nep-ban New Economics Papers
on Banking
Issue of 2020‒02‒10
seventeen papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. Tighter Credit and Consumer Bankruptcy Insurance By António R. Antunes; Tiago Cavalcanti; Caterina Mendicino; Marcel Peruffo; Anne Villamil
  2. Perceived vs actual financial crisis and bank credit standards: is there any indication of self-fulfilling prophecy? By Dimitrios Anastasiou; Zacharias Bragoudakis; Stelios Giannoulakis
  3. Does the lack of financial stability impair the transmission of monetary policy? By Acharya, Viral V.; Imbierowicz, Björn; Steffen, Sascha; Teichmann, Daniel
  4. Banking crisis prediction with differenced relative credit By Kauko, Karlo; Tölö, Eero
  5. Private debt renegotiation and financial institutions' network By Christophe GODLEWSKI; Bulat SANDITOV
  6. Bank stocks inform higher growth – A System GMM analysis of ten emerging markets in Asia By Mittal, Amit; Garg, Ajay Kumar
  7. Cross-border loan portfolio diversification, capital requirements, and the European Banking Union By Jokivuolle, Esa; Virén, Matti
  8. Structural and cyclical determinants of access to finance: Evidence from Egypt By Betz, Frank; Ravasan, Farshad R.; Weiss, Christoph T.
  9. Was the Expansion of Housing Credit in Japan Good or Bad? By Charles Yuji Horioka; Yoko Niimi
  10. Overcoming Borrowing Stigma: The Design of Lending-of-Last-Resort Policies By Zhang, Hanzhe; Hu, Yunzhi
  12. State-owned enterprises and entrusted lending: A DSGE analysis for growth and business cycles in China By Shuonan Zhang
  13. Legal History, Institutions and Banking System Development in Africa By Mutarindwa, Samuel; Schäfer, Dorothea; Stephan, Andreas
  14. The other side of the Coin: Risks of the Libra Blockchain By Louis Abraham; Dominique Guegan
  15. The State in Russia's Banking Sector By Victor Gorshkov
  16. Menakar Pengguna Internet Banking Di Indonesia (Studi Kasus Susenas 2018) By Ngasuko, Tri Achya
  17. Does Quantitative Easing Boost Bank Lending to the Real Economy or Cause Other Bank Asset Reallocation? The Case of the UK By Simone Giansante; Mahmoud Fatouh; Steven Ongena

  1. By: António R. Antunes; Tiago Cavalcanti; Caterina Mendicino; Marcel Peruffo; Anne Villamil
    Abstract: How does bankruptcy protection affect household balance sheet adjustments and aggregate consumption when credit tightens? Using a tractable model of unsecured consumer credit we quantify the trade-off between the insurance and the creditworthiness effects of bankruptcy in response to tighter credit. We show that bankruptcy dampens the effect of tighter credit on aggregate consumption on impact. This is because it allows borrowers to sustain consumption against severe financial distress. However, by leading to consumers’ exclusion from the credit market for a certain period, bankruptcy also reduces their ability to smooth consumption over time, implying a slower recovery. The bankruptcy code establishes how costly it is to default, and, thus, plays a crucial role in determining consumers’ bankruptcy decisions and in shaping consumption dynamics. We quantify that the 2005 BAPCPA reform, by making filing for bankruptcy more costly, worsened the negative welfare effects of the subsequent credit tightening.
    JEL: E2 E5 G1
    Date: 2019
  2. By: Dimitrios Anastasiou (Athens University of Economics and Business and Alpha Bank); Zacharias Bragoudakis (Bank of Greece); Stelios Giannoulakis (Athens University of Economics and Business)
    Abstract: We link senior banks loan officers’ responses regarding their decisions for bank credit standards, from successive surveys from the European Bank Lending Survey to investigate two important issues. First, we examine the relationship between bank credit standards (CS) and perceived and actual financial crisis. Second, we investigate whether the notion of the self-fulfilling prophecy is applicable in the case of the 2008 global financial crisis. In particular, the second main research question that we try to answer is whether the perceived crisis (as implied by the Google search query “financial crisis”) contributed to the acceleration of the outburst of the actual crisis. We find that both perceived and actual financial crisis affect senior bank loan officers’ credit standards, with the actual crisis having the greatest impact. These results are consistent both in the short and in the long run. Finally, by putting forward a binary choice model we find sufficient evidence to support the Self-Fulfilling Prophecy notion.
    Keywords: Credit Standards; Financial Crisis; Google Trends; Crisis Sentiment; Self-Fulfilling Prophecy.
    JEL: C51 E30 E32 E44 E51 G01 G21
    Date: 2020–01
  3. By: Acharya, Viral V.; Imbierowicz, Björn; Steffen, Sascha; Teichmann, Daniel
    Abstract: We investigate the transmission of central bank liquidity to bank deposits and loan spreads in Europe over the period from January 2006 to June 2010. We find evidence consistent with an impaired transmission channel due to bank risk. Central bank liquidity does not translate into lower loan spreads for high-risk banks for maturities beyond one year, even as it lowers deposit spreads for both high-risk and low-risk banks. This adversely affects the balance sheets of highrisk bank borrowers, leading to lower payouts, capital expenditures and employment. Overall, our results suggest that banks' capital constraints at the time of an easing of monetary policy pose a challenge to the effectiveness of the bank-lending channel and the central bank's lender-of- last-resort function.
    Keywords: Central bank liquidity,Monetary policy transmission,Corporate deposits,Financial crisis,Lender of last resort,Loans,Real effects
    JEL: E43 E58 G01 G21
    Date: 2019
  4. By: Kauko, Karlo; Tölö, Eero
    Abstract: Indicators based on the ratio of credit to GDP have been found to be highly useful predictors of banking crises. We study the difference in this ratio as an early warning indicator. We test a large number of different versions of the differenced credit-to-GDP ratio with data on Euro area members. The optimal time interval of the difference is about two years. Using the moving average of GDP instead of the latest annual data has little impact on forecasting performance. The indicator is a particularly promising choice at relatively short forecasting horizons, such as two or three years.
    Keywords: banking crises,early warning indicators,differenced relative credit,credit intensity,countercyclical capital buffer
    JEL: G01 G17 G28
    Date: 2019
  5. By: Christophe GODLEWSKI (LaRGE Research Center, Université de Strasbourg); Bulat SANDITOV (Université Paris-Saclay, Univ Evry, IMT-BS, LITEM)
    Abstract: We study the influence of financial institutions’ network on private debt renegotiation outside of distress. Lenders with a network-central position have access to superior private information, are more experienced and trustworthy and have a greater reputational capital. Using a large sample of more than 10.000 loans issued in 25 European countries we find that network-central lenders have a significant influence on the renegotiation process. Such lenders increase the likelihood of renegotiation, the number of renegotiation rounds, and the number of amendments to the loan agreement. Our findings survive multiple robustness checks and confirm that access to superior information, greater experience, reputation, and trust encourages private debt renegotiation.
    Keywords: financial contracts, bank loan, renegotiation, syndicated lending, social network analysis, lender network, lender centrality.
    JEL: G21 G24 G32 G34
    Date: 2020
  6. By: Mittal, Amit; Garg, Ajay Kumar
    Abstract: The paper aims to recover the critical role of banks in defining the relationship between Financial Development and growth. We hypothesize that Banks can positively motivate templatized GDP growth. A System GMM estimation of GDP growth in a sample of high growth emerging markets from Asia investigates if bank stocks contain information beyond the monetary and banking aggregates.
    Keywords: Banks, Economic Growth, Asia, Emerging Markets, GMM system
    JEL: C23 F02 F63 F65 G01 G14 G21 G28 G3 G30
    Date: 2018–12–31
  7. By: Jokivuolle, Esa; Virén, Matti
    Abstract: We provide preliminary evidence of potential risk reduction benefits from banks’ loan portfolio diversification cross-border within the Euro area. Using aggregate data on banking sector cor-porate loan losses for each Euro area member-state, our estimates suggest that the static diversification benefit could be substantial. The minimum capital needed to withstand the max-imum annual loss from a hypothetical fully diversified Euro area bank loan portfolio over the period 2001-2017 would have been only 40 % of the total capital needed to withstand the maximum losses on a country by country basis. We also calibrate the country-specific loan loss distributions and the Euro area portfolio’s loss distribution to the Vasicek (2002) model, which underlies the Basel framework’s Internal Ratings Based Approach. We find that the im-plied asset correlation parameter of a median country portfolio is about twice as large as that of the fully diversified Euro area portfolio.
    Keywords: pankit,luotot,euroalue
    Date: 2019
  8. By: Betz, Frank; Ravasan, Farshad R.; Weiss, Christoph T.
    Abstract: Using panel data on Egyptian firms to explore cyclical and structural determinants of access to finance, we find that firms with more educated and more experienced managers are more likely to open a checking account, often a prerequisite for obtaining credit. Firms that started operating in the informal sector before registering are less likely to engage with the banking system. Exploiting data on the location of firms and bank branches, we also show that firms located in areas with a greater presence of banks that invest more in government debt are more likely to be credit constrained due to crowding out of the private sector.
    Keywords: financial constraints,crowding out,managerial skills
    JEL: G21 O15 O17
    Date: 2019
  9. By: Charles Yuji Horioka (Research Institute for Economics and Business Administration, Kobe University, Osaka University, Asian Growth Research Institute, and National Bureau of Economic Research); Yoko Niimi (Faculty of Policy Studies, Doshisha University, and Asian Growth Research Institute, Japan)
    Abstract: This paper shows, using data from the Family Income and Expenditure Survey, that housing credit has become increasingly available over time in Japan, especially since 2000, and that this has made it easier for Japanese households to purchase housing and enabled them to do so at an earlier age. However, it also shows that the greater availability of housing credit has increased households' housing loan repayment burden, which has resulted in their cutting back on their other consumption expenditures and created the potential for retirement insecurity. Another concern is that the increasing availability of housing credit has been accompanied by a pronounced shift from fixed-rate to variablerate housing loans. This is cause for concern given the low level of financial literacy that prevails among the Japanese population and the likelihood that interest rates on variablerate housing loans will be raised sooner or later as monetary policy is tightened.
    Keywords: Homeownership; Housing credit; Housing loans; Mortgages; Household debt; Household liabilities
    JEL: D14 E21 R21
    Date: 2020–01
  10. By: Zhang, Hanzhe (Michigan State University, Department of Economics); Hu, Yunzhi (Kenan-Flagler Business School, University of North Carolina, Chapel Hill, NC)
    Abstract: How should the government effectively provide liquidity to banks during periods of financial distress? During the 2008-2010 crisis, banks avoided borrowing from the Fed's long-standing discount window (DW), but actively borrowed and sometimes paid a higher interest in its special monetary program, the Term Auction Facility (TAF), although both programs had the same borrowing requirements. We use a dynamic adverse selection model with endogenous borrowing stigma costs to explain how the combination of the DW and TAF increased banks' borrowing and willingness to pay for loans from the Fed. Using micro-level data on DW borrowing and TAF bidding from 2007 to 2010, we confirm our theoretical predictions about the financial condition of banks in different facilities.
    Keywords: lending of last resort; discount window stigma; Term Auction Facility; adverse selection
    JEL: D44 E52 E58 G01
    Date: 2020–01–23
  11. By: Imène Berguiga (ERUDITE research team, IHEC, University of Sousse, Tunisia); Philippe Adair (ERUDITE research team, University Paris Est Créteil, France)
    Abstract: A pooled sample of 3,075 Micro, Small, and Medium-sized Enterprises (MSMEs) is designed as for Egypt, Morocco and Tunisia from the World Bank Enterprises Survey (WBES) as of 2013. The adjusted sample complies with international standards, although it does not remove all the biases encapsulated within the WBES. A subsample of 709 MSMEs applied for a loan on the demand side, including those that were granted a loan on the supply side and those that were rejected by financial institutions. The absence of Financial inclusion and lack of Collateral are the main reasons for this imbalance. A binary logit model including interaction variables addresses both the demand and the supply side. Salient findings on the demand side are that the characteristics of MSMEs -Size, Age, Registration and Financial inclusion influence loan demand, whereas the characteristics of managers and the Interest rate have no impact. Conversely, the characteristics of MSMEs play no role upon loan supply, whereas Financial inclusion and Collateral exert a major impact on the supply side. There is a mismatch as for loan supply from microfinance according to the microfinance industry vs. the WBES data source.
    Date: 2019–09–20
  12. By: Shuonan Zhang (Portsmouth Business School)
    Abstract: In this paper, we build and estimate a DSGE model to study how state-owned enterprises (SOEs) and entrusted lending affect growth and business cycles in China. Our model is featured SOEs being bank-favoured firms as well as policy tools, and more productive private firms (POEs) who can borrow from SOEs through entrusted lending. Our findings suggest SOEs dampen output volatility at the cost of TFP volatility. As policy tools, SOEs cause the expense larger than the dampening effect while a reverse case is found for SOEs being bank-favoured firms. In contrast, entrusted lending could dampen variations of both output and TFP by reallocating credits between SOEs and POEs, hence mitigating the cost of SOEs. Focusing on the recent growth slowdown in China, we further show that entrusted lending was conducive to both economic growth and TFP growth by mitigating capital misallocation.
    Keywords: State-owned Enterprises, Shadow Lending, Resource Allocation, Financial Friction, Business Cycles
    JEL: C32 E32 E44
    Date: 2020–01–17
  13. By: Mutarindwa, Samuel; Schäfer, Dorothea; Stephan, Andreas
    Abstract: This paper links banking systems development to the colonial and legal history of African countries. Specifically, we investigate the impact of differing legal traditions on the development of existing investor and creditor protection, and on African banking systems. Based on a sample of 40 African countries from 2000 to 2016, our empirical findings show a significant dependence of current financial institutions on the legal origin and the colonization type. Findings also reveal that current legal financial institutions are not the major determinants of banking system development, whereas institutional and regulatory quality significantly matter for banking system development in both common and civil law countries. Strong creditor rights reduce the cost of banking in African countries.
    Keywords: Legal origins,colonial history,financial institutions,banking systems,Hausman-Taylor estimation
    JEL: G21 G38 G39 K40
    Date: 2020
  14. By: Louis Abraham (X - École polytechnique); Dominique Guegan (UP1 - Université Panthéon-Sorbonne, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, University of Ca’ Foscari [Venice, Italy])
    Abstract: Libra was presented as a cryptocurrency on June 18, 2019 by Facebook. On the same day, Facebook announced plans for Calibra, a subsidiary in charge of the development of an electronic wallet and financial services. In view of the primary risk of sovereignty posed by the creation of Libra, the Central Banks quickly took very clear positions against the project and adressed a lot of questions to the responsible of the project focusing on regulation aspects and national sovereignty. The purpose of this paper is to provide a holistic analysis of the project to encompass several aspects of its implementation and the issues it raises. We address a set of questions that are part of the cryptocurrency environment and blockchain technology that supports the Libra project. We identify the main risks considering at the same time: political risk, financial risks, economical risks, technological risks and ethics focusing on the governance of the project based on two levels: one for the Association and the other for the Libra Blockchain. We emphazise the difficulty to regulate such a project as soon as it will depend on several countries whose legislations are very different. The future of this kind of project is discussed through the emergence of the Central Bank Digital Currencies.
    Keywords: Risk,Regulation,Libra,Blockchain Protocol,Centrel Bank Digital Currency,Cryptocurrency,Governance
    Date: 2019–10
  15. By: Victor Gorshkov (Faculty of International Liberal Arts, Kaichi International University)
    Abstract: Russia’s banking sector has increasingly become more nationalized and monopolized in recent years as the result of the Central Bank of Russia’s policies. In the present paper, we have demonstrated how policies of the Bank of Russia since 2013 have enhanced the level of nationalization and monopolization of Russia’s banking sector and have provided even more favorable conditions for state-controlled banks. The paper outlined the ‘clearance campaign’ of the Central Bank of Russia and summarized major disturbing trends, such as the increased amount of license revocations, the split within the Association of Russian banks, enhanced state support towards state-controlled banks, that are reshaping the institutional structure of Russia’s banking sector. The strengthening of supervisory and regulatory functions of the Bank of Russia can be viewed as a positive sign as they help create the healthy environment within the sector and aim to establish market discipline, however, current policies simultaneously cause significant market distortions and further suppress competition.
    Keywords: Russia, state, banking sector
    JEL: P29 P52 O16
    Date: 2019–11
  16. By: Ngasuko, Tri Achya
    Abstract: The government tries to increase financial inclusion by channeling various social assistance in non-cash, namely through bank accounts, but the results are still not encouraging. Penetration through the supply side, which is also an alternative, is to introduce the mechanism of banking products via the internet, or internet banking. Internet banking is believed to contribute more in increasing financial inclusion in Indonesia. Several studies with the case of Indonesia try to see the effect of demographic factors on a person's desire to use internet banking. However, it is still on a small sample scale. Using 2018 Susenas data, this paper will try to fill the knowledge gap about the extent of the use of internet banking by the Indonesian people on a broader scale, namely at the national level. Also, this paper tries to identify the demographics of internet banking users in Indonesia. This study uses secondary data from 2018 Susenas released by the Central Statistics Agency (BPS). The results of the study revealed that internet banking users by the adult community were still around 23.41%. Furthermore, using the logit model method, this study answers that demographic characteristics such as age, level of education, male gender, occupational status, and location of individuals in urban areas influence positively and significantly on individual decisions to use internet banking.
    Keywords: Financial Inclusion, Internet banking, Susenas 2018
    JEL: D14 G21 G28
    Date: 2019–12–01
  17. By: Simone Giansante (University of Bath - School of Management); Mahmoud Fatouh (University of Essex; Bank of England); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR))
    Abstract: We investigate the impact of the Bank of England’s asset purchase program (APP) on the composition of assets of UK banks, and to the implications for the real economy, using a unique database on the program. The identification of banks that receives deposits (QE banks) injections by the program as well as the magnitude of these injections provides the ideal empirical design for a difference-in-difference matching exercise. We find no evidence that suggests QE boosted bank lending to the real economy. The overall reduction of retail lending was more pronounce for treated (QE) banks than for the control group. QE banks reallocated their assets towards lower risk weighted investments, such as government securities and reserves, as confirmed by the increased sensitivity of their equity returns on peripheral EU bond returns. Our findings suggest that risk weighted based capital constraints can limit the effectiveness of expansionary unconventional monetary policies and provide incentives on carry trade activities.
    Keywords: monetary policy, quantitative easing, bank lending
    JEL: E51 G21
    Date: 2019–09

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