nep-ban New Economics Papers
on Banking
Issue of 2019‒11‒04
nine papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. Fixed rate versus adjustable rate mortgages: evidence from euro area banks By Albertazzi, Ugo; Ongena, Steven; Fringuellotti, Fulvia
  2. Credit scoring in SME asset-backed securities: An Italian case study By Bedin, Andrea; Billio, Monica; Costola, Michele; Pelizzon, Loriana
  3. Small Firms and Domestic Bank Dependence in Europe's Great Recession By Mathias Hoffmann; Egor Maslov; Bent E. Sørensen
  4. Bank loan loss provisioning during election years in Nigeria By Ozili, Peterson K
  5. Price mediated contagion through capital ratio requirements By Tathagata Banerjee; Zachary Feinstein
  6. Bank Capital Regulation and Endogenous Shadow Banking Crises By Poeschl, Johannes; Zhang, Xue
  7. Agony of Choice – Trading off Stability and Competition in the Banking Markets By Laser, Falk; Hellwig, Michael
  8. US banking deregulation and local economic growth: Direct effects and externalities By Pieter IJtsma; Sherrill Shaffer; Laura Spierdijk
  9. Bank Competition, Cost of Credit and Economic Activity: evidence from Brazil By Gustavo Joaquim; Bernardus Van Doornik

  1. By: Albertazzi, Ugo; Ongena, Steven; Fringuellotti, Fulvia
    Abstract: Why do residential mortgages carry a fixed or an adjustable interest rate? To answer this question we study unique data from 103 banks belonging to 73 different banking groups across twelve countries in the euro area. To explain the large cross-country and time variation observed, we distinguish between the conditions that determine the local demand for credit and the characteristics of banks that supply credit. As bank funding mostly occurs at the group level, we disentangle these two sets of factors by comparing the outcomes observed for the same banking group across the different countries. Local demand conditions dominate. In particular we find that the share of new loans with a fixed rate is larger when: (1) the historical volatility of inflation is lower, (2) the correlation between unemployment and the short-term interest rate is higher, (3) households' financial literacy is lower, and (4) the use of local mortgages to back covered bonds and mortgage-backed securities is more widespread. JEL Classification: F23, G21, G41
    Keywords: cross-border banks, interest rate fixation, mortgages
    Date: 2019–10
  2. By: Bedin, Andrea; Billio, Monica; Costola, Michele; Pelizzon, Loriana
    Abstract: We investigate the default probability, recovery rates and loss distribution of a portfolio of securitised loans granted to Italian small and medium enterprises (SMEs). To this end, we use loan level data information provided by the European DataWarehouse platform and employ a logistic regression to estimate the company default probability. We include loan-level default probabilities and recovery rates to estimate the loss distribution of the underlying assets. We find that bank securitised loans are less risky, compared to the average bank lending to small and medium enterprises.
    Keywords: credit scoring,probability of default,small and medium enterprises,asset-backed securities
    Date: 2019
  3. By: Mathias Hoffmann; Egor Maslov; Bent E. Sørensen
    Abstract: Small businesses (SMEs) depend on banks for credit. We show that the severity of the Eurozone crisis was worse in countries where firms borrowed more from domestic banks (“domestic bank dependence”) than in countries where firms borrowed more from international banks. Eurozone banking integration in the years 2000–2008 mainly involved cross-border lending between banks while foreign banks’ lending to the real sector stayed flat. Hence, SMEs remained dependent on domestic banks and were vulnerable to global banking shocks. We confirm, using a calibrated quantitative model, that domestic bank dependence makes sectors and countries with many SMEs vulnerable to global banking shocks.
    Keywords: small and medium enterprises, SME access to finance, banking integration, domestic bank dependence, international transmission, Eurozone crisis
    JEL: F30 F36 F40 F45
    Date: 2019
  4. By: Ozili, Peterson K
    Abstract: The paper investigates the behavior of loan loss provisions during election years in Nigeria. Election events create uncertainties in the business environment in Nigeria which can increase the credit risk that banks face. The findings reveal that the banking sector had high loan loss provisions when it is under-capitalised during election years. However, the election year did not have a significant effect on the level of loan loss provisions in the Nigerian banking sector.
    Keywords: loan loss provisions; income smoothing; election; Nigeria, banks, financial reporting, credit risk
    JEL: G01 G18 G21 G28 G32 M21
    Date: 2019
  5. By: Tathagata Banerjee; Zachary Feinstein
    Abstract: We develop a framework for price-mediated contagion in financial systems where banks are forced to liquidate assets to satisfy a risk-weight based capital adequacy requirement. In constructing this modeling framework, we introduce a two-tier pricing structure: the volume weighted average price that is obtained by any bank liquidating assets and the terminal mark-to-market price used to account for all assets held at the end of the clearing process. We consider the case of multiple illiquid assets and develop conditions for the existence and uniqueness of clearing prices. We provide a closed-form representation for the sensitivity of these clearing prices to the system parameters, and use this result to quantify: (1) the cost of regulation faced by the system as a whole and the individual banks, and (2) the value of providing bailouts and bail-ins to consider when such notions are financially advisable. Numerical case studies are provided to study the application of this model to data.
    Date: 2019–10
  6. By: Poeschl, Johannes; Zhang, Xue
    JEL: E44 G24 G28
    Date: 2019
  7. By: Laser, Falk; Hellwig, Michael
    JEL: D22 G21 G34 L11 L25 L40 L41
    Date: 2019
  8. By: Pieter IJtsma; Sherrill Shaffer; Laura Spierdijk
    Abstract: This study investigates the effects of banking deregulation on county-level economic growth in the U.S. during the 1970–2000 period. Our main contribution to the literature is that we analyze both the direct and external effects of banking deregulation on local economic growth. For the regions South, West and Northeast, we find significantly positive long-run direct effects of intrastate branching deregulation on the expected growth rates of counties in the deregulated state itself, up to several percentage points. We also establish significantly positive long-run external effects on the expected growth rates of counties adjacent to the deregulated state, up to several tenths of percentage points. We do not find such robust effects for interstate banking deregulation.
    Keywords: U.S. banking deregulation, economic growth, externalities
    JEL: G21 G28
    Date: 2019–10
  9. By: Gustavo Joaquim; Bernardus Van Doornik
    Abstract: We estimate the effect of bank competition on financial and real variables. To do so, we use regional heterogeneous exposure to mergers and acquisitions (M&A) of large banks as an instrument for changes in competition of local banking markets in Brazil. We use detailed administrative data on loans and firms and a difference-in-differences empirical strategy that compares changes in outcomes for markets affected or not by the M&A episodes. We find that, following M&A episodes, spreads increase and lending decreases persistently in exposed markets relative to controls. We show that this is larger for more concentrated markets at the time of the M&A episode, and is unlikely to be driven by other factors, such as branch closures. We find that non-agricultural employment falls .2% for an increase of 1% in spreads. We develop a model of heterogeneous firms and concentration in the banking sector that is consistent with the micro evidence. In our model, the semi-elasticity of credit to lending rates is a sufficient statistic for the effect of concentration on output, which we estimate to be -3.17. Among other counterfactuals, we show that if Brazilian spreads fell to world levels, output would increase by approximately 5%.
    Date: 2019–10

This nep-ban issue is ©2019 by Christian Calmès. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.