nep-ban New Economics Papers
on Banking
Issue of 2020‒04‒06
fourteen papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. Implications of negative interest rates for the net interest margin and lending of euro area banks By Klein, Melanie
  2. Expropriation risk vs. government bailout: implications for minority shareholders of state-owned banks By Aldy Fariz Achsanta; Laetitia Lepetit; Amine Tarazi
  3. On-Site Inspecting Zombie Lending By Diana Bonfim; Geraldo Cerqueiro; Hans Degryse; Steven Ongena
  4. Determinants of Interest Rates in the P2P Consumer Lending Market: How Rational are Investors? By Andreas Dietrich; Reto Wernli
  5. Expansionary yet different: credit supply and real effects of negative interest rate policy By Margherita Bottero; Enrico Sette
  6. Determinants of the credit cycle: a flow analysis of the extensive margin By Vincenzo Cuciniello; Nicola di Iasio
  7. The impact of unconventional monetary policies on retail lending and deposit rates in the euro area By Boris Hofmann; Anamaria Illes; Marco Jacopo Lombardi; Paul Mizen
  8. FinTech credit: a critical review of empirical research By Nicola Branzoli; Ilaria Supino
  9. Examining the impact on risk when directors are related to minority shareholders in closely-held banks By Thierno Barry; Laetitia Lepetit; Frank Strobel; Thu Tran
  10. Optimally Solving Banks' Legacy Problems By Anatoli Segura; Javier Suarez
  11. Political cycles and bank lending in Russia By Fungáčová, Zuzana; Schoors, Koen; Solanko, Laura; Weill, Laurent
  12. Microfinance and intermediation scale: is still a childhood industry ? By Célestin Mayoukou
  13. Repo market and leverage ratio in the euro area By Luca Baldo; Filippo Pasqualone; Antonio Scalia
  14. Blessing or curse? Government funding of deposit insurance and corporate lending By Delis, Manthos; Iosifidi, Maria; Papadopoulos, Panagiotis

  1. By: Klein, Melanie
    Abstract: This paper explores the impact of low (but) positive and negative market interest rates on euro area banks' net interest margin (NIM) and its components, retail lending and retail deposit rates. Using two proprietary bank-level data sets, I find a positive impact of the level of the short-term rate on the NIM, which increases substantially at negative market rates. As low profitability could hamper the ability of banks to expand lending, I also investigate the impact of the NIM on new lending to the non-financial private sector. In general, the NIM is positively related to lending: When lending is less profitable, banks cut lending. However, at negative rates this effect vanishes. This finding suggests that banks adjusted their business practices when servicing new loans, thereby contributing to higher new lending in the euro area since 2014.
    Keywords: net interest margin,monetary policy,negative interest rates,bank profitability,lending
    JEL: G21 E43 E52
    Date: 2020
  2. By: Aldy Fariz Achsanta (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges); Laetitia Lepetit (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges); Amine Tarazi (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges)
    Abstract: We investigate the implications of government versus private ownership for bank minority shareholders. Specifically, we use unique data to examine whether the stock prices of government-owned and family-owned banks, equally engaged in related lending, differently react to loan announcements. Our empirical findings show that the expected negative market reaction due to minority shareholder expropriation driven by related lending ("grabbing hand" effect), is offset by shareholders' expectations of future support from the government ("helping hand" effect). Positive announcement returns are also larger for new loans to state-owned firms than for those to private firms. Our findings support the view that in countries with weak shareholder protection, shareholders of state-owned banks rationally anticipate expropriation, but are willing to accept it in exchange for higher expectations of government support to state-owned banks and to state-owned firms. JEL Classification: G21, G28
    Keywords: related party transactions,loan announcements,government ownership,Banks
    Date: 2020–03–19
  3. By: Diana Bonfim (Banco de Portugal; Catholic University of Portugal (UCP) - Catolica Lisbon School of Business and Economics); Geraldo Cerqueiro (Catolica-Lisbon SBE); Hans Degryse (KU Leuven, Department Accounting, Finance and Insurance; Centre for Economic Policy Research (CEPR)); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR))
    Abstract: Banks may have incentives to continue lending to “zombie” firms in order to avoid or delay the recognition of credit losses. In spite of growing regulatory pressure, there is evidence that “zombie lending” remains widespread, even in developed countries. We exploit information on a unique series of authoritative on-site inspections of bank credit portfolios in Portugal to investigate how such inspections affect banks’ future lending decisions. We find that following an inspection a bank becomes up to 9 percentage points less likely to refinance a firm with negative equity, implying a halving of the unconditional refinancing probability. Hence, banks structurally change their lending decisions following on-site inspections, suggesting that – even in the age of reg-tech – supervisory “reg-leg” can remain a potent tool to tackle zombie lending.
    Keywords: zombie lending, bank supervision
    JEL: G21 G32
    Date: 2020–02
  4. By: Andreas Dietrich; Reto Wernli
    Abstract: In an ideal world, individuals are well informed and make rational choices. Regulators can fill in to protect consumers, such as retail investors. Online P2P lending is a rather new form of market-based finance where regulation is still in its infancy. We analyze how retail investors price the credit risk of P2P consumer loans in a reverse auction framework where personal interaction is absent. The explained interest rate variance is considerably larger than in comparable studies using bank loan data. Our results indicate that retail investors act rational in this weakly regulated environment. This seems surprising when considering the limited set of information provided to the investor. Factors representing economic status significantly influence lender evaluations of the borrower's credit risk. The explanatory power of loan-specific factors increase as the market for P2P consumer loans matures. Furthermore, we find statistical evidence of some discrimination by the lenders with respect to nationality and gender.
    Date: 2020–03
  5. By: Margherita Bottero (Bank of Italy); Enrico Sette (Bank of Italy)
    Abstract: We show that negative interest rate policy (NIRP) has expansionary effects on bank credit supply— and the real economy —through a portfolio rebalancing channel, and that, by shifting down and flattening the yield curve, NIRP differs from rate cuts just above the zero lower bound. For identification, we exploit ECB’s NIRP and matched administrative datasets— including the credit register— from Italy, severely hit by the Eurozone crisis. NIRP affects banks with higher ex-ante net short-term interbank positions or, more broadly, more liquid balance-sheets. NIRP-affected banks rebalance their portfolios from liquid assets to lending, especially to ex-ante riskier and smaller firms—without higher ex-post delinquencies—and cut loan rates (even to the same firm), inducing sizable firm-level real effects. By contrast, there is no evidence of a retail deposits channel associated with NIRP.
    Keywords: negative interest rates, portfolio rebalancing, bank lending channel of monetary policy, liquidity management, Eurozone crisis
    JEL: E52 E58 G01 G21 G28
    Date: 2020–03
  6. By: Vincenzo Cuciniello (Bank of Italy); Nicola di Iasio (ECB)
    Abstract: We use monthly data on individual loans from the Italian Credit Register over the period from 1997 to 2019 and show that bank credit expansions in the non-financial private sector are mostly explained by variations in the extensive margin calculated either in credit flows or headcount of new borrowers. We then build on a flow approach to decompose changes in the net creation of borrowers into gross flows across three states: (i) borrowers, (ii) applicants and (iii) others (neither debtors nor applicants). The paper investigates the macroeconomic dimension of these gross flows and documents three key cyclical facts. First, entries in the credit market by new obligors (`inflows') account for the bulk of volatility in the net creation of borrowers. Second, the volatility of borrower inflows is two times as large as the volatility of obligors exiting the credit market (`outflows'). Third, borrower inflows are highly pro-cyclical, lead the economic cycle, and their fluctuations are mainly driven by the probability of getting a loan from new banks. We read these results in light of the macrofinance literature on search frictions and on competition with lender-lender informational asymmetries. Overall, our findings support theoretical predictions of these models, but search frictions seem to play a major role in shaping movements along the extensive margin.
    Keywords: borrower, applicant, gross flows, business cycle, credit cycle
    JEL: E51 E32 E44
    Date: 2020–03
  7. By: Boris Hofmann; Anamaria Illes; Marco Jacopo Lombardi; Paul Mizen
    Abstract: This paper investigates the overall effect of the European Central Bank's (ECB's) unconventional monetary policies (UMPs) implemented since 2008 on euro area bank retail lending and deposit rates offered to households and non-financial corporations. To do so, we use an analytical approach that combines the estimation of the cumulative effects of UMP on key money and capital market rates via daily event study analysis with monthly retail rate pass-through estimation. In counterfactual simulations, we quantify the full effect of the ECB's UMPs implemented since 2008 on retail lending and deposit rates and systematically explore differences in their effects over time and across euro area countries. Our results show that the ECB's UMPs - particularly the measures launched since 2012 - significantly lowered retail lending and deposit rates in Germany, France, Spain and in particular in Italy. The impact on banks' intermediation margins through retail lending-deposit rate spreads turns out to be not clean-cut, with significant compressions prevailing only in Germany and Italy.
    Keywords: retail rates, pass-through, unconventional monetary policy, European Central Bank
    JEL: E43 E52 G21
    Date: 2020–03
  8. By: Nicola Branzoli (Bank of Italy); Ilaria Supino (Bank of Italy)
    Abstract: FinTech credit has attracted significant attention from academics and policymakers in recent years. Given its growing importance, in this paper we provide an overview of the empirical research on FinTech credit to households and non-financial corporations (NFCs). We focus on three broad topics: i) the factors supporting the development of innovative business models for credit intermediation, such as marketplace lending; ii) the benefits of new credit risk assessment data and methods; iii) the implications of these innovations for access to credit. Three main messages emerge from the literature. First, the growth of lenders with innovative business models is mainly driven by the degree of local economic development and of competition in the banking sector. Second, new data and methods can improve traditional credit risk models because they are particularly helpful in screening opaque borrowers, such as those with scant credit history. Third, FinTech borrowers generally lack (or have limited) access to finance and tend to be riskier than traditional bank borrowers.
    Keywords: artificial intelligence, credit, digital technologies, FinTech, marketplace lending
    JEL: G21 G22 G23 G24
    Date: 2020–03
  9. By: Thierno Barry (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges); Laetitia Lepetit (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges); Frank Strobel (University of Birmingham [Birmingham]); Thu Tran (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges)
    Abstract: Using a panel of European banks with a controlling shareholder over the period 2003-2017, we examine whether the presence of directors related to minority shareholders on the board has an impact on bank risk. We find that the inclusion of minority shareholder related directors results in lower risk. Our results depend crucially on whether or not such directors have financial expertise and a decisive position on the board, while the observed decrease in risk does not depend on their political connections. To identify the relationship, we use a dynamic generalized method of moments approach to estimation.
    Keywords: Bank governance,bank risk,minority shareholder related directors,financial expertise
    Date: 2020–03–19
  10. By: Anatoli Segura (Bank of Italy); Javier Suarez (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: We characterize policy interventions directed to minimize the cost to the deposit guarantee scheme and the taxpayers of banks with legacy problems. Non-performing loans (NPLs) with low and risky returns create a debt overhang that induces bank owners to forego profitable lending opportunities. NPL disposal requirements can restore the incentives to undertake new lending but, as they force bank owners to absorb losses, can also make them prefer the bank being resolved. For severe legacy problems, combining NPL disposal requirements with positive transfers is optimal and involves no conflict between minimizing the cost to the authority and maximizing overall surplus.
    Keywords: Non performing loans, deposit insurance, debt overhang, optimal intervention, state aid.
    JEL: G01 G20 G28
    Date: 2019–04
  11. By: Fungáčová, Zuzana; Schoors, Koen; Solanko, Laura; Weill, Laurent
    Abstract: State-owned banks tend to increase lending before elections for the purpose of boosting the reelection odds of incumbent politicians. We employ monthly data on individual banks to study whether Russian banks increased their lending before presidential elections during 2004–2019, a period covering four presidential elections. In contrast to the literature, we find that both state-owned and private banks increased their lending before presidential elections. This result stands for all loans, as well as separately for firm and household loans. The pre-election lending surge is followed by a deterioration of loan quality the following year, indicating the lending increase was not driven by higher growth prospects or some positive economic shock. The effect is substantially greater for large banks and banks more involved in lending activities. Our main finding that all types of banks in Russia increase their lending before presidential elections supports the view that the authorities in an electoral autocracy like Russia can influence lending of both private and state-owned banks for political reasons.
    JEL: G21 P34
    Date: 2020–03–25
  12. By: Célestin Mayoukou (CREAM - Centre de Recherche en Economie Appliquée à la Mondialisation - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université - IRIHS - Institut de Recherche Interdisciplinaire Homme et Société - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université)
    Abstract: L'industrie de la microfinance connait depuis 30 ans une mutation perpétuelle. L'échelle de son intermédiation s'est progressivement élargie. Centrée à ses débuts sur des acteurs du secteur informel ; cette activité touche désormais une large clientèle englobant même des PME exportatrices. Son mode de refinancement s'étend désormais au marché international des capitaux, puisque des Fonds d'investissement et des Banques multinationales alimentent les IMF en capitaux. La digitalisation et les plateformes de crédits en ligne ont aussi fait leur entrée dans la microfinance. Cette industrie n'est plus désormais une industrie dans l'enfance Mots clés : Microfinance, intermédiation, industrie microfinancière. Code JL. G21, G23, F34 Abstract
    Abstract: Microfinance industry is changing progressively during this last thirty years. The depth of is intermediation is growing. Serving at the beginning of the informal customers ; he serves since several years yet, small and medium enterprise (SME). Multinational banks and international funds had also entering the microfinance industry by granting loans to microfinance institutions. The digital innovation had disrupted the sector who become adult. Key Words: Microfinance, intermediation, microfinance industry JL Code. G21, G23, F34.
    Keywords: Microfinance,intermediation,microfinance industry,industrie microfinancière
    Date: 2019–05–09
  13. By: Luca Baldo (Bank of Italy); Filippo Pasqualone (Bank of Italy); Antonio Scalia (Bank of Italy)
    Abstract: This paper provides new evidence on the effect of the leverage ratio (LR) on repo market activity in the euro area. The share of trades with central counterparties has increased in recent years as a result of greater regulatory efficiency. After controlling for factors that may affect participation in the repo market, banks are found to exert market power towards non-bank financial institutions by applying lower rates and larger bid-ask spreads. While there is a permanent rate differential between transactions conducted via CCPs – which can easily be netted for LR purposes - and those with non-banks, on average this differential and the bid-ask spread do not increase at quarter-end. The widening of the bid-ask spread at year-end is sizeable, but this is not necessarily due to the LR, since other important factors enter into play. This evidence lessens the concern that the additional LR reporting and disclosure requirements based on daily averages, which will take effect on June 2021, might cause a contraction in repo volume and greater rate dispersion.
    Keywords: repo market, leverage ratio, monetary policy transmission
    JEL: E4 E5 G2
    Date: 2020–03
  14. By: Delis, Manthos; Iosifidi, Maria; Papadopoulos, Panagiotis
    Abstract: A key policy to limit the possibility of bank runs is an explicit deposit insurance scheme, which can be either privately or government funded. Using syndicated loans from 63 countries during the period 1985–2016, we study the effect of government involvement in deposit insurance funding on price and non-price characteristics of loans. We show that changes from purely private-funded to either government-funded or jointly funded deposit insurance increase all-in-spread-drawn by approximately 4.6%, further increase loan fees, decrease loan maturity, and increase the use of performance pricing provisions. Our findings are consistent with the moral hazard problem behind government-funded deposit insurance schemes.
    Keywords: Deposit insurance; Government or private funding; Lending terms; Syndicated loans
    JEL: G21 G28
    Date: 2020–03–18

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