nep-cfn New Economics Papers
on Corporate Finance
Issue of 2014‒02‒08
two papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. Identifying channels of credit substitution when bank capital requirements are varied By Aiyar, Shekhar; Calomiris , Charles; Wieladek, Tomasz
  2. Investment Opportunity Sets of Real Assets: An International Empirical Study Based on Ownership Types By Ang, James; Knill, April; Mauck, Nathan

  1. By: Aiyar, Shekhar (International Monetary Fund); Calomiris , Charles (Columbia Business School, International Monetary Fund and NBER); Wieladek, Tomasz (Bank of England)
    Abstract: What kinds of credit substitution, if any, occur when changes to banks’ minimum capital requirements induce banks to change their supply of credit? The question is central to the new ‘macroprudential’ policy regimes that have been constructed in the wake of the global financial crisis, under which minimum capital ratio requirements for banks will be employed to control the supply of bank credit. Regulatory efforts to influence the aggregate supply of credit may be thwarted to some degree by ‘leakages’, as other credit suppliers substitute for the variation induced in the supply of credit by regulated banks. Credit substitution could occur through foreign banks operating domestic branches that are not subject to capital regulation by the domestic supervisor, or through bond and stock markets. The UK experience for the period 1998-2007 is ideally suited to address these questions, given its unique regulatory history (UK bank regulators imposed bank-specific and time-varying capital requirements on regulated banks), the substantial presence of both domestically regulated and foreign regulated banks, and the United Kingdom’s deep capital markets. We show that leakage by foreign branches can occur either as a result of competition between branches and regulated banks that are parts of separate banking groups, or because a foreign banking group shifts loans from its UK-regulated subsidiary to its affiliated branch. The responsiveness of affiliated branches is nearly twice as strong. We do not find any evidence for leakages through capital markets. These findings reinforce the need for the type of international co-ordination, specifically reciprocity in capital requirement regulation, which is embedded in Basel III and the European CRD IV directive, which will be gradually phased in starting January 2014.
    Keywords: Macroprudential regulation; credit substitution; leakages
    JEL: G21 G28
    Date: 2014–01–31
  2. By: Ang, James; Knill, April; Mauck, Nathan
    Abstract: This paper is the first, to our knowledge, to make the distinction between the investment opportunity set of real assets versus portfolio securities. We perform a large scale formal investigation of the investment opportunity set in global acquisitions based on ownership type over the period of 1985 – 2012. Compared to private acquirers, government acquirers have a much reduced investment opportunity set. Government acquirers invest in fewer target nations and industries, settle for smaller stakes, invest in countries with lower quality legal institutions and in nations with which political relations are more positive and see a 50% higher deal failure rate.
    Keywords: International; Mergers and Acquisitions; Government ownership
    JEL: F3 F30 G34 G38
    Date: 2014–02–02

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