nep-ban New Economics Papers
on Banking
Issue of 2018‒11‒05
fifteen papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. The Time Has Come for Banks to Say Goodbye: New Evidence on Banks' Roles and Duration Effects in Relationship Terminations By Nakashima, Kiyotaka; Takahashi, Koji
  2. Capital Account Liberalization and the Composition of Bank Liabilities By Luís A.V. Catão; Daniel Marcel te Kaat
  3. FX funding shocks and cross-border lending: fragmentation matters By Eguren-Martin, Fernando; Ossandon Busch, Matias; Reinhardt, Dennis
  4. New Evidence on Procyclical Bank Capital Regulation: The Role of Bank Loan Commitments By Ki Young Park
  5. Cross-Border Bank Flows through Foreign Branches: Evidence from Korea By Youngjin Yun
  6. Bank competition and firm credit availability: firm-bank evidence from Europe By Pietro Grandi; Caroline Bozou
  7. The Effects of Creditor Rights and Bank Information Sharing on Borrower Behavior: Theory and Evidence By Boyd, John; Hakenes, Hendrik; Heitz, Amanda
  8. The Bank Lending Survey By Eva Hromadkova; Oldrich Koza; Petr Polak; Nikol Polakova
  9. Lending relationships and the collateral channel By Anderson, Gareth; Bahaj, Saleem; Chavaz, Matthieu; Foulis, Angus; Pinter, Gabor
  10. The Banks' Swansong: Banking and the Financial Markets under Asymmetric Information By Jungu Yang
  11. On the ranking consistency of global systemic risk measures: empirical evidence By Abendschein, Michael; Grundke, Peter
  12. Wide and Deep Learning for Peer-to-Peer Lending By Kaveh Bastani; Elham Asgari; Hamed Namavari
  13. International Comparison of the BIS International Banking Statistics: Estimates of the Positions Excluding Trustee Business By Kaori Saito; Kazunori Hiyama; Kyosuke Shiotani
  14. Exploring the implications of di erent loan-to-value macroprudential policy designs By Rita Basto; Sandra Gomes; Diana Lima
  15. Fixed-Rate Loans and the Effectiveness of Monetary Policy By Sung Ho Park

  1. By: Nakashima, Kiyotaka; Takahashi, Koji
    Abstract: Using a loan-level matched sample of Japanese banks and firms, we examine what factors determine the termination of the bank-firm relationship. We find that terminations are mainly driven by bank factors, but such bank-driven terminations increase when banks' capital conditions worsen. The constraints on bank capital in the Japanese banking crisis increased terminations, implying the presence of a capital crunch. Moreover, ``flight-to-quality" behavior prevailed instead of ``evergreening" in relationship terminations because of lowly capitalized banks' motives to reduce agency costs. We also find that a longer relationship duration decreased the probability of termination substantially when Japan's banking system was stable, but such duration effects weakened when the system was fragile. Japan's banking system cultivated bank-firm relationships over many decades to lower agency costs gradually, but this system malfunctioned partially in the flight to quality, whereby many banks could not afford to maintain relationships with distressed borrowers irrespective of duration.
    Keywords: matched lender--borrower data, bank-firm relationship, capital crunch, evergreening, flight to quality, duration effect, long-term contract
    JEL: G01 G21 G28
    Date: 2018–10–02
  2. By: Luís A.V. Catão; Daniel Marcel te Kaat
    Abstract: Using a sample of almost 600 banks in Latin America, we show that capital account liberalization lowers the share of equity and raises the share of interbank funding in total liabilities of the consolidated banking system. These shifts are mostly due to large banks; smaller banks, instead, increase their resort to retail funding by offering higher average de- posit interest rates than larger banks. We also find significant differences in the behavior of foreign banks and of banks with seemingly greater information opacity. These findings have positive implications for macro-prudential regulation.
    Keywords: External Financial Liberalization, International Capital Flows, Bank Funding and Leverage
    JEL: F32 F36 G21
    Date: 2018–10
  3. By: Eguren-Martin, Fernando (Bank of England); Ossandon Busch, Matias (Halle Institute for Economic Research); Reinhardt, Dennis (Bank of England)
    Abstract: This paper provides novel empirical evidence on the existence of a cross-border bank lending channel arising from funding shocks in FX swap markets (‘CIP deviations’). Using balance sheet data from UK banks we show that when the cost of obtaining funds in a particular foreign currency increases, banks reduce the supply of cross-border credit in that currency. Notably, this effect is increasing in the degree of banks’ reliance on swap-based FX funding. Fragmentation in funding markets appears to play an important role: we find that high access to foreign FX funding in general, and to internal capital markets in particular, shields banks’ cross-border FX lending supply from the described channel.
    Keywords: Cross-border bank lending; covered interest rate parity deviations; FX swaps; internal capital markets
    JEL: F34 G21
    Date: 2018–10–26
  4. By: Ki Young Park (Yonsei University)
    Abstract: Previous research on procyclical bank capital regulation has largely focused on the role of increased loan losses and deteriorated credit ratings in economic downturns. We focus on the role of bank loan commitments, which have been increasingly popular from the 2000s, on the procyclicality of bank capital regulation. Using the bank-level data of U.S. commercial banks, we present another independent source of procyclicality working through bank loan commitments, which we call "loan commitments channel." We find that, as firms draw down more from their pre-existing credit lines when credit market conditions are tighter, this increased takedown raises bank risk-weighted assets via involuntary lending and thus lowers capital adequacy ratios of commercial banks, making them more procyclical. Our empirical results suggest that this loan commitments channel is quantitatively important and needs to be addressed in designing the regulatory framework for reducing credit procyclicality.
    Keywords: bank loan commitments, capital adequacy ratio (CAR), procyclical bank, capital regulation
    JEL: E44 G21 G32
    Date: 2018–10
  5. By: Youngjin Yun (Economic Research Institute, The Bank of Korea)
    Abstract: Global banks play an important role in international monetary transmission by allocating funds across the world through their foreign affiliates. Using monthly data on individual foreign bank branches in Korea from 2004 to 2018, this paper investigates the effects of foreign monetary policies and Korean macroprudential policy on the cross-border capital flows between global banks' headquarters and their Korean branches. I find that foreign branches reduce borrowing from their headquarters by 2.4% of their assets after a one percentage point hike in the home-country policy rates. The effect is more significant for the branches with higher loan-to-asset ratios as their asset maturities are longer. Korea introduced leverage caps on banks' FX derivative positions in 2010, and has been adjusting the cap depending on the macroeconomic situation. I find that lowering the cap makes foreign branches increase capital by receiving long-term capital from headquarters. The branches with higher bond-to-asset ratios respond more as they trade heavily in FX derivatives.
    Keywords: Foreign bank, Bank flows, Monetary policy, Macroprudential policy
    JEL: G21 F34
    Date: 2018–08–09
  6. By: Pietro Grandi (Université Panthéon Assas (Paris 2), LEMMA - Laboratoire d'économie mathématique et de microéconomie appliquée - UP2 - Université Panthéon-Assas - Sorbonne Universités); Caroline Bozou (Université Panthéon Assas (Paris 2), LEMMA - Laboratoire d'économie mathématique et de microéconomie appliquée - UP2 - Université Panthéon-Assas - Sorbonne Universités)
    Abstract: This paper examines the impact of bank competition on firms' access to credit using a large panel of 900 banks matched to almost 60.000 firms across the euro area over the period 2010-2016. Results provide empirical support for the market power hypothesis whereby low interbank competition worsens firms' credit conditions. We find that higher bank market power is associated with lower short-term bank credit and higher trade credit for customer firms. Furthermore, high bank market power is especially detrimental for small, low quality and opaque firms, suggesting that lower inter-bank competition exacerbates the financial constraint of borrowers that are more exposed to information problems. By contrast, we find limited evidence consistent with the information hypothesis: among firms related to banks with high market power, only those served by small and local cooperatives obtain more bank credit. This finding highlights the relative importance of specialisation, ownership structure and local outreach in favouring credit relationships between borrowers and lenders.
    Keywords: Banks,inter-bank competition,access to nance
    Date: 2018–10–17
  7. By: Boyd, John; Hakenes, Hendrik; Heitz, Amanda
    Abstract: This paper provides a comprehensive theoretical and empirical analysis of “creditor rights” and “information sharing” throughout over 1.8 million private firms in Europe. We show that many of the outcomes associated with greater levels of creditor rights can be obtained with higher information sharing between banks. Both theory and empirics show that creditor rights and information sharing are associated with greater firm leverage, lower profitability, and greater distance to default. Moreover, theory and empirics find that creditor rights and information sharing are robust substitutes. Our analysis suggests that poor creditor rights can be substituted by improved information sharing.
    Keywords: Creditor rights,information sharing.
    JEL: G21 G28 L15
    Date: 2018
  8. By: Eva Hromadkova (Czech National Bank, Na prikope 28, 115 03 Prague 1, Czech Republic; CERGE EI, Politickych veznu 7, 11000 Prague, Czech Republic); Oldrich Koza (Czech National Bank, Na prikope 28, 115 03 Prague 1, Czech Republic); Petr Polak (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic; Czech National Bank, Na prikope 28, 115 03 Prague 1, Czech Republic); Nikol Polakova (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic)
    Abstract: This article describes the bank lending survey that the Czech National Bank has been using since 2012 to gather valuable qualitative information about the bank credit market as a complement to statistical reporting. The article sets out to conduct a quantitative assessment of the survey results and to determine the roles played in new credit developments in 2012–2016 by changes in credit supply and changes in demand for loans as reported by banks in the survey. The results of the analysis indicate that although some of banks’ survey responses are statistically significant in explaining the amounts of new loans reported by banks, the survey’s ability to explain credit growth is currently limited. Growth in new loans for house purchase can be attributed primarily to growth in demand driven by falling interest rates. According to the results, supply and demand factors both played a role in the case of loans to non-financial corporations. For consumer credit and other lending to households, the results of the analysis are ambiguous.
    Keywords: Bank lending survey, bank lending standards, macroprudential policy
    JEL: E44 E62 G01 G21
    Date: 2018–10
  9. By: Anderson, Gareth; Bahaj, Saleem; Chavaz, Matthieu; Foulis, Angus; Pinter, Gabor
    Abstract: This paper shows that lending relationships insulate corporate investment from shocks to collateral values. We construct a novel database covering the banking relationships of UK firms, as well as those of their board members and executives. We find that the sensitivity of corporate investment to shocks to real estate collateral value is halved when the length of the bank-firm relationship increases from the 25th to the 75th percentile. This effect is substantially reduced for firms whose executives have a personal mortgage relationship with their firm’s bank. Our findings provide support for theories where collateral and private information are substitutes in mitigating credit frictions over the cycle.
    JEL: J1
    Date: 2018–05–15
  10. By: Jungu Yang (Economic Research Institute, The Bank of Korea)
    Abstract: Bank runs may serve to communicate information across agents, and thus enhance rather than thwart allocation efficiency by making the fundamentals determine the asset prices. Figuratively speaking, banks die (go bankrupt) singing a swan song (revealing hidden information). In this way bank runs help uninformed agents to achieve efficient allocation under the condition of asymmetric information in the financial markets. The production of information is done efficiently without cost a point which distinguishes between this paper from most other related studies. The efficiently bank runs provide new ground for the coexistence of banks and financial markets. Even when all agents deposit their whole endowment of goods with the bank, the markets play their role in allocating resources once efficient bank runs happen. Allowing a run implies that investment in liquidity can be minimized, and the expected utility of uninformed agents thus increased. The role of banks is strengthened when agents have limited access to the markets.
    Keywords: Financial intermediation, Financial markets, Bank runs, Asset price, Asymmetric information, Information acquisition, Limited participation, Liquidity
    JEL: D4 D5 D8 G1 G2
    Date: 2018–06–15
  11. By: Abendschein, Michael; Grundke, Peter
    Abstract: We empirically analyze to which extent popular global systemic risk measures (SRMs) yield comparable results with respect to the systemic importance of a financial institution and, in particular, from which determinants the degree of consistency of the classification by the various SRMs depends. In this study, we investigate the rank correlations of SRMs in order to detect common drivers that might explain (in-)consistent ranking outcomes. This could allow to facilitate the interpretation of the outcome of SRMs and to increase the reliability of their usage in academic and practical applications. Our results show that rank correlations are particularly sensitive towards a bank’s leverage and towards tightening economic conditions. This finding holds across various different specifications.
    Keywords: systemic risk,risk rankings,financial regulation
    JEL: G01 G21 G28 G32
    Date: 2018
  12. By: Kaveh Bastani; Elham Asgari; Hamed Namavari
    Abstract: This paper proposes a two-stage scoring approach to help lenders decide their fund allocations in the peer-to-peer (P2P) lending market. The existing scoring approaches focus on only either probability of default (PD) prediction, known as credit scoring, or profitability prediction, known as profit scoring, to identify the best loans for investment. Credit scoring fails to deliver the main need of lenders on how much profit they may obtain through their investment. On the other hand, profit scoring can satisfy that need by predicting the investment profitability. However, profit scoring completely ignores the class imbalance problem where most of the past loans are non-default. Consequently, ignorance of the class imbalance problem significantly affects the accuracy of profitability prediction. Our proposed two-stage scoring approach is an integration of credit scoring and profit scoring to address the above challenges. More specifically, stage 1 is designed as credit scoring to identify non-default loans while the imbalanced nature of loan status is considered in PD prediction. The loans identified as non-default are then moved to stage 2 for prediction of profitability, measured by internal rate of return. Wide and deep learning is used to build the predictive models in both stages to achieve both memorization and generalization. Extensive numerical studies are conducted based on real-world data to verify the effectiveness of the proposed approach. The numerical studies indicate our two-stage scoring approach outperforms the existing credit scoring and profit scoring approaches.
    Date: 2018–10
  13. By: Kaori Saito (Bank of Japan); Kazunori Hiyama (Bank of Japan); Kyosuke Shiotani (Bank of Japan)
    Abstract: The BIS international banking statistics (IBS) are statistics that the Bank for International Settlements (BIS) and central banks worldwide compile in order to capture capital flows and credit exposures through internationally active banks. It is worth noting that the IBS reported by the Bank of Japan (BOJ) include trust accounts in which a bank holds and manages funds or securities on behalf of third parties. Attention should therefore be paid for international comparative analysis of the Japan's statistics and those of other major reporting countries which exclude trustee business. This paper attempts to provide an estimate of the IBS in Japan which exclude trust-account-based positions, and compare the results with the IBS of banks of other major nationalities. The results show that, while Japanese banks have been increasing their foreign claims in recent years, the ratio of foreign claims to the outstanding amount of total assets is not significantly high compared to banks of other major nationalities. Moreover, claims vis-à-vis the United States are demonstrated to account for a relatively high share of foreign claims, which lead to a high share of U.S. dollar-denominated claims held by Japanese banks.
    Date: 2018–10–24
  14. By: Rita Basto (Banco de Portugal); Sandra Gomes (Banco de Portugal); Diana Lima (Banco de Portugal)
    Abstract: This paper evaluates the macroeconomic effects of macroprudential policy measures consisting of changes in loan-to-value ratios in the euro area. The analysis is carried out within a fully structural, multi-country model, that prominently includes nancial frictions and a banking sector. Our main findings suggest that a permanent LTV tightening in a small euro area economy leads to a long-run decline in lending to the private sector. The short-run impact depends crucially on the policy design, being less pronounced when the measure is phased-in. This is consistent with policy goals of curbing credit growth but avoiding an abrupt immediate contraction in lending. A policy measure introduced at the euro area level implies larger long-run e ects but the short-run recessionary impact is attenuated by the monetary policy response.
    Keywords: Macroprudential policy; loan-to-value ratio; financial frictions
    JEL: E58 E61 F42
    Date: 2018–10
  15. By: Sung Ho Park (Economic Research Institute, The Bank of Korea)
    Abstract: Fixed-rate loans may contribute to financial stability because they lower the volatility of interest rates. This reduced volatility of interest rates, however, may undermine the effectiveness of monetary policy. Fixed-rate loans, also, may change the steady-states of economy because fixed interest rates are usually higher than variable interest rates, which can alter incentives of borrowers for loans. This paper tests how fixed-rate loans affect the steady-states of economy and the effectiveness of monetary policy, using the DSGE model. The steady-states in the economy are shown to vary in the ratio of fixed-rate loans. When the ratio of fixed-rate loans rises, borrowers bear more burden of interests because fixed interest rates are higher than variable interest rates. Therefore, borrowers reduce their loans, which lead into decreased weight of financial sector in the economy. Total output, however, remains almost unchanged regardless of the ratio of fixed-rate loans because households increase labor supply to compensate for their financial losses. The similar phenomenon happens when the mark-up of fixed interest rates over variable interest rates increases. Effects of fixed-rate loans on monetary policy turn out to be different in financial economy and real economy. Financial economy variables, such as interest rates and loans, respond differently to monetary policy shocks when the ratio of fixed-rate loans increases. These differences, however, are offset by each other within financial economy and not transmitted to real economy. That is, real economy variables, such as output, consumption, and price, react virtually the same to monetary policy shocks regardless of the ratio of fixed-rate loans. The same results occur when I vary the mark-up of fixed interest rates or the stickiness of fixed interest rates.
    Keywords: Fixed-rate loans, Monetary policy, DSGE model, Financial stability, Interest rate stickiness
    JEL: E43 E44 E52 E58
    Date: 2018–07–26

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