nep-cfn New Economics Papers
on Corporate Finance
Issue of 2015‒01‒26
five papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. What Drives Bank Funding Spreads? By King, Thomas B.; Lewis, Kurt F.
  2. Loan Sales and Bank Liquidity Risk Management: Evidence from a U.S. Credit Register By Irani, Rustom M.; Meisenzahl, Ralf R.
  3. Transitions in the Stock Markets of the US, UK, and Germany By Matthias Raddant; Friedrich Wagner
  4. Sovereigns and banks in the euro area: a tale of two crises By Marta Gómez-Puig; Manish K. Singh; Simón Sosvilla-Rivero
  5. The effects of capital on bank lending in EU large banks – The role of procyclicality, income smoothing, regulations and supervision By Malgorzata Olszak; Mateusz Pipien; Sylwia Roszkowska; Iwona Kowalska

  1. By: King, Thomas B. (Federal Reserve Bank of Chicago); Lewis, Kurt F. (Board of Governors of the Federal Reserve System)
    Abstract: We use matched, bank-level panel data on Libor submissions and credit default swaps to decompose bank-funding spreads at several maturities into components reflecting counterparty credit risk and funding-market liquidity. To account for the possibility that banks may strategically misreport their funding rates in the Libor survey, we nest our decomposition within a model of the costs and benefits of lying. We find that Libor spreads typically consist mostly of a liquidity premium and that this premium declined at short maturities following Federal Reserve interventions in bank funding markets. At longer maturities, credit risk explains much of the time variation in Libor, reflecting in part fluctuations in the degree to which default risk is priced in the interbank market. Our results are consistent with banks both under- and over-reporting their funding costs during the crisis but suggest that the incidence of this behavior may have subsequently declined.
    Keywords: LIBOR; liquidity; credit risk; misreporting
    JEL: E43 E58 G21
    Date: 2014–11–13
  2. By: Irani, Rustom M. (University of Illinois at Urbana-Champaign); Meisenzahl, Ralf R. (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: We examine the impact of banks' liquidity risk management on secondary loan sales. We track the dynamics of bank loan share ownership in the secondary market using data from the Shared National Credit Program, a credit register of syndicated bank loans administered by U.S. regulators. We analyze the 2007-2009 financial crisis as a market-wide liquidity shock and control for loan demand using a loan-year fixed effects approach. We find that banks with greater reliance on wholesale funding at the onset of the crisis were more likely to exit loan syndicates during the crisis. Our analysis identifies the importance of bank liquidity risk management as a motivation for loan sales, in addition to the credit risk transfer motive emphasized in prior literature.
    Keywords: Bank risk management; financial crisis; loan sales; wholesale funding
    JEL: G01 G21 G23
    Date: 2014–10–28
  3. By: Matthias Raddant; Friedrich Wagner
    Abstract: In this paper we analyze transitions in the stock markets of the US, the UK, and Germany. For all this markets we find that while the markets were focused on stocks from the IT and technology sector around the year 2000, this focus has vanished and the markets have mostly moved towards a focus on stocks from the financial sector. This development is paralleled by changes in the returns distributions and the tail exponent. We show that we can extend the concept of beta values to systematically describe a risk measure for stocks from different sectors of the economy. This slowly varying sector specific risk measure describes ordered states in the market and identifies sectors which show concentration of market risk
    Keywords: stock price correlations - financial risk - CAPM
    JEL: G11 G12
    Date: 2014–12
  4. By: Marta Gómez-Puig (Department of Economic Theory - Universitat de Barcelona); Manish K. Singh (Department of Economic Theory, Universitat de Barcelona); Simón Sosvilla-Rivero (Department of Quantitative Economics, Universidad Complutense de Madrid)
    Abstract: This study attempts to identify and trace inter-linkages between sovereign and banking risk in the euro area. To this end, we use an indicator of banking risk in each country based on the Contingent Claim Analysis literature, and 10-year government yield spreads over Germany as a measure of sovereign risk. We apply a dynamic approach to testing for Granger causality between the two measures of risk in 10 euro area countries, allowing us to check for contagion in the form of a significant and abrupt increase in short-run causal linkages. The empirical results indicate that episodes of contagion vary considerably in both directions over time and within the different EMU countries. Significantly, we find that causal linkages tend to strengthen particularly at the time of major financial crises. The empirical evidence suggests the presence of contagion, mainly from banks to sovereigns.
    Keywords: sovereign debt crisis, banking crisis, Granger-causality, time-varying approach, “distance-to-default”, euro area.
    JEL: C22 E44 G01 G13 G21
    Date: 2015–01
  5. By: Malgorzata Olszak (University of Warsaw, Faculty of Management); Mateusz Pipien (Cracow University of Economics, Economic Institute, National Bank of Poland); Sylwia Roszkowska (Faculty of Economic and Social Sciences, University of £ódŸ, National Bank of Poland); Iwona Kowalska (University of Warsaw, Faculty of Management)
    Abstract: This paper aims to find out what is the impact of bank capital ratios on loan supply in the EU and what factors explain potential diversity of this impact. Applying Blundell and Bond (1998) two step GMM estimator, we show that, in the EU context, the role of capital ratio for loan growth is stronger than previous literature has found for other countries. Our study sheds some light on whether procyclicality of loan loss provisions and income smoothing with loan loss provisions contribute to procyclical impact of capital ratio on loan growth. We document that loan growth of banks that have more procyclical loan loss provisions and that engage less in income smoothing is more sensitive to capital ratios. This sensitivity is slightly increased in this sample of banks during contractions. Moreover, more restrictive regulations and more stringent official supervision reduce the magnitude of effect of capital ratio on bank lending. Taken together, our results suggest that capital ratios are important determinant of lending in EU large banks.
    Keywords: loan supply, capital crunch, procyclicality of loan loss provisions, income smoothing, bank regulation, bank supervision
    JEL: E32 G21 G28 G32
    Date: 2014–12

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