nep-ban New Economics Papers
on Banking
Issue of 2019‒04‒08
eleven papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. Does banks’ systemic importance affect their capital structure and balance sheet adjustment processes? By Yassine Bakkar; Olivier De Jonghe; Amine Tarazi
  2. Sovereigns and Financial Intermediaries Spillovers By Hamid R Tabarraei; Abdelaziz Rouabah; Olivier Pierrard
  3. The nexus between underlying dynamics of bank capital buffer and performance. By Mamatzakis, Emmanuel; Bagntasarian, Anna
  4. Is lending by Polish cooperative banks procyclical? A multidimensional analysis of credit supply cyclicality in Polish cooperative banks – the country and regional perspective By Christophe Godlewski; Dorota Skala; Laurent Weill
  5. The Impact of Monetary Conditions on Bank Lending to Households By Gyöngyösi,; Ongena, Steven; Schindele, Ibolya
  6. How Effective is Macroprudential Policy? Evidence from Lending Restriction Measures in EU Countries By Tigran Poghosyan
  7. The formation of hidden negative capital in banking : A product mismatch hypothesis By Kostrov, Alexander; Mamonov, Mikhail
  8. The Relationship Dilemma: Organizational Culture and the Adoption of Credit Scoring Technology in Indian Banking By Prachi Mishra; Nagpurnanand R. Prabhala; Raghuram G. Rajan
  9. The interplay between problem loans and Japanese bank productivity. By Mamatzakis, Emmanuel; matousek, roman; vu, anh
  10. Macroprudential Policies in the EAGLE FLI Model Calibrated for Hungary By Gábor Fukker; Lóránt Kaszab
  11. Monetary Easing, Investment and Financial Instability By Viral Acharya; Guillaume Plantin

  1. By: Yassine Bakkar (Université de Limoges, LAPE); Olivier De Jonghe (Economics and Research Department, NBB and European Banking Center, Tilburg University); Amine Tarazi (Université de Limoges, LAPE and Institut Universitaire de France (IUF))
    Abstract: Frictions prevent banks to immediately adjust their capital ratio towards their desired and/or imposed level. This paper analyzes (i) whether or not these frictions are larger for regulatory capital ratios vis-à-vis a plain leverage ratio; (ii) which adjustment channels banks use to adjust their capital ratio; and (iii) how the speed of adjustment and adjustment channels differ between large, systemic and complex banks versus small banks. Our results, obtained using a sample of listed banks across OECD countries for the 2001-2012 period, bear critical policy implications for the implementation of new (systemic risk-based) capital requirements and their impact on banks’ balance sheets, specifically lending, and hence the real economy.
    Keywords: , capital structure, speed of adjustment, systemic risk, systemic size, bank regulation, lending, balance sheet composition
    JEL: G20 G21 G28
    Date: 2019–03
  2. By: Hamid R Tabarraei; Abdelaziz Rouabah; Olivier Pierrard
    Abstract: We examine the spillover effects between sovereigns and banks in a model with a heterogeneous banking system. An increase in sovereign’s default risk affects financial intermediaries through two channels in this model. First, banks’ funding costs might increase, inducing higher interest rates on loans and bonds and a cut back in these assets. Second, financial regulator’s risk-weighted asset framework would assign higher weights to lower quality assets, implying a portfolio rebalancing and more deleveraging. While capital adequacy requirements weaken the impact of shocks emerging from the real economy, they amplify the effect of shocks on banks’ balance sheets.
    Keywords: Central banks;Interest rates on loans;Bank capital;Market interest rates;Bank liquidity;Sovereign risk;Contagion;Interbank market;interbank;deposit rate;leverage ratio;order condition;bank 's balance
    Date: 2019–02–27
  3. By: Mamatzakis, Emmanuel; Bagntasarian, Anna
    Abstract: This paper reveals the underlying dynamics between the capital buffer and bank performance in EU-27 countries. A dynamic panel analysis shows that capital buffer is significantly affected by bank performance and risk exposure. Remarkably, a threshold analysis identifies regime changes for the underlying relationships during the financial crisis of 2008. We find a positive relationship between the capital buffer and performance for banks that fall in the low performance regime, while a negative relationship is reported for the banks that belong to the high regime. Threshold results also show that buffer exerts a positive impact on bank performance. Although regulation reforms that aim to raise the capital requirements could improve bank performance and stability, these improvements are not homogeneous across banks.
    Keywords: Capital buffer; Dynamic threshold; Performance; Bank default risk.
    JEL: G0 G1 G2
    Date: 2019–03–14
  4. By: Christophe Godlewski (University of Strasbourg, Faculty of Law & Business, EM Strasbourg Business School, PEGE-LaRGE); Dorota Skala (WNEiZ, University of Szczecin); Laurent Weill (EM Strasbourg Business School, University of Strasbourg, Institut d’Etudes Politiques, Université de Strasbourg)
    Abstract: We investigate the lending cyclicality of Polish cooperative banks. Cooperative banks have an important role in the financing of the local economy and as such can contribute to amplify or moderate business cycles through their lending behavior. We use a rich dataset of 367 Polish cooperative banks over the period 2007-2013. We find that cooperative banks have a countercyclical lending behavior on the country level, with loan growth negatively linked to national business cycles. We observe that greater bank size contributes to reduce the countercyclical lending behaviour. The lending behavior of cooperative banks is also sensitive to local economic conditions, with some evidence for procyclicality versus the regional economy. Finally, we point out differences in cyclicality of lending across types of borrowers. Loans to non-financial clients and to banks are countercyclical, while we find procyclicality for loans to local government and public entities. These findings support the view that the cooperative banking sector should be preserved to mitigate bank lending procyclicality, usually observed in commercial banks.
    Keywords: cooperative banks, loan growth, cyclicality, local economy, business cycles
    JEL: G21 R11
    Date: 2018
  5. By: Gyöngyösi,; Ongena, Steven; Schindele, Ibolya
    Abstract: We study the impact of monetary conditions on the supply of mortgage credit by banks to households. Using comprehensive credit register data from Hungary, we first establish a "bank-lending-to-households" channel by showing that monetary conditions affect the supply of mortgage credit in volume. We then study the impact of monetary conditions on the composition of mortgage credit along its currency denomination and borrower risk. We find that expansionary domestic monetary conditions increase the supply of mortgage credit to all households in the domestic currency and to risky households in the foreign currency. Because most households are unhedged, bank lending in multiple currencies may involve additional risk taking. Changes in foreign monetary conditions affect lending in the foreign currency more than in the domestic currency, and also differ in their compositional impact along firm risk.
    Keywords: bank balance-sheet channel; Foreign currency lending; household lending; monetary policy
    JEL: E51 F3 G21
    Date: 2019–03
  6. By: Tigran Poghosyan
    Abstract: This paper assesses the effectiveness of lending restriction measures, such as loan-to-value and debt-service-to-income ratios, in affecting developments in house prices and credit. We use data on 99 lending standard restrictions implemented in 28 EU countries over 1990–2018. The results suggest that lending restriction measures are generally effective in curbing house prices and credit. However, the impact is delayed and reaches its peak only after three years. In addition, the impact is asymmetric, with tightening measures having weaker association with target variables compared to loosening measures. The association is stronger in countries outside of euro area and for legally-binding measures and measures involving sanctions. The results have practical implications for macroprudential authorities.
    Keywords: Monetary policy instruments;Exchange rate policy;Central banks;Monetary policy;Monetary expansion;macroprudential regulation;financial stability;credit;house price;Kleibl;target variable;type of measure;real GDP growth;dependent variable
    Date: 2019–03–01
  7. By: Kostrov, Alexander; Mamonov, Mikhail
    Abstract: This paper investigates the phenomenon of hidden negative capital (HNC) associated with bank failures and introduces a product mismatch hypothesis to explain the formation of HNC. Given that troubled banks tend to hide negative capital in financial statements from regulators to keep their licenses, we attempt to capture this gambling behavior by evaluating product mismatches reflecting disproportions between the allocation of bank assets and the sources of funding. We manually collect unique data on HNC and test our hypothesis using U.S. and Russian banking statistics for the 2004{2017 period (external validity argument). To manage the sample selection concerns, we apply the Heckman selection approach. Our results clearly indicate that product mismatch matters and works similarly in both U.S. and Russian banking systems. Specifically, an increase in mismatch has two e ects: it leads to a higher probability that a bank's capital is negative and raises the conditional size of the bank's HNC. Further, we demonstrate that the mismatch e ect is heterogeneous with respect to bank size being at least partially consistent with the informational asymmetry view. Our results may facilitate improvements in the prudential regulation of banking activities in other countries that share similar features with either the U.S. or Russian banking systems.
    JEL: G21 G33 C34
    Date: 2019–04–03
  8. By: Prachi Mishra; Nagpurnanand R. Prabhala; Raghuram G. Rajan
    Abstract: Credit scoring was introduced in India in 2007. We study the pace of its adoption by new private banks (NPBs) and state-owned or public sector banks (PSBs). NPBs adopt scoring quickly for all borrowers. PSBs adopt scoring quickly for new borrowers but not for existing borrowers. Instrumental Variable (IV) estimates and counterfactuals using scores available to but not used by PSBs indicate that universal adoption would reduce loan delinquencies significantly. Evidence from old private banks suggests that neither bank size nor government ownership fully explains adoption patterns. Organizational culture, possibly from formative experiences in sheltered markets, explains the patterns of technology adoption.
    JEL: G21 O32 P5
    Date: 2019–03
  9. By: Mamatzakis, Emmanuel; matousek, roman; vu, anh
    Abstract: This paper examines for the first time the impact of problem loans on Japanese productivity growth. We exploit a new data set of Japanese problem loans classified into two categories: bankrupt and restructured loans. We opt for a novel and flexible productivity growth decomposition that allows to measure the direct impact of these problem loans on productivity growth. The results reveal that Japanese bank productivity growth was severely constrained by bankrupt and restructured loans early in 2000s, whilst some persistence of the negative impact of problem loans on productivity growth is observed in the late 2000s. Thereafter, there is only some partial recovery in the productivity growth from 2012 to 2015. Further, we also perform cluster analysis to examine convergence or divergence across regions and over time. We observe limited convergence, though Regional Banks seem to form clusters in some regions.
    Keywords: Bank productivity; Bankrupt loans; Restructured loans; Cluster analysis; Japan
    JEL: G0 G01 G2 G21
    Date: 2019–03–14
  10. By: Gábor Fukker (Magyar Nemzeti Bank (Central Bank of Hungary)); Lóránt Kaszab (Magyar Nemzeti Bank (Central Bank of Hungary))
    Abstract: In this paper we develop the Hungarian version of the EAGLE FLI (Euro Area GLobal Economy model with Financial LInkages) model which is the EAGLE model enriched with financial frictions and country-specific banking sector. The EAGLE FLI features the intermediation of loanable funds (ILF) view in banking whereby the creation of new loans requires banks to collect additional deposits. Households and firms borrow in the model using housing as collateral. We find that macroprudential policies such as an increase in capital requirements, decreases in the loan-to-value ratio or loan-to-income ratio of borrower households (and firms) limits banks’ credit creation with negative spillover effects to the real economy due to the financial accelerator mechanism in the model. On the other hand, these policies strengthen banks’ capital and limit the vulnerability of households and firms to negative financial shocks.
    Keywords: macroprudential policy, multi-country DSGE, capital requirements, loan-to-value ratio, loan-to-income ratio
    JEL: E12 E13 E52 E58 F11 F41
    Date: 2019
  11. By: Viral Acharya (Reserve Bank of India); Guillaume Plantin (Département d'économie)
    Abstract: This paper studies a model of the interest-rate channel of monetary policy in which a low policy rate lowers the cost of capital for firms thereby spurring investment, but also induces destabilizing “carry trades” against their assets. If the public sector does not have sufficient fiscal capacity to cope with the large resulting private borrowing, then carry trades and productive investment compete for scarce funds, and so the former crowd out the latter. Below an endogenous lower bound, monetary easing generates only limited investment at the cost of large and socially wasteful financial risk taking.
    Keywords: Monetary policy; Financial stability; Shadow banking; Carry trades
    JEL: E52 E58 G01 G21 G23 G28
    Date: 2019–02

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