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on Banking |
| By: | Anne-Laure Delatte; Pranav Garg; Jean Imbs |
| Abstract: | Using a bank-firm level credit registry combined with firm-level balance sheet data we establish the presence of heterogeneity in the effects of unconventional monetary policy transmission. We examine the consequences of a loosening in the collateral eligibility requirement for credit refinancing in France. The policy was designed to affect bank lending positively. We expect a linear increase in lending and an additional increase in loans to firms with newly acceptable rating. We find a large heterogeneity of the monetary policy transmission including the unexpected reduction of lending by the banks benefiting the most from the policy. These are small, risk-averse banks whose foremost concern after the recession was to strengthen their balance sheets. Banks least affected by the policy respond with a reduction in credit to low risk borrowers in reaction to the change in the market structure. Last we document heterogenous effects of the policy on firms depending on their size. |
| Keywords: | Unconventional Monetary Policy;Transmission Channels;Corporate Finance;Real Effects of Monetary Policy;Individual Data |
| JEL: | C55 C58 E44 G21 G32 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2019-07&r=all |
| By: | Gazi I Kara; Youngsuk Yook |
| Abstract: | We show that banks reduce the supply of jumbo mortgage loans when policy uncertainty increases, as measured by the timing of US gubernatorial elections in banks' headquarter states. We use high-frequency, geographically granular loan-level data to address an identification problem arising from the changing demand for loans: (1) The data allow for a difference-in-difference specification and for state/time (quarter) fixed effects; (2) we observe banks reduce lending not just in their home states but also outside their home states when their home states hold elections; (3) we observe important cross-sectional differences in the way banks with different characteristics respond to policy uncertainty. Overall, the findings suggest that policy uncertainty has a real effect on residential housing markets through banks' credit supply decisions and that it can spill over across states through lending by banks serving multiple states. |
| Keywords: | Bank Mortgage Credit, Housing Market, Policy Uncertainty, Gubernatorial Elections |
| JEL: | G21 G28 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:820&r=all |
| By: | A.O. Karas; William Pyle; Koen Schoors |
| Abstract: | Using evidence from Russia, we explore the effect of the introduction of deposit insurance on bank risk. Drawing on within-bank variation in the ratio of firm deposits to total household and firm deposits, so as to capture the magnitude of the decrease in market discipline after the introduction of deposit insurance, we demonstrate for private, domestic banks that larger declines in market discipline generate larger increases in traditional measures of risk. These results hold in a difference-in-difference setting in which state and foreign-owned banks, whose deposit insurance regime does not change, serve as a control. |
| Keywords: | deposit insurance, market discipline, moral hazard, risk taking, banks, Russia |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:1902&r=all |
| By: | Vincent Bignon (Banque de France - Gaz de France Direction de la Recherche); Régis Breton (Banque de France - Gaz de France Direction de la Recherche); Mariana Rojas Breu (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine) |
| Abstract: | We build a symmetric two‐country monetary model with credit to study the interplay between currency integration and credit markets integration. The currency arrangement affects credit availability through default incentives. We capture credit markets integration by the extra cost incurred to obtain credit for cross‐border transactions and, with the euro area context in mind, label as banking union a situation where this cost is low. For high levels of the cross‐border credit cost, currency integration may magnify default incentives, leading to more credit rationing and lower welfare. The integration of credit markets restores the optimality of the currency union. |
| Abstract: | Cet article propose un modèle avec monnaie externe, banques et défaut endogène sur les emprunts afin d'analyser l'impact du degré d'imperfection dumarché du crédit sur la désirabilité -pour les populations- des unions monétaires.Nous montrons que lorsque ces imperfections entraînent un coût plus élevé pourles banques d'octroyer un crédit sur l'étranger plutôt que dans leur juridiction, le bien-être peut être réduit en régime d'union monétaire. Nous montrons également que la mise en place d'une union bancaire qui supprimeraitces barrières à l'intégration des marchés du crédit restaure le résultat habitueld'optimalité des unions . Les implications empiriques de ces résultats pourl'organisation de l'union bancaire sont discutées. |
| Keywords: | banks,currency union,credit,default,limited commitment |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-02313956&r=all |
| By: | Feixue Gong (Massachusetts Institute of Technology); Gregory Phelan (Williams College) |
| Abstract: | Tranching an asset increases its basis; tranching a CDS, as occurs with the CDX index, increases the CDS basis on the underlying asset. We study how the ability to use financial contracts as collateral affects the CDS basis using a general equilibrium model with collateralized financial promises and multiple states of uncertainty. A positive basis emerges when risky assets and their derivative debt contracts can be used as collateral for financial promises. We provide an empirical test of our theory using inclusion in the CDX and find that inclusion in the CDX increases the CDS basis. |
| Keywords: | Collateral, securitized markets, cash-synthetic basis, credit default swaps, asset prices, credit spreads. |
| JEL: | D52 D53 G11 G12 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:wil:wileco:2019-18&r=all |
| By: | Hans Degryse; A.O. Karas; Koen Schoors |
| Abstract: | We exploit uncertainty regarding banks' involvement in money laundering activities as a natural experiment to study the functioning of the interbank market in uncertain times. We show that bank couples with a stronger relationship (i.e., more frequent and reciprocal interactions before the event) are more likely to continue lending to one another, and at lower interest rates. This is in line with a “helping hand†or “flight to friends†hypothesis during crisis. |
| Keywords: | banks, interbank market, relationship banking, helping-hand hypothesis |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:1904&r=all |
| By: | Christophe GODLEWSKI (LaRGE Research Center, Université de Strasbourg) |
| Abstract: | I investigate how legal and institutional conditions around loan origination influence a private debt renegotiation process. Using a large sample of 15,000 loans on the European credit market, I apply a sequential logit model to consider the renegotiation likelihood, the conditional probability of multiple renegotiation rounds or multiple amended terms, and the renegotiation outcomes conditional on specific loan amendments. I find that legal systems with stronger protection of creditors control rights have a positive influence on renegotiation likelihood and favorable outcomes on amendments to amount or maturity. Stronger legal protection reduces renegotiation likelihood when creditors face potential strategic default by shareholders. The legal and institutional environment has a significant effect on how the initial design of the financial contract impacts the renegotiation process. |
| Keywords: | legal systems, institutional environment, financial contracts, private debt, renegotiation, sequential logit, Europe |
| JEL: | G21 G24 G32 G34 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:lar:wpaper:2019-08&r=all |
| By: | Andrea Landi, Alex Sclip, Valeria Venturelli |
| Abstract: | In this paper we investigate the impact of the Federal Reserve's decision to main- tain the zero-lower bound for at least two years on bank profitability and strategies. Using a difference in difference setting we find that banks with lower reliance on deposit funding are more sensitive to the policy event. Reduced net worth of low deposit banks, relative to high deposit banks, induces those banks to change their strategies toward an increase in fee income related products to maintain the tar- geted level of performance. Such an increase is mainly explained by fiduciary and insurance related revenues that entail a lower risk for financial stability. |
| Keywords: | Profitability, diversification, zero-lower bound, unconventional monetary policy, banking |
| JEL: | E43 E44 E52 G21 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:mod:wcefin:0079&r=all |
| By: | Y\'erali Gandica; Sophie B\'ereau; Jean-Yves Gnabo |
| Abstract: | In the aftermath of the financial crisis, the growing literature on financial networks has widely documented the predictive power of topological characteristics (e.g. degree centrality measures) to explain the systemic impact or systemic vulnerability of financial institutions. In this work, we show that considering alternative topological measures based on local sub-network environment improves our ability to identify systemic institutions. To provide empirical evidence, we apply a two-step procedure. First, we recover network communities (i.e. close-peer environment) on a spillover network of financial institutions. Second, we regress alternative measures of vulnerability on three levels of topological measures: the global level (i.e. firm topological characteristics computed over the whole system), local level (i.e. firm topological characteristics computed over the community) and aggregated level by averaging individual characteristics over the community. The sample includes $46$ financial institutions (banks, broker-dealers, insurance and real-estate companies) listed in the Standard \& Poor's 500 index. Our results confirm the informational content of topological metrics based on close-peer environment. Such information is different from the one embeds in traditional system wide topological metrics and is proved to be predictor of distress for financial institutions in time of crisis. |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1910.08611&r=all |
| By: | Iryna Okolelova; J.A. Bikker |
| Abstract: | This paper investigates the impact of the SSM’s launch on the market power of banks in the large euro area economies. We employ the Lerner index and the Boone estimator, non-structural measures that capture different aspects of competition. Using the results of the Lerner index, we find evidence of the significant decrease in market power for the ECB supervised entities in Austria, France, Germany and Spain. In a similar vein, the Boone indicator points toward an increase in competition among significant supervised entities of Austria, France, Germany, Italy and Spain. The evidence on changes for the total banking sector are mixed, whereas no significant effect is found for the banks remaining under national supervision. We do not find any support for significant increases in the market power of banks in Italy or Spain, suggesting that large increases in concentration do not necessarily result in anticompetitive conduct. |
| Keywords: | Banking, SSM, competition, market structure, concentration, Lerner Index, Boone indicator |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:1901&r=all |
| By: | Kurz, Michael (Finance); Kleimeier, Stefanie (Finance) |
| Abstract: | Following the global financial crisis, policy makers considered regulations that restrict banks’ activities which were motivated by concerns that banks use central bank borrowing, government guarantees, or subsidies to fund securities trading instead of lending to the real economy. Using a global sample of 132 major banks from 2003 to 2016, we find that banks’ securities trading is indeed associated with decreased loan supply. Effects are stronger for domestic lending markets, during crisis periods, and in countries with deeper financial markets. However, corporate capital expenditures and employment growth are unaffected, suggesting that policy makers’ concerns are only partly justified. |
| Keywords: | credit supply, proprietary trading, international lending, banking, corporate loans |
| JEL: | G01 G21 G28 |
| Date: | 2019–10–24 |
| URL: | http://d.repec.org/n?u=RePEc:unm:umagsb:2019026&r=all |
| By: | Théo Nicolas |
| Abstract: | This paper investigates the real effects of short-term financial constraints in the light of the working capital channel: cash credit constraints may force SMEs to forgo investment opportunities in order to finance their working capital needs. Building on unique indicators of cash and investment credit constraints derived from survey data, I find that: (1) short-term credit constraints are as important as long-term ones in SMEs' investment decisions; (2) the detrimental effect of cash credit constraints on corporate investment is even stronger for firms with higher working capital needs; (3) the negative relationship between working capital and fixed investment is associated with short-term financial frictions; and (4) only liquid SMEs are able to offset short-term financial frictions by adjusting their accounts receivable and inventories. |
| Keywords: | : Investment, Bank credit, Financial constraints, Working capital, Survey data. |
| JEL: | D82 E32 E51 G01 G21 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:731&r=all |
| By: | Ozili, Peterson K |
| Abstract: | I examine bank loan loss provisioning behaviour during election years - focusing on the effect of elections on banking sector loan loss provisioning. The findings reveal that the banking sectors in developed countries have higher loan loss provisions in election years. Income smoothing is present in election years which supports the income smoothing hypothesis. Also, banking sectors with high capital levels have higher loan loss provisions. Although there were no significant differences in bank loan loss provisioning during election years across the four bloc, the EU banking sectors and the banking sectors of BIS member-countries generally have higher loan loss provisions while the non-EU banking sectors and the banking sectors of the G7 member-countries generally have fewer loan loss provisions. |
| Keywords: | loan loss provisions; income smoothing; election; banks; credit risk, nonperforming loans, institutional factors, corruption, |
| JEL: | G21 G28 M4 M42 M48 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96639&r=all |
| By: | Romain Bouis |
| Abstract: | This paper studies the relationship between banks’ holdings of domestic sovereign securities and credit growth to the private sector in emerging market and developing economies. Higher banks’ holdings of government debt are associated with a lower credit growth to the private sector and with a higher return on assets of the banking sector. Analysis suggests that the negative relationship between banks’ claims on the government and private sector credit growth mainly reflects a portfolio rebalancing of banks towards safer, more liquid public assets in stress times and provides only limited evidence of a crowding-out effect due to financial repression. |
| Date: | 2019–10–11 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:19/224&r=all |
| By: | Juan Carlos Cuestas; Nicolas Reigl; Yannick Lucotte |
| Abstract: | This paper presents empirical estimates of bank credit procyclicality for a sample of 11 Central and Eastern Europe countries (CEECs) for the period 2000Q1–2016Q4. In the first step we estimate a traditional-type panel VAR model and analyse the evolution of credit procyclicality in the CEECs by comparing the impulse response functions for different business cycle periods. The results confirm the existence of credit procyclicality in CEECs and show that procyclicality is higher during boom periods. Furthermore we observe the heterogeneity of credit procyclicality in the different countries in our sample. To explain the cross-country heterogeneity in credit procyclicality we construct an interacted panel VAR model (IPVAR) and analyse whether bank level competition, proxied by the aggregate Lerner index, constitutes a driving force of credit procyclicality. Our findings indicate that bank competition affects credit procyclicality and explains the differences in credit dynamics across CEECs. Specifically we show that the reaction of credit to a GDP shock is on average higher in a less competitive banking market. |
| Keywords: | credit cycle, business cycle, bank competition, interacted panel VAR, CEEC |
| JEL: | E32 E51 G20 D40 C33 |
| Date: | 2019–10–14 |
| URL: | http://d.repec.org/n?u=RePEc:eea:boewps:wp2019-03&r=all |
| By: | Dobbie, Will (Harvard Kennedy School); Liberman, Andres (New York University); Paravisini, Daniel (London School of Economics); Pathania, Vikram (University of Sussex) |
| Abstract: | This paper tests for bias in consumer lending using administrative data from a high-cost lender in the United Kingdom. We motivate our analysis using a new principal-agent model of bias, which predicts that profits should be higher for the most illiquid loan applicants at the margin if loan examiners are biased. We identify the profitability of marginal applicants using the quasi-random assignment of loan examiners. Consistent with our model, we find significant bias against immigrant and older applicants when using the firm’s preferred measure of long-run profits, but not when using the short-run measure used to evaluate examiner performance. |
| JEL: | J15 J16 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:harjfk:rwp19-029&r=all |
| By: | Aniceth Kato Mpanju (Tanzania Institute of Accountancy) |
| Abstract: | The major purpose of this paper is to analyze the impact of microfinance services on SME?s performance in Dar-es-Salaam region, Tanzania. Using a sample of 350 SMEs, the study adopted a descriptive-correlation research design an econometric analysis using statistical package for social sciences (SPSS) version 24. The results show that microfinance services in the form of financial intermediation and enterprise development had to a large extent adequate to small and medium-sized entrepreneurs. Then from above analysis we may conclude that there existed a strong relationship between the extent of microfinance services and the performance of SMEs and that microfinance services influenced the performance of the SMEs in the Dar-es-Salaam region. |
| Keywords: | Microfinance services, SMEs, Microfinance institutions, Financial literacy and enterprise development |
| JEL: | G29 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:9412214&r=all |