America, we show that international financial liberalization lowers bank capital ratios and increases the shares of short-term funding. Following liberalization, large banks substitute interbank borrowing for equity and long-term funding, whereas small banks increase the proportions of retail funding in their liabilities, which have been particularly vulnerable to flight-to-quality during periods of financial distress in much of Latin America. We also find evidence that riskier bank funding in the aftermath of financial liberalizations is exacerbated by asymmetric information, which rises on geographical distance and the opacity of balance sheets.
    Date: 2017–10–31
  5. By: Előd Takáts; Judit Temesvary
    Abstract: We study the effect of macroprudential measures on cross-border lending during the taper tantrum, which a saw strong slowdown in cross-border bank lending to some jurisdictions. We use a novel dataset combining the BIS Stage 1 enhanced banking statistics on bilateral cross-border lending flows with the IBRN's macroprudential database. Our results suggest that macroprudential measures implemented in borrowers' host countries prior to the taper tantrum significantly reduced the negative effect of the tantrum on cross-border lending growth. The shock-mitigating effect of host country macroprudential rules are present both in lending to banks and non-banks, and are strongest for lending flows to borrowers in advanced economies and to the non-bank sector in general. Source (lending) banking system measures do not affect bilateral lending flows, nor do they enhance the effect of host country macroprudential measures. Our results imply that policymakers may consider applying macroprudential tools to mitigate international shock transmission through cross-border bank lending.
    Keywords: taper tantrum, cross-border claims, macroprudential policy, diff-in-diff analysis
    JEL: F34 F42 G21 G38
    Date: 2017–12
  6. By: Rungporn Roengpitya; Nikola Tarashev; Kostas Tsatsaronis; Alan Villegas
    Abstract: We allocate banks to distinct business models by experimenting with various combinations of balance sheet characteristics as inputs in cluster analysis. Using a panel of 178 banks for the period 2005-15, we identify a retail-funded and a wholesale-funded commercial banking model that are robust to the choice of inputs. In comparison, a model emphasising trading activities and a universal banking model are less robustly identified. Both commercial banking models exhibit lower cost-to-income ratios and more stable return-on-equity than the trading model. In a reversal of a pre-crisis trend, the crisis aftermath witnessed mainly switches away from wholesale-funded and into retail-funded banking. Over the entire sample period, banks that switched into the retail-funded model saw their return-on-equity improve by 2.5 percentage points on average relative to non-switchers. By contrast, the relative performance of banks switching into the wholesale-funded model deteriorated by 5 percentage points on average.
    Keywords: balance sheet characteristics, cluster analysis, discriminant analysis, model transitions, bank performance
    JEL: D20 G21 L21 L25
    Date: 2017–12
  7. By: Tom D. Holden; Paul Levine; Jonathan M. Swarbrick
    Abstract: We present a model in which banks and other financial intermediaries face both occasionally binding borrowing constraints and costs of equity issuance. Near the steady state, these intermediaries can raise equity finance at no cost through retained earnings. However, even moderately large shocks cause their borrowing constraints to bind, leading to contractions in credit offered to firms, and requiring the intermediaries to raise further funds by paying the cost to issue equity. This leads to the occasional sharp increases in interest spreads and the countercyclical, positively skewed equity issuance that are characteristic of the credit crunches observed in the data.
    Keywords: Business fluctuations and cycles, Credit and credit aggregates, Economic models, Financial markets
    JEL: E22 E32 E51 G2
    Date: 2017
  8. By: Akinobu Shuto (Associate Professor, Graduate School of Economics, The University of Tokyo (E-mail:; Norio Kitagawa (Associate Professor, Graduate School of Business Administration, Kobe University (E-mail:; Naoki Futaesaku (Director, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: We investigate whether bank monitoring that relies on private information in private debt decreases the demand for earnings quality in public debt. In doing so, we focus on Japanese main banks that have high abilities to access the private information of borrowing firms. We find that under stable financial conditions in the bond-issuing firms, accruals quality is negatively associated with bond yield spreads, regardless of the existence of a main bank, suggesting that reporting higher quality earnings affects the reduction of the cost of debt in public debt. In contrast, we find that when the bond-issuing firms with a main bank have high default risk, there is no relationship between accruals quality and bond yield spread. The results suggest that when a main bank has a stronger incentive to monitor their borrowing firms due to the firm's poor financial performance, the increased bank monitoring using private information decreases the demand for earnings quality in bond contracts.
    Keywords: Accruals Quality, Bond Yield Spread, Main Bank, Private Information, Japan
    JEL: M41
    Date: 2017–12
  9. By: John Kandrac; Bernd Schlusche
    Abstract: We empirically assess the effect of reserve accumulation as a result of quantitative easing (QE) on bank-level lending and risk taking activity. To overcome the endogeneity of bank-level reserve holdings to banks' other portfolio decisions, we employ instruments made available by a regulatory change that strongly influenced the distribution of reserves in the banking system. Consistent with theories of the portfolio substitution channel in which the transmission of QE depends in part on reserve creation itself, we document that reserves created in two distinct QE programs led to higher total loan growth and an increase in the share of riskier loans, such as commercial real estate, construction, C&I, and consumer loans, within banks' loan portfolios.
    Keywords: Monetary policy ; QE ; bank lending ; reserve balances
    JEL: G21 E52 E58 G28
    Date: 2017–10–12
  10. By: Maarten van Oordt
    Abstract: The present paper shows that, everything else equal, some transactions to transfer portfolio credit risk to third-party investors increase the insolvency risk of banks. This is particularly likely if a bank sells the senior tranche and retains a sufficiently large first-loss position. The results do not rely on banks increasing leverage after the risk transfer, nor on banks taking on new risks, although these could aggravate the effect. High leverage and concentrated business models increase the vulnerability to the mechanism. These results are useful for risk managers and banking regulation. The literature on credit risk transfers and information asymmetries generally tends to advocate the retention of ‘information-sensitive’ first-loss positions. The present study shows that, under certain conditions, such an approach may harm financial stability, and thus calls for further reflection on the structure of securitization transactions and portfolio insurance.
    Keywords: Credit risk management, Financial Institutions, Financial stability
    JEL: G21 G28 G32
    Date: 2017
  11. By: Sergio Masciantonio (European Commission); Andrea Zaghini (Bank of Italy)
    Abstract: Systemic risk and systemic importance are two different concepts that came out of the crisis and are now widely employed to assess the potential impact on the banking system as a whole of shocks that hit one specific bank. However, those two measures are often improperly used and misunderstandings arise. This paper sheds light about their meaning, measurement and information content. Empirically, the two measures provide different information; it is therefore worthwhile investigating both, so to have a thorough understanding of single name and aggregate systemic risk exposure. In addition, by relying on the standard risk management perspective, we propose how to integrate systemic importance and systemic risk concepts. We provide two new measures of systemic risk exposure and compare them with the standard one (SRISK).
    Keywords: G-SIFIs, Systemic risk, too-big-to-fail, financial crisis
    JEL: G21 G01 G18
    Date: 2017–12
  12. By: Gertler, Mark; Kiyotaki, Nobuhiro; Prestipino, Andrea
    Abstract: This paper incorporates banks and banking panics within a conventional macroeconomic framework to analyze the dynamics of a financial crisis of the kind recently experienced. We are particularly interested in characterizing the sudden and discrete nature of the banking panics as well as the circumstances that makes an economy vulnerable to such panics in some instances but not in others. Having a conventional macroeconomic model allows us to study the channels by which the crisis affects real activity and the effects of policies in containing crises.
    Keywords: Bank Runs; Financial Crisis; New Keynesian DSGE
    JEL: E23 E32 E44 G01 G21 G33
    Date: 2017–12–15
  13. By: Lyócsa, Štefan; Výrost, Tomáš; Baumöhl, Eduard
    Abstract: We test a sample of 3,586 banks from 33 European countries to determine whether performances above or below a social aspiration level (median performance of peer banks) influence banks’ aggregate risk levels. Our results are consistent with the behavioral theory of the firm and prospect theory in that we find that bank performance below a bank’s social aspiration level is followed by increased aggregate risk, i.e., risk-taking behavior in the subsequent year. Although under-performing banks tend to be risk-takers, large banks and banks with high aggregate risk levels tend to limit the increase in their aggregate risk levels.
    Keywords: social aspiration,European banks,performance,risk behavior,prospect theory
    JEL: D22 G2 L22 L25
    Date: 2018
  14. By: Pierluigi Bologna (Banca d'Italia)
    Abstract: The aim of this paper is twofold: first, to study the determinants of banks’ net interest margin with a particular focus on the role of maturity transformation, using a new measure of maturity mismatch; second, to analyse the implications for banks of the relaxation of a binding prudential limit on maturity mismatch, in place in Italy until the mid-2000s. The results show that maturity transformation is an important driver of the net interest margin, as higher maturity transformation is typically associated with higher net interest margin. However, there is a limit to this positive relationship as ‘excessive’ maturity transformation — even without leading to systemic vulnerabilities — has some undesirable implications in terms of higher exposure to interest rate risk and lower net interest margin.
    Keywords: banks, profitability, maturity transformation, interest rates, macroprudential, microprudential
    JEL: E43 G21 G28
    Date: 2017–12
  15. By: Lukas Menkhoff; Jakob Miethe
    Abstract: We use newly released bilateral locational banking statistics of the Bank for International Settlements to show the full circle of international tax evasion via tax havens. Surprisingly, white-washed money from tax havens is also withdrawn from banks in non-havens if an information treaty is signed between both countries. There are time lags and other economically plausible structures in these reactions. Interestingly, the effect of additional information-uponrequest treaties seems to fade out over time. By contrast, new treaties based on automatic information exchange again show bite; this puzzling evidence is best explained by dirty money changing its packaging.
    Keywords: Tax evasion, international capital flows, international information exchange treaties, bank deposits
    JEL: H26
    Date: 2017
  16. By: Giovanni Dell'Ariccia; Dalida Kadyrzhanova; Camelia Minoiu; Lev Ratnovski
    Abstract: We study bank portfolio allocations during the transition of the real sector to a knowledge economy in which firms use less tangible capital and invest more in intangible assets. We show that, as firms shift toward intangible assets that have lower collateral values, banks reallocate their portfolios away from commercial loans toward other assets, primarily residential real estate loans and liquid assets. This effect is more pronounced for large and less well capitalized banks and is robust to controlling for real estate loan demand. Our results suggest that increased firm investment in intangible assets can explain up to 20% of bank portfolio reallocation from commercial to residential lending over the last four decades.
    Keywords: Intangible capital;bank lending, commercial loans, real estate loans, liquid assets, Financial Markets and the Macroeconomy, Government Policy and Regulation
    Date: 2017–11–07
  17. By: Laura Alfaro (Harvard Business School, Business, Government and the International Economy Unit); Manuel García (Universitat Pompeu Fabra); Enrique Moral-Benito (Banco de Espana)
    Abstract: We consider the real effects of bank lending shocks and how they permeate the economy through buyer-supplier linkages. We combine administrative data on all firms in Spain with a matched bank-firm-loan dataset incorporating information on the universe of corporate loans for 2003-2013. Using methods from the matched employer-employee literature for handling large data sets, we identify bank-specific shocks for each year in our sample. Combining the Spanish Input-Output structure and firm-specific measures of upstream and downstream exposure, we construct firm-specific exogenous credit supply shocks and estimate their direct and indirect effects on real activity. Credit supply shocks have sizable direct and downstream propagation effects on investment and output throughout the period but no significant impact on employment during the expansion period. Downstream propagation effects are quantitatively larger in magnitude than direct effects. The results corroborate the importance of network effects in quantifying the real effects of credit shocks and show that real effects vary during booms and busts.
    Keywords: bank-lending channel, matched employer-employee, input-output linkages.
    JEL: E44 G21 L25
    Date: 2017–12
  18. By: van Toor, Joris
    Abstract: This dissertation examines how the way banks function relates to their performance before, during, and after the recent financial crisis in an attempt to understand the causes of that crisis and what we might learn from it. It consists of four substantive chapters, 2-5, preceded by an introductory chapter. Chapter 2 analyzes the role of governance and behavioral dimensions in the ability of the largest U.S. banks to withstand the financial crisis independently. While these banks did not differ in terms of formal governance, I document how differences in certain behavioral dimensions, especially a CEO’s socio-economic background, are related to the banks’ crisis performance. Subsequently, Chapter 3 investigates the relationship between bank returns before and after the financial crisis. In the U.S., I document that the strong-performing banks from before the crisis have lagged behind since. Moreover, those banks also demonstrated large pre-crisis loan growth. I conclude that pre-crisis winners have been unable to adapt their pre-crisis, high-risk, business model to the post-crisis lower-risk environment. In Europe, by contrast, pre- and post-crisis performance is positively related. In Chapter 4, I shift my attention to bank performance around CEO turnover. In the initial years of a new CEO, bank performance declines, which can be fully explained by an increase in provisions for bad loans. Finally, Chapter 5 considers a firm’s cost of equity in international markets, a firm characteristic that is crucial for banks when valuing firms and assessing their risk profile. My research shows that it matters materially whether an international or national version of the Capital Asset Pricing Model (CAPM) is used to determine the value of the cost of equity. Considering the increased integration of financial markets, I therefore recommend the use of the international CAPM.
    Date: 2017
  19. By: Giebel, Marek; Kraft, Kornelius
    Abstract: We investigate the effect of individual banks' liquidity shocks during the recent financial crisis of 2008/2009 on the innovation activities of their business customers. Individual banks' liquidity shocks are identified by the degree of interbank market usage. We use a difference-in-differences approach to identify the effect of interbank reliance during the crisis on total innovation expenditures in comparison to the periods before. Our results imply that those firms which have a business relation to a bank with higher interbank market reliance reduce their innovation activities during the financial crisis to a higher degree than other firms.
    Keywords: financial crisis,financial constraints of banks,financing of innovation,innovation activity
    JEL: G01 G21 G30 O16 O30 O31
    Date: 2017
  20. By: Faure, Salomon A.; Gersbach, Hans
    Abstract: We establish a benchmark result for the relationship between the loanablefunds and the money-creation approach to banking. In particular, we show that both processes yield the same allocations when there is no uncertainty and thus no bank default. In such cases, using the much simpler loanablefunds approach as a shortcut does not imply any loss of generality.
    Keywords: money creation,bank deposits,capital regulation,monetary policy,loanable funds
    JEL: D50 E4 E5 G21
    Date: 2017

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