Integration in European retail banking: Evidence from savings and lending rates to non-financial corporations

The aim of this paper is to investigate the integration process in the European Union retail banking sector during the period 2003–2011, by analysing deposit and lending rates to non-financial corporations. An important contribution of the paper is the application of the recently developed Phillips and Sul (2007a) panel convergence methodology which has not hitherto been employed in this area. This method analyses the degree as well as the speed of convergence, identifies the presence of club formation, and measures the behaviour of each country's transition path relative to the panel average. In addition, this is the first empirical paper that analyses the impact of the 2008 global financial crisis on the European retail banking integration process. The empirical results point to the presence of convergence in all deposit and lending rates to non-financial corporations up to 2007. In contrast, the null of convergence is rejected in all deposit and credit markets after the onset of the 2008 financial crisis. Although we still find slow convergence in a few sub-clusters of countries, the transition paths become very divergent, with the credit market being far more heterogeneous than the savings market.     

Bank-to-bank lending channel and the transmission of bank liquidity shocks: Evidence from France

Good liquidity is essential for the banking system to function properly and supply credit to the real sector. However, several banks all over the world face large shocks to their liquidity supply due to numerous factors. This study contributes to the literature on the transmission of liquidity shocks by investigating the bank-to-bank lending behavior of French banks during the global financial crisis (2008 and 2009). In addition, we examine the factors strongly influencing the liquidity of the interbank deposits market. First, using a fixed-effects model on a sample of 85 French banks for the period from 2005 to 2010, we find that the deposits channel plays an important role in the transmission of liquidity shocks across the banking system. Second, we use difference-in-difference methodology to study the effects of liquidity shock on bank lending. Our results show that French banks reduced their bank-to-bank lending significantly during the financial crisis period. Moreover, our results suggest that the reduction could have been due to deposit activities.     

Bank performance and convergence during the financial crisis: Evidence from the ‘old’ European Union and Eurozone

This paper investigates the process of banking integration in the EU15 countries and the Eurozone by testing for convergence in bank efficiency among commercial banks. We use a two-step approach: First we estimate efficiency by applying an innovative methodological approach that treats banks’ non-performing loans as an undesirable output. Second, we apply the Phillips and Sul (2007) panel convergence methodology to assess the convergence process in European banking. Our results indicate an overall decline in efficiency and no evidence of group convergence following the financial crisis. However, we find the presence of club formation with typically weak convergence. The heterogeneity displayed by the transition parameters for the individual countries and the notable decrease in competition levels post 2008 highlight the impact of the financial crisis on the integration process.     

Cross-border banking,bank market structures and market power: Theory and cross-country evidence

Patterns in cross-border banking have changed since the global financial crisis. This may affect domestic bank market structures and macroeconomic stability in the longer term. In this study, I theoretically and empirically analyze how different modes of cross-border banking impact bank concentration and market power. I use a two-country general equilibrium model with heterogeneous banks developed by DeBlas and Russ (2010a) to grasp the effect of cross-border lending and foreign direct investment in the banking sector on bank market structures. The model suggests that both cross-border lending and bank FDI mitigate concentration. Empirical evidence from a panel dataset of 18 OECD countries supports the theoretical predictions: higher volumes of bank FDI and of cross-border lending coincide with lower Herfindahl-indexes in bank credit markets.     

Bank productivity growth and convergence in the European Union during the financial crisis

This paper examines the bank productivity growth and integration process for the 28 EU countries during three main phases of the financial crisis: the U.S. subprime crisis (2007–2008), the global financial crisis (2009–2010) and the sovereign debt crisis (2010–2012). We extend the Malmquist Productivity Index by applying an additive two-stage DEA model. This allows us to explore the sources of growth in different stages of production. Furthermore, we assess the integration of European banks by analyzing the β-convergence and σ-convergence of the two-stage Productivity Index. Our results show a productivity growth during the U.S. subprime crisis, but a consistent decline during the global financial crisis. The loss of competitiveness of the European banking system is due to the drop in growth of the performance stage and technical change. Finally, we find a strong convergence pattern during the financial crisis, mainly driven by the catch up process of some Eastern countries and the drop in performance of Western countries.     

Asian financial integration: Global or regional? Evidence from money and bond markets

This paper investigates the degree of global versus regional financial integration in Southeast Asia during the period 2004–2012. We examine integration in the money and bond markets in Asia by employing a covered-interest-parity-based measure of financial integration. The impact of the 2008 financial crisis as well as the recent regional bond initiatives on the integration process of Asian money and bond markets respectively are specifically investigated. Empirically, we adopt the Phillips and Sul (2007) convergence methodology that has not been previously employed to examine the integration process in Asian money and bond markets. We find evidence of both global and regional integration in the money market pre 2008 but once the crisis hit, the process of global integration comes to an abrupt halt. However, regional integration, albeit at a slower pace, is still clearly evident in the post-crisis period. As for the Asian bond market, evidence of both global and regional integration is found but, in comparison, the latter is more convergent post 2008. Regional integration is stronger when interest rates with longer maturity are considered. In addition, we identify some convergent subgroups of countries and this suggests that a multi-tiered style of convergence is present.     

丹麦银行业稳定方案经验借鉴

丹麦银行业是一个资产业务以贷款为主、高度集中且竞争激烈的行业,由于大量中小型银行由农村信用社转制而来,2008年爆发的国际金融危机对其融资问题造成一定的冲击,为稳定国内金融市场,丹麦政府出台了银行业稳定方案。实践表明,该方案的实施在不使用政府资金的前提下,有效解决了银行业的融资问题,保障了金融体系的稳定运行,同时给丹麦政府带来了不菲收益。文章介绍了丹麦银行业稳定方案的主要政策措施,并总结其成功经验。     

The effect of banking crisis on bank-dependent borrowers

We provide causal evidence that adverse capital shocks to banks affect their borrowers’ performance negatively. We use an exogenous shock to the U.S. banking system during the Russian crisis of Fall 1998 to separate the effect of borrowers’ demand of credit from the supply of credit by the banks. Firms that primarily relied on banks for capital suffered larger valuation losses during this period and subsequently experienced a higher decline in their capital expenditure and profitability as compared to firms that had access to the public-debt market. Consistent with an adverse shock to the supply of credit, crisis-affected banks decreased the quantity of their lending and increased loan interest rates in the post-crisis period significantly more than the unaffected banks. Our results suggest that the global integration of the financial sector can contribute to the propagation of financial shocks from one economy to another through the banking channel.     

Euro area banking and monetary policy shocks in the QE era

This paper assesses the effects of monetary policy shocks on the macroeconomy and the euro area banking sector after the global financial crisis. First, financial risk-return indicators of the banking sector based on a compound option-based structural credit risk model are embedded in a large macro-financial quarterly database covering the period 2008Q4–2019Q4. Second, a SFAVAR identifies and estimates the shocks’ responses relating them to the endogenous build-up of banks’ vulnerabilities which are consistent with the internally coherent structure of the credit risk model. By introducing structure in the understanding of banks’ asset-liability management behavior following monetary policy shocks, the research strategy contributes to disentangling results that are often mixed in the empirical literature. The study finds that unconventional monetary policy, in particular the Asset Purchase Program of the European Central Bank, seems to have been more successful than conventional monetary policy in raising output and inflation. The desired boost to bank lending has been muted and loan cyclicality has varied across countries and loan types. The performance of the banking sector following monetary policy shocks can be characterized by a drop in expected return on equity and assets, a relaxation of lending conditions and increased correlation between banks’ assets return and the market return, a mechanism pointing to enhanced risk-taking. While banks’ probabilities of default fall following monetary policy shocks, the price of risk increases. Banks’ net worth rises via higher market capitalization and implied assets value together with lower volatility, despite often incurring more debt. Risk-taking in the banking sector may pose a risk to financial stability, especially if its effects on banks’ vulnerability spread and increase systemic risk. The unintended endogenous build-up of macro-financial vulnerabilities may need to become part of monetary policymaking.     

Banking Relationships and Syndicated Loans during the 2008 Financial Crisis

The research shows that banking relationships are important to lending. However, few studies focus on the banking relationships in syndicated loans, although these loans have became a major source of financing. The last financial crisis clearly shows the impacts of credit rationing and tightening credit conditions, even in the syndicated loans market. We investigate whether banking relationships help firms to benefit from better terms for syndicated loans in a chaotic financial environment. Using a sample of syndicated loans arranged from 2003 to 2008 in North America and Europe, we find that firms with a previously developed relationship with a lead bank obtained a lower spread and a longer maturity during the financial crisis but did not benefit from larger loan facilities.     

宏观审慎政策协调能否抑制国际性银行危机传染？——基于跨境金融关联视角的实证研究

本文基于跨境金融关联视角对宏观审慎政策能否抑制国际性银行危机传染这一重要的理论与实践问题进行了实证研究。选取亚洲金融危机和全球金融危机时期遭受冲击的10个代表性国家作为样本,构建Logit模型和多元回归模型探讨本国及具有金融关联的国家协调实施宏观审慎政策对本国系统性银行危机传染的影响。研究表明,具有金融关联的国家出现金融危机会显著增加本国系统性银行危机的发生概率,具有金融关联的国家实施宏观审慎政策对本国信贷的影响比对房价的影响更明显,本国及具有金融关联的国家协调实施宏观审慎政策会显著降低本国系统性银行危机的发生概率。在调整银行危机指标及考虑贸易关联和流动性风险的影响后,研究结果依然保持稳健。本文的研究结论揭示了加强宏观审慎政策协调有助于维护全球金融稳定,对于中国政策当局强化宏观审慎管理具有极其重要的政策含义。     

信用评级对银行经营的影响——基于国际活跃银行的经验研究

本文采用2007-2010年间国际活跃银行的信用评级数据、宏观行业指数和经营指标等组成面板数据,通过实证检验发现,信用评级及其变动具有显著的融资成本效应和声誉效应,且在危机期间以声誉效应为主;评级机构并没有充分报告银行业的顺周期特征,加剧了金融危机的破坏性;银行业存在网络效应,行业排名提高会降低银行融资成本,且有助于存款增速;金融危机爆发之后,金融市场风险厌恶程度或者市场恐慌指数是影响融资成本的重要因素之一,投资者对负面信息更加敏感。     

Effect of Banking Regulation on Performance: Evidence from Turkey

In this study, we investigate the effect of regulation on banking sector performance in an emerging country context. Consecutive crises in the early 2000s led to three waves of reformist banking regulations in Turkey: (1) the banking sector restructuring program in 2002, (2) limitation of the full deposit insurance system in 2004, and (3) a corporate governance-related banking law in 2005. Results show that these actions had a positive effect on bank lending, asset quality, and profitability. Findings also support the view that the sequence and timing of banking reforms in Turkey acted as a shield against the global financial crisis of 2008.     

Japan’s banking crisis: An event-study perspective

We calculate abnormal stock returns for Japanese non-financial companies around major events associated with the banking crisis (1995–2000), and find that not all companies were equally sensitive to the malaise of the banking sector: the most affected were small, leveraged, low-tech companies with low credit ratings and low market to book ratios. This is consistent with “credit crunch” theories (companies with limited access to financial markets are sensitive to changes in bank lending) and with claims that innovation is rarely financed by bank debt. We do not find much evidence on the alleged misallocation of loans to support ailing bank clients.     

Financial System and Housing Price

The 2007/2008 US financial crisis is related to the securitization of mortgage loans and the housing-price boom and bust. In this article, we test the hypothesis that housing-price change is related to the development of the financial system. Using panel data for 23 countries from 1988 to 2012, we have found that the housing-price growth rate increases as the financial system moves a bank orientation to a market orientation. The policy implication is that the government should beware sudden increases in the capital market relative to the banking sector. Especially, more sophisticated financial supervision with respect to housing-price movement is required when a bank-based financial system progresses quickly to a market-oriented financial system.     

Capital and credit market integration and real economic contagion during the global financial crisis

This study investigates the role of financial integration in the spread of global financial crisis. In particular, this study shows how the effect of the crisis on real business cycle co-movement varied for capital and credit market integration, using a sample of 58 countries in 2001–2013. During the global financial crisis, the United States – the epicenter of the crisis – experienced a severe downturn in the real economy, and other countries followed suit. We find that during the global financial crisis, the business cycle co-movements between the United States and the rest of the world were stronger when the level of capital market integration between them was higher. However, the co-movements were weaker when the level of credit market integration was higher. These findings are robust even when including investment channels, local fundamental factors, endogenous policy responses across countries, and alternative measures for financial integration and business cycle co-movements.     

Explicit deposit insurance design: International effects on bank lending during the global financial crisis✰

Studies find that during the 2007–2009 global financial crisis, loan spreads rose and corporate lending tightened, especially for foreign borrowers (a flight-home effect). We find that banks in countries with explicit deposit insurance (DI) made smaller reductions in total lending and foreign lending, experienced smaller increases in loan spreads, and had quicker post-crisis recoveries. These effects are more pronounced for banks heavily relying on deposit funding. Evidence also reveals that more generous or credible DI design is associated with a stronger stabilization effect on bank lending during the crisis, confirmed by the difference-in-differences analysis based on expansion of DI coverage during the crisis. The stabilization effect is robust to the use of country-specific crisis measures and control of temporary government guarantees.     

A network analysis of global banking: 1978–2010

We analyze the global banking network using data on cross-border banking flows for 184 countries during 1978–2010. We find that the density of the global banking network defined by these flows is pro-cyclical, expanding and contracting with the global cycle of capital flows. We also find that country connectedness in the network tends to rise before banking and debt crises and to fall in their aftermath. Despite a historically unique build-up in aggregate flows prior to the global financial crisis, network density in 2007 was comparable to earlier peaks. This suggests that factors other than connectedness, such as the location of the initial shock to the core of the network, have contributed to the severity of the crisis. The global financial crisis stands out as an unusually large perturbation to the global banking network, with indicators of network density in 2008 reaching all-time lows.     

Interbank market integration, loan rates, and firm leverage

This paper investigates the effect of interbank market integration on small firm finance in the build-up to the 2007-2008 financial crisis. We use a comprehensive data set that contains contract terms on individual loans to 6047 firms across 14 European countries between 1998:01 and 2005:12. We account for the selection that arises in the loan request and approval process. Our findings imply that integration of interbank markets resulted in less stringent borrowing constraints and in substantially lower loan rates. The decrease was strongest in markets with competitive banking sectors. We also find that in the most rapidly integrating markets, firms became substantially overleveraged during the build-up to the crisis.     

The crisis in UK banking

Unparalleled turmoil in the banking system over the past two years has impacted severely on the UK's economic prospects. What was once a profitable, fastgrowing, dynamic and highly innovative banking sector has been publicly humiliated, while its lending capacity has stalled. This article highlights the evolution of the credit crisis in the UK, as the fallout from American subprime lending and the housing market bubble spread rapidly across the Atlantic. Lessons from the crisis and policy recommendations are considered, focusing on rebuilding bank liquidity and capital, strengthening bank supervision and regulation, and improving risk evaluation and risk management practices throughout the banking and financial system.