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on Banking |
| By: | Carletti, Elena; De Marco, Filippo; Ioannidou, Vasso; Sette, Enrico |
| Abstract: | We study how a greater reliance on deposits affects bank lending policies. For identification, we exploit a tax reform in Italy that induced households to substitute bank bonds with deposits. We show that the reform led to larger increases (decreases) in term deposits (bonds) in areas where households held more bonds before the reform. We then find that banks with larger increases in deposits did not change their overall credit supply, but increased credit-lines and the maturity of term-loans. These results are consistent with key theories on the role of deposits as a discipline device and of banks as liquidity providers. |
| Keywords: | banks; deposits; government guarantee; Maturity; risk-taking |
| JEL: | G01 G21 G28 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13722&r=all |
| By: | Wang, Dieter; van Lelyveld, Iman; Schaumburg, Julia |
| Abstract: | This paper revisits the credit spread puzzle for banks from the perspective of information contagion. The puzzle consists of two stylized facts: Structural determinants of credit risk not only have low explanatory power but also fail to capture common factors in the residuals. We reproduce the puzzle for European bank credit spreads and hypothesize that the puzzle exists because structural models ignore contagion effects. We therefore extend the structural approach to include information contagion through bank business model similarities. To capture this channel, we propose an intuitive measure for portfolio overlap and apply it to the complete asset holdings of the largest banks in the Eurozone. Incorporating this unique network information into the structural model increases explanatory power and removes a systemic common factor from the residuals. Furthermore, neglecting the network likely overstates the importance of structural determinants. JEL Classification: G01, G21, C32, C33, C38 |
| Keywords: | bank business model similarities, credit spread puzzle, dynamic network effects model., information contagion, portfolio overlap measure |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:srk:srkwps:201994&r=all |
| By: | Peter Addo (Lead Data Scientist - SNCF Mobilité); Dominique Guegan (UP1 - Université Panthéon-Sorbonne, Labex ReFi - UP1 - Université Panthéon-Sorbonne, University of Ca’ Foscari [Venice, Italy], CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, IPAG Business School); Bertrand Hassani (Labex ReFi - UP1 - Université Panthéon-Sorbonne, Capgemini Consulting [Paris]) |
| Abstract: | Due to the hyper technology associated to Big Data, data availability and computing power, most banks or lending financial institutions are renewing their business models. Credit risk predictions, monitoring, model reliability and effective loan processing are key to decision making and transparency. In this work, we build binary classifiers based on machine and deep learning models on real data in predicting loan default probability. The top 10 important features from these models are selected and then used in the modelling process to test the stability of binary classifiers by comparing performance on separate data. We observe that tree-based models are more stable than models based on multilayer artificial neural networks. This opens several questions relative to the intensive used of deep learning systems in the enterprises. |
| Keywords: | Deep learning,Data Science,Credit risk,Financial regulation,Bigdata |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-01719983&r=all |
| By: | Salih Fendoglu; Eda Gulsen; Josè-Luis Peydro |
| Abstract: | We show that global liquidity limits the transmission of local monetary policy on credit markets. For identification, we exploit global liquidity shocks in conjunction with monetary policy changes and exhaustive loan-level data (the credit and international interbank market registers) from a large emerging market, Turkey. We show that softer global liquidity conditions —proxied by lower VIX or expansionary US monetary policy— attenuate the pass-through of local monetary policy tightening on loan rates, especially for banks that borrow ex-ante more from international wholesale markets. Effects are also important for other credit margins and for bank risk-taking —especially for risky borrowers in FX loans. The mechanism at work is via a bank carry trade from international markets when local monetary conditions tighten. |
| Keywords: | Global liquidity, Global financial cycle, Monetary policy transmission, Emerging markets, Banks |
| JEL: | E52 F30 G01 G15 G21 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:1913&r=all |
| By: | Joseph P. Hughes (Rutgers University); Julapa Jagtiani (Federal Reserve Bank of Philadelphia); Loretta J. Mester (Federal Reserve Bank of Cleveland); Choon-Geol Moon (Hanyang University) |
| Abstract: | We consider how size matters for banks in three size groups: small community banks with assets less than $1 billion, large community banks with assets between $1 billion and $10 billion, and midsize banks with assets between $10 billion and $50 billion. To illustrate the differences between these banks and larger banks whose business models are distinctly different, we examine large banks with assets between $50 billion and $250 billion and the largest banks with assets exceeding $250 billion. Community banks have potential advantages in relationship lending compared with large banks. However, increases in regulatory compliance and technological burdens may have disproportionately increased community banks’ costs, raising concerns about small businesses’ access to credit. Our evidence suggests several patterns: (1) while small community banks exhibit relatively more valuable investment opportunities, larger community banks, midsize banks, and larger banks exploit theirs more efficiently and achieve better financial performance; (2) average operating costs that include costs related to regulatory compliance and technology decrease with size; (3) unlike small community banks, large community banks have financial incentives to increase lending to small businesses; and (4) for business lending and commercial real estate lending, compared with small community banks, large community banks, midsize banks, and larger banks assume higher inherent credit risk and exhibit more efficient lending. Thus, concern that small business lending would be adversely affected if small community banks find it beneficial to increase their scale is not supported by our results. |
| Keywords: | community banking, scale, financial performance, small business lending |
| JEL: | G21 L25 |
| Date: | 2019–05–14 |
| URL: | http://d.repec.org/n?u=RePEc:rut:rutres:201901&r=all |
| By: | Martynova, Natalya; Perotti, Enrico; Suarez, Javier |
| Abstract: | We analyze the strategic interaction between undercapitalized banks and a supervisor who may intervene by preventive recapitalization. Supervisory forbearance emerges because of a commitment problem, reinforced by fiscal costs and constrained capacity. Private incentives to comply are lower when supervisors have lower credibility, especially for highly levered banks. Less credible supervisors (facing higher cost of intervention) end up intervening more banks, yet producing higher forbearance and systemic costs of bank distress. Importantly, when public intervention capacity is constrained, private recapitalization decisions become strategic complements, leading to equilibria with extremely high forbearance and high systemic costs of bank failure. JEL Classification: G21, G28 |
| Keywords: | bank recapitalization, bank supervision, forbearance |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:srk:srkwps:201993&r=all |
| By: | Sutherland, Andrew |
| Abstract: | I examine how credit reporting affects where firms access credit and how lenders contract with them. I use within firm-time and lender-time tests that exploit lenders joining a credit bureau and sharing information in a staggered pattern. I find information sharing reduces relationship-switching costs, particularly for firms that are young, small, or have had no defaults. After sharing, lenders transition away from relationship contracting, in two ways: contract maturities in new relationships are shorter, and lenders are less willing to provide financing to their delinquent borrowers. My results highlight the mixed effects of transparency-improving financial technologies on credit availability. |
| Keywords: | Debt contracts; information sharing; information asymmetries; hard and soft information; credit bureaus; relationship lending; transactional lending; information economics; entrepreneurial finance; credit reports; credit scores, FinTech |
| JEL: | D82 D83 G21 G23 G30 G32 M41 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:93670&r=all |
| By: | Cukierman, Alex |
| Abstract: | The point of departure of this paper is that, in order to preserve the effectiveness of monetary policy in a world increasingly flooded by private digital currencies, central banks will eventually have to issue their own digital currencies. Although a non-negligible number of central banks (CBs) are actively considering the pros and cons of a central bank digital currency (CBDC) there is yet no CB that has issued such a currency on a full scale. Following a brief survey of current CBs positions on the issuance of a CBDC the paper presents two proposals for the implementation of such a currency: A moderate proposal in which only the banking sector continues to have access to deposits at the CB and a radical one in which the entire private sector is allowed to hold digital currency deposits at the CB. The paper compares and contrasts the implications of those two polar paths to a CBDC for the funding of banks, the allocation of credit to the economy and their implications for welfare as well as for political feasibility. One section of the paper shows that the radical implementation may pave the way toward a narrow banking system and dramatically reduce the need for deposit insurance in the long run. The paper evaluates the relative merits of issuing a currency on a blockchain using a permissionless distributed ledger technology in comparison to a centralized (permissioned) blockchain ledger operated by the CB and concludes that the latter dominates the former in more than one dimension. But it does acknowledge that distributed ledger technologies have many actual and potential cost savings benefits in other segments of the financial and real sectors. |
| Keywords: | blockchain technology; Central bank digital currency; centralized versus decentralized currencies; narrow banking; permissioned; permissionless |
| JEL: | E4 E5 H41 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13728&r=all |
| By: | Magloire Nya Tchatchoua; Isabelle Pignatel; Hubert Tchakoute Tchuigoua |
| Abstract: | What are the characteristics of microfinance institutions (MFIs) that choose to draft their financial statements according to international accounting standards? That is the question this article investigates. We study a pooled sample of 5,290 audited financial statements from 2007 to 2015 and find consistent evidence that the institutional framework, for-profit status, and maturity, are likely to drive the MFIs choice to comply with international financial reporting standards. Results are robust after controlling for whether MFIs operate in a country where IFRS are permitted or required. |
| Keywords: | IFRS; Microfinance; Audit |
| JEL: | G21 G34 L31 M42 |
| Date: | 2019–05–10 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:2013/287175&r=all |
| By: | Cândida Ferreira |
| Abstract: | Using panel estimates and Stochastic Frontier Analysis this paper aims to contribute to the analysis of bank efficiency of the European banks in the aftermath of the international financial crisis and the sovereign crisis that seriously affected many EU countries. It also considershypothetical scenarios of exit from the EU of some of the particularly relevant member-states, including the Brexit scenario. The results obtained very clearly demonstrate the existence of statistically significant technical inefficiencies in all considered scenarios. Nevertheless, the results reveal that the exclusion of the Italian banks and of the UK banks from our estimates would be more beneficial to the decrease of the banks’ cost inefficiencies than the exclusion of the French and the German banks. Moreover, the worst scenario in terms of the decrease of the EU banks’ cost inefficiencies would be the exclusion of the banks from the five EU countries that were deeply affected by the international financial and sovereign crises and were obliged to restructure their bank systems, that is, Cyprus, Greece, Ireland, Portugal and Spain. |
| Keywords: | Bank efficiency; Stochastic Frontier Analysis; EU banking sector; Brexit |
| JEL: | C33 D24 F36 G21 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:ise:remwps:wp0842019&r=all |
| By: | Darmouni, Olivier; Sutherland, Andrew |
| Abstract: | This paper provides evidence of strategic complementarities in lenders’ contract terms in SME financing. To isolate this strategic effect from lenders’ joint reaction to unobserved common shocks to fundamentals, we exploit the staggered entry of lenders into an information sharing platform. Upon joining, lenders adjust their terms toward what others are offering. This effect is mediated by market power and seems to be driven by incentives to match rivals in order to preserve market share as opposed to learning about fundamentals. We also find evidence that this strategic behavior increased delinquencies during the recent crisis. |
| Keywords: | competition, strategic complementarities, information sharing, credit bureau, corporate loans, SME |
| JEL: | D22 D43 D82 D83 G00 G21 G24 G30 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:93668&r=all |
| By: | Gabriel Mitache (Academy of Economic Studies, Bucharest and National Bank of Romania) |
| Abstract: | Before the 2007-2008 financial crisis, creditinstitutions were assured (though not officially or formally) that if they were large enough they would be rescued with tax-payers’ money, an action also known as bail-out, denoting what became known as the “too big to fail” paradigm. The introduction of the Bank Recovery and Resolution Directive (2014/59/EU) proposes a legal framework that aims at eliminating the possibility of bailing-out institutions. This paper has the objective of assessing througha game theory approachto what extent the BRRDirectivehas the potential to achieve its purpose and if there are identifiable possible improvements to this framework that could be considered for practical purposes or for a possible future review of the legal framework.The term institution, for the purpose of this paper, refers to credit institutions but can also be read as referring to other types of financial institutions such as investment firms or insurance companies |
| Keywords: | banking, banking union, bank resolution, central banking, bank recovery, bank supervision, BRRD, game theory |
| JEL: | D04 E61 G18 G21 G28 H12 K23 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:fst:wpaper:0013&r=all |
| By: | Akpan, Umoren Aniefiok; Okon, Effiong Etim; Brownson, Akpan Sunday |
| Abstract: | Instability in interest rate policy created interest rate volatility. The study investigated the relationship between the value of guaranteed loans and interest rate policy on the growth of Agricultural Credit Guarantee Scheme activities in Nigeria. Time series data collected from the staiistical bulletin of Central Bank of Nigeria were used for the analysis. Multiple regression models were used in estimating the effects of interest rate policy on the value of loans/advances accessed by agro-entrepreneurs under ACGS over the years. The results showed that value of loans/advances accessed by the loan beneficiaries under ACGS was inversely related to interest rate policy and directly influenced by outreach, loan repayment and liquidity over the years. It is recommended that incentive be created in form of increased rate for interest drawback scheme. This would assist to rebate high lending rates by the banking system |
| Keywords: | Agribusiness |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:ags:naae17:288324&r=all |
| By: | Razvan-Gabriel Hapau (Academy of Economic Studies, Bucharest) |
| Abstract: | This paper aims to investigate the influence of capital structure on the financial performance of microfinance institutions (MFIs) using a sample of 89 institutions from 35 countries using the data provided by the MIX Market platform for the year 2015.In order to do that, the paper focus on two main objectives: the first one is to evaluate the financial performance of microfinance institutions using a synthetic measure-composite index based on principal component analysis using several financial indicators and the second one is to assess the impact of capital structure on the MFIsfinancial performance composite index using regression techniques, taking into account three proxies for capital structure(capital to asset ratio, debt to equity ratio, deposits to total assets) and controlling for a variety of MFI-specific variables.Theempirical results pointed out two important factors for the financial performance of MFIs: profit margin and yield on gross loan portfolio. Based on the results of the composite index, Mexico, Azerbaijan, Bolivia, Nepal, Romania, Moldova, Egypt, Armenia and Bolivia are considered to be poles of microfinance performance. In Romania, the best performances were recorded by Express Finance, while at the opposite side there are OMRO and Pro-Credit, which performed poorly.Analysing the influence of capital structure on the financial performance of MFIs, a significant and positive impact have been highlighted by the capital to asset ratio, while for the other two proxies any influence has been refuted. Therefore, a higher ratio of capital to total assets is positively associated with a higher MFIs financial performance. |
| Keywords: | microfinance institutions, capital structure, financial performance, principal component analysis, regression analysis |
| JEL: | G21 G32 G10 G15 C38 C40 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:fst:wpaper:0015&r=all |