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on Corporate Finance |
| By: | Michele Fratianni (Indiana University, Kelly School of Business, Bloomington US, Univ. Plitecnica Marche and MoFiR); Francesco Marchionne (Nottingham Trent University, Division of Economics) |
| Abstract: | This paper examines how banks around the world have resized and reallocated their earning assets in response to the subprime and sovereign debt crises. We focus especially on the interaction between sovereign debt and the bank asset allocation process. After the crisis we observe a general substitution away from loans and in favor of securities. Our econometric findings corroborate that banks have readjusted the composition of their assets and the overall regulatory credit risk by substituting securities for loans. Banks, furthermore, have also been sensitive to those variables that are of direct interest to the regulator. The picture that emerges is a mutual protection pact regime, in which high-debt governments exert pressure on banks-- either through the regulatory system or through moral suasion-- to privilege the purchase of government securities over credit to the private sector in exchange for receiving protection against default. |
| Keywords: | crisis, loans, mutual protection pacr, regulator, securities |
| JEL: | G01 G11 G21 G28 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wmofir:100&r=cfn |
| By: | Gerbert Hebbink; Mark Kruidhof; Jan Willem Slingenberg |
| Abstract: | The capital rules that banks have to comply with have become much more stringent since the financial crisis. The financial crisis brought home the fact that the capital buffers of banks were too small to absorb shocks. Financial aid from the state was required on a white scale to avoid more serious consequences for the financial system. In reaction to the crisis, the Basel Committee developed a new regulatory framework to make the banking system more resilient (Basel III). In Europa Basel III is being implemented through the CRD-IV/CRR legislative package. At the heart of the reforms, which should prevent new problems arising at banks, are the stricter rules governing bank capital. |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbocs:1203&r=cfn |
| By: | Xavier Freixas; Kebin Ma |
| Abstract: | This paper reexamines the classical issue of the possible trade-offs between banking competition and financial stability by highlighting different types of risk and the role of leverage. By means of a simple model we show that competition can affect portfolio risk, insolvency risk, liquidity risk, and systemic risk differently. The effect depends crucially on banks' liability structure, on whether banks are financed by insured retail deposits or by uninsured wholesale debts, and on whether the indebtness is exogenous or endogenous. In particular we suggest that, while in a classical originate-to-hold banking industry competition might increase financial stability, the opposite can be true for an originate-to-distribute banking industry of a larger fraction of market short-term funding. This leads us to revisit the existing empirical literature using a more precise classification of risk. Our theoretical model therefore helps to clarify a number of apparently contradictory empirical results and proposes new ways to analyze the impact of banking competition on financial stability. |
| Keywords: | Banking Competition, Financial Stability, Leverage |
| JEL: | G21 G28 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1440&r=cfn |
| By: | S. Tavolaro; F. Visnovsky |
| Abstract: | The SRISK measure is advertised as measuring the recapitalization needed by a financial institution in the event of a financial crisis. It is computed from the estimated reaction of the institution’s share price in the event of a sharp drop in market prices. This indicator relies both on an economic analysis and an econometric model. It is applied to a large set of international and domestic financial institutions, updated regularly and made available online. Although innovative, it stirred naturally debates among academics, supervisors and professionals, highlighting some limitations, in particular when considering the SRISK measure as a supervisory tool. First, the SRISK is based on market return data: consequently, it applies only to listed institutions and is exposed to criticisms as to which extent it can mirror fundamentals. Second, the SRISK seems to lack sound foundations for policy analysis: with a reduced-form approach, conclusions regarding causality are not obvious from an economic point of view. Moreover the SRISK is a conditional measure to an event whose likelihood is not integrated in the framework. Third, empirical analyses of SRISK as a supervisory tool, used for instance to identify systemic financial institutions (SIFIs) or as an early-warning indicator, have shown some limited perspectives. |
| Keywords: | Systemic Risk Measures, Market Data, Financial Monitoring. |
| JEL: | D81 L51 G01 G21 G28 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:decfin:10&r=cfn |
| By: | Yin, Wei (Cardiff Business School); Matthews, Kent (Cardiff Business School) |
| Abstract: | This paper uses a sample of matched data of firms-banks in China over the period 1999-2012 to determine the drivers of firms switching behaviour from one bank relationship to another. The findings conform to the extant literature and therefore indicate that the switching behaviour of Chinese firms is no different to firms elsewhere. The results show that the principal driver of a switching action is the credit needs of the firm and a mixture of firm and bank characteristics. The findings support the extant literature that less opaque firms are able to switch more readily than opaque firms. The results also suggest that banks that develop there fee income services are more effective in locking-in their borrowers. |
| Keywords: | Switching behaviour; Chinese firms; Chinese banks |
| JEL: | G21 L22 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2014/17&r=cfn |