nep-cfn New Economics Papers
on Corporate Finance
Issue of 2014‒10‒17
four papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Cross country linkages as determinants of procyclicality of loan loss provisions – empirical importance of SURE specification By Malgorzata A. Olszak; Mateusz Pipien
  2. Stress-testing banks’ corporate credit portfolio By O. de Bandt; N. Dumontaux; V. Martin; D. Médée
  3. Collateral Registries for Movable Assets: Does Their Introduction Spur Firms’ Access to Bank Finance? By Inessa Love; Maria Soledad Martinez Peria; Sandeep Singh
  4. Drivers of Structural Change in Cross-Border Banking since the Global Financial Crisis By Franziska Bremus; Marcel Fratzscher

  1. By: Malgorzata A. Olszak (Faculty of Management,University of Warsaw); Mateusz Pipien (Cracow University of Economics, Economic Institute, National Bank of Poland)
    Abstract: Procyclicality in banking may result in financial instability and therefore be destructive to economic growth. The sensitivity of different banking balance sheet and income statement variables to the business cycle is diversified and may be prone to increasing integration of financial markets. In this paper we address the problem of the influence of financial integration on the transmission of economic shocks from one country to another and consequently on the sensitivity of loan loss provisions to the business cycle. We also aim to find out whether earnings management hypotheses are supported throughout the whole business cycle. Application of the SURE approach to 13 OECD countries in 1995-2009 shows that the procyclicality of LLP is statistically significant almost in thewhole sample of countries. Independent of the econometric specification, the earnings management hypotheses are hardly supported.
    Keywords: loan loss provisions, procyclicality, earnings management
    JEL: E32 G21 G28
    Date: 2013–09
  2. By: O. de Bandt; N. Dumontaux; V. Martin; D. Médée
    Abstract: The paper describes the methods used by the French Banking Supervision Authority (ACP) to run stress tests for the corporate credit portfolio, through credit migration matrices (or transition matrices). This approach is currently used for “top-down” stress tests exercises. Developed for Basel II, it is still relevant under the Basel III framework. It includes sufficient flexibility to accommodate the severe crisis period observed recently. The paper introduces the basic model underlying the approach, largely based on Merton’s model; it then describes carefully the different steps for its practical implementation, providing hints on how it can be extended to other banking sectors. Finally the paper comments a few outputs of a stress testing exercise.
    Keywords: credit risk, corporate, stress tests, migration matrices.
    JEL: G21 G28 G32 E44
    Date: 2013
  3. By: Inessa Love (University of Hawai‘i at Manoa); Maria Soledad Martinez Peria (Development Research Department of the World Bank); Sandeep Singh (Consultant at the World Bank)
    Abstract: Using firm-level surveys for up to 73 countries, this paper explores the impact of introducing collateral registries for movable assets on firms' access to bank finance. It compares firms’ access to bank finance in seven countries that introduced collateral registries for movable assets against three control groups: firms in all countries that did not introduce a registry, firms in a sample of seven countries matched by location and income per capita to the countries that introduced registries for movable assets, and firms in countries that undertook other types of collateral reforms but did not set up registries for movable assets. Overall, the analysis finds that introducing collateral registries for movable assets increases firms' access to bank finance. There is also evidence that this effect is larger among smaller and younger firms.
    Keywords: movable collateral, access to bank finance
    JEL: K20 G21 G30
    Date: 2014–09
  4. By: Franziska Bremus; Marcel Fratzscher
    Abstract: The paper analyzes the effects of changes to regulatory policy and to monetary policy on cross-border bank lending since the global financial crisis. Cross-border bank lending has decreased, and the home bias in the credit portfolio of banks has risen sharply, especially among banks in the euro area. Our results suggest that expansionary monetary policy in the source countries - as measured by the change in reserves held at central banks - has encouraged cross-border lending, both in euro area and non-euro area countries. Regarding regulatory policy, increases in financial supervisory power or independence of the supervisory authorities have encouraged credit outflows from source countries. The findings thus underline the importance of regulatory arbitrage as a driver of cross-border bank flows since the global financial crisis. However, in the euro area, arbitrage in capital stringency was linked to lower cross-border lending since the crisis.
    Keywords: Cross-border bank lending, financial integration, regulation, arbitrage, monetary policy, home bias
    JEL: F30 G11 G15 G28
    Date: 2014

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