The ‘Twin Peaks’ model of post-crisis banking supervision

This article examines the effectiveness of the ‘Twin Peaks’ supervision model, in which consumer protection and prudential regulation are carried out by two separate regulatory agencies. We use a dataset from 143 countries for the period of 2004–2011 to find that the Twin Peaks model is associated with a higher quality of banking supervision in terms of the efficiency and stability of financial institutions.     

What is really common in the run-up to banking crises?

Arguing that crises are similar if they are predictable from historical experience, we employ panel logit models to examine similarities in the run-ups to the current global financial crisis and historical banking crises. Asset bubbles are the most common precursors.     

Chinese banking system： Peculiarities in a comparison with Italian case

The analysis of principal data on Chinese banks highlights how they are exposed to credit risk, primarily generated from loans to public companies. Chinese banks have a good capital provision; The analysis of economic data describes a system oriented towards relationship lending; The average profitability per employee shows wide margins of improvement in terms of efficiency and technological equipment. The comparison with the case of Italy, which like China can be considered an economy heavily oriented to banking intermediation, it is useful to highlight some peculiarities of the Chinese banking system.     

Does Islamic banking performance vary across regions? A new puzzle

This article investigates the performance of Islamic banks (IBs) across four different regions (Egypt, the Gulf, the UK and the US) in the aftermath of the subprime crisis. Using daily data and two performance ratio proxies (ROA (Return on Asset) and Tobin Q), we show that the performance of IBs varies significantly from one region to another, with the highest level for regions in the West. This result suggests a new puzzle as application of the same Sharia Board rules and sales of similar products should normally provide comparable performance outcomes for IBs.     

China??s banking system, market structure, and competitive conditions

This paper presents an empirical assessment of the market structure and the competitive conditions of the Chinese banking sector. We applied the Panzar-Rosse H-statistic on the data collected from a panel including 16 most significant Chinese banks for the period 2004–2007. Equilibrium tests and the competitive conditions tests were applied on the data. From the pooled regression in the whole period, we found that the banking sector in China for 2004–2007 was monopolistically competitive. We also show that the Chinese banks were not able to achieve high records of profitability in monopolistically competitive markets.     

Did efficiency of Indian public sector banks converge with banking reforms?

This paper examines the issue of convergence of efficiency levels among Indian public sector banks (PSBs) during the post-reforms period spanning from 1992/1993 to 2005/2006. The empirical results indicate that the majority of PSBs have observed an ascent in technical efficiency during the post-reforms years. Further, the inefficient PSBs have been noted to be catching up with the efficient ones. That is, the banks with low level of efficiency at the beginning of the period are growing more rapidly than the highly efficient banks. In sum, the study confirms a presence of convergence phenomenon in the Indian public sector banking industry.

Is the efficient market hypothesis day-of-the-week dependent? Evidence from the banking sector

In this article, we propose a new hypothesis: that the efficient market hypothesis is day-of-the-week-dependent. We apply the test to firms belonging to the banking sector and listed on the NYSE. We find significant evidence that the efficient market hypothesis is day-of-the-week-dependent. Overall, for only 62% of firms, the unit root null hypothesis is rejected on all the five trading days. We also discover that when investors do not account for unit root properties in devising trading strategies, they obtain spurious profits.     

The efficiency of the Scandinavian banking sector – a wavelet quantile regression analysis

In this article, the Scandinavian housing financing market is analysed in order to determine whether the interest rate price-discovery processes of Denmark, Norway and Sweden are efficient. Based on wavelet quantile regression analysis, we find systematic positive asymmetric price transmission (APT) inefficiencies. We conclude that there is a very high propensity for mortgage lenders to directly increase its customers’ mortgage interest rates subsequently to an increase in its borrowing costs. However, after a corresponding borrowing cost decrease, the same mortgage lenders are very slow to decrease its customers’ mortgage rates. These positive coefficients for so-called APT effects are found in all Scandinavian countries, even if the coefficients for Norway were not statistically significant. Wavelet quantile regression analysis, with a focus on the relevant higher percentiles, is easily motivated since the mortgage rates are adjusted very infrequently. Moreover, wavelet decomposition allows a robust analysis at different time frequency scales, while simultaneously controlling for nonstationary trends, autocorrelation and structural breaks. Except for the still positive but yet insignificant and inconclusive coefficients for Norway, the result is very clear-cut. Regardless of which wavelet scaling decomposition or quantile coefficient that is studied – positive APT effects are clearly identified and confirmed on the Scandinavian mortgage market.     

Fee or free checking? Noninterest checking account fees,competition and multimarket banking

This article analyses noninterest checking (NIC) account fees using a unique data set covering 11 875 observations on 1880 banks from 2008 to 2012. These data identify whether the bank has free or fee checking on NIC accounts and, where relevant, the fee and minimum balance to avoid the fee. Appealing to shrouded equilibrium theory, we hypothesize that banks, and particularly small banks, will avoid drawing the attention of myopic, low-income types by having stable policies, or will attempt to confuse depositors with contradictory policy shifts in the fee and minimum balance requirements. Competition and small bank size should favour consumers, but the meaning of ‘favour’ is complicated by large depositors and the banks subsidizing small depositors with NIC accounts.

The results support the avoid attention hypothesis, particularly for single-market banks, and weakly support the confuse depositors hypothesis. The largest banks, including three too big to fail banks, are most responsive to competition, with single-market banks far less responsive. Competition may be responsible for a dramatic decline in free checking among the largest banks, and substantial increases in minimum balances for those banks, since these effectively reduced subsidies. Simultaneously, single-market banks became more likely to offer free checking.     

Portugal’s banking and financial crises: unexpected consequences of monetary integration?

Portugal’s current financial crisis might be related to a banking crisis resulting from joining the Euro. The new-currency eliminated the exchange rate risk, but not the credit or liquidity risks within the Euroarea. However, Portuguese banks acted as if all of these risks had disappeared. They began pumping money in Portugal, by borrowing intensively in Euros abroad at low interest rates. The ensuing liquidity generated a capital-flow bonanza boom that culminated in a bust phase. Private and sovereign debt dramatically increased, which further soared when the government rescued banks. Portugal was then compelled to take extreme measures to address extraordinary debt-levels.     

Deposit guarantee reform in Europe: does European deposit insurance scheme increase banking stability?

The financial crisis led to reforms of regulation and supervision in Europe, including Deposit Guarantee Schemes. The new rules for DGSs define their position and interaction within the safety net. DGSs form part of a system to maintain and enhance financial stability. According to the Five Presidents’ Report a European Deposit Insurance Scheme should be the third pillar of the Banking Union. The paper gives a contribution to the on-going debate providing an assessment of the DGSs reform and its evolution towards EDIS. It explains key elements of the new rules for DGSs putting them in a systemic perspective.     

Democratization and the depoliticization of the banking sector: Are all banks affected equally?

This paper shows that the influence of the dramatic change in political ties of the Indonesian banking sector following democratization varies widely by bank ownership type. Panel estimates using several unique data-sets show that the decrease in political ties over democratization positively influences the performance of government-owned banks while negatively influencing the performance for privately held banks. Results remain robust to a variety of alternative hypotheses and sensitivity tests. This study provides evidence not only of the differential impact of depoliticization, but also suggests that the relationship between political connections and performance may be different based on bank ownership.     

Mere quibbles: Bagus and Howden’s critique of the theory of free banking

Despite its title, Philipp Bagus and David Howden’s critique of The Theory of Free Banking does more than merely “quibble” with that book’s arguments; their criticisms of those arguments are such as to suggest that the very foundation upon which my defense of free banking rests is deeply flawed. Here, I defend my work against Bagus and Howden’s criticisms, by showing that they rest upon careless or disingenuous readings of my arguments and a poor grasp of basic monetary economics.     

Productivity and efficiency of Vietnamese banking system: new evidence using Färe-Primont index analysis

This article aims to provide a clearer view on the recent evolutions of the Vietnamese banking system that can be useful to public authority when taking restructuring decisions. This article focuses on the evolution of productivity of Vietnamese banks over the period 2008 to 2012, and on the evolution of the different components of this productivity: technical change, pure technical efficiency and mix and scale efficiency. The methodology draws from very recent developments in index theory in the design of multiplicative-complete economically ideal indexes, using Färe-Primont productivity indexes to measure productivity. This methodology is applied to a balanced panel of Vietnamese banks. The results complement observations usually made on the recent development of the Vietnamese banking system. They show that the State Bank of Vietnam’s restructuring policy cannot focus only on either the insufficient size of banks or a better management of these banks in terms of the mix of outputs. Both must be considered simultaneously, not only through bank mergers but also in setting management criteria in line with criteria defined internationally.     

From scratch to efficiency gains after a financial crisis? A tale of a restructured banking system

We study the efficiency of the Argentine banking system after the 2001–2002 crisis. The financial system had to be restructured from scratch and recovered jointly with the economy, but its productivity and average cost levels have been stagnant since 2007. The analysis includes efficiency frontier estimations for retail banks and a comparison of subsamples for different categories of banks for the period 2005–15. We try to determine whether public banks are more efficient than private ones, whether privatized are more efficient than always private, as well as national versus foreign entities. Our findings show a modest average efficiency of the system and quite similar efficiency rankings for the different groups of banks. On average, public tend to be slightly more cost efficient than private, and national are slightly more efficient than foreign.     

The relationship among money supply, banking lending and aggregate demand in China: 1994–2006

Based on the framework of Bernanke & Blinader (1988) and Walsh (2003), this paper provides a concise analysis for relationship among money supply, banking lending and aggregate demand; and makes an empirical test on relationship among China’s money supply, banking lending and aggregate demand from 1994 to 2006 by adopting the single-equation regressive model and vector autoregressive model in terms of Keynesian structural model and monetarism simplified model. The result shows that money supply and banking lending have both played a driving role on real economy. Because of non-market interest rates, Keynesian structural model cannot explain the transmission mechanism of China monetary policies better than monetarism simplified model. __________ Translated from Jingji kexue 经济科学 (Economic Science), 2008, (1): 5–15     

Does a one-size-fits-all approach to financial regulations alleviate default risk? The case of dual banking systems

Financial regulations are developed to curb financial and economic fragility costs without undermining the economic contributions of banks to economic development. To understand the impact financial regulations have on reducing the financial fragility of banks we use the probability-of-default of banks as a proxy for bank failure. After analyzing data collected from 15 countries with a dual banking system for the period 2000–2015, we find convincing evidence that not all financial regulations have risk-reducing benefits for banks and the impact of financial regulations on default risk is not the same for conventional banks (CBs) and Islamic banks (IBs). The empirical evidence suggests that regulations that lessen overall default risk have a greater impact on IBs while those increasing default risk have a greater impact on CBs. Based on our findings we recommend that regulators should consider the different natures of CBs and IBs and tailor financial regulations to suit these operationally distinct financial intermediaries.     

How efficient is the banking system of Asia’s next economic dragon? Evidence from rolling DEA windows

Vietnam is now widely regarded as a rising economic star and the next economic dragon of Asia. Its banking system has played a key role in this stellar economic performance. Since 1990, Vietnam’s banking system has undergone significant changes which saw its composition transformed from being state banks only to now being both state as well as private banks, and has performed generally well in terms of growth, profitability and stability. But is it efficient? We conduct a dynamic analysis of the level and trend of the cost and profit efficiency of the Vietnamese banking sector over the period 1995 to 2011 taking into account the Asian and Global Financial crises. We use the Data Envelopment Analysis (DEA) Windows Analysis approach and adjust for bank size in calculating the average efficiency score of the banking system. Our empirical findings show that the cost and profit efficiency of the Vietnamese banking system averaged around 0.90 and 0.75, respectively, with the state banks being more efficient than the private banks and with efficiency experiencing an upward trend over the analysis period. Moreover, we find that the Global Financial Crisis (GFC) and Asian Financial Crisis (AFC) did not significantly affect the efficiency of the whole Vietnamese banking system.     

On the relationship among efficiency,capitalization and risk: does management matter in local banking market?

By employing a Granger causality methodology in a panel data framework, this article explores the relationship among efficiency, capitalization and credit risk within the local Italian banking system. Focusing the attention on cooperative banks, we specifically test whether managers take more risks in highly concentrated markets (i.e. monopoly) than in partially competitive markets (i.e. duopoly). The evidence shows that in more concentrated markets, management efficiency generates a decrease in risk-taking (rejecting the bad management hypothesis) with respect to the partially competitive markets. Results are consistent with the idea that banks with less local competition are able to increase their profits by indulging more freely in rent-seeking behaviour, minimizing their risk-taking and, consequently, improving the quality of their assets through additional screening processes. The financial crisis does not seem to affect the conduct of management in terms of bank investment decisions and risk-taking. A series of robustness tests generally confirms our findings.     

The operation of the Mexican banking system under foreign multinational corporations’ control: new activities and traditional income

This paper discusses the operation of banks in developing economies dominated by foreign multinational corporations (FMCs), and argues that banks have acquired new activities without drastically modifying the composition of their income. This discussion takes place in the light of the profound changes in financial systems that have modified the linkages between banks, capital markets, businesses and households, during the period of globalization and financialization. The main argument of this paper is that although foreign multinational corporations have become dominant in developing countries, and bank activities have diversified, the multinational corporations of the banking sector still rely on interest margins, particularly from consumer credit. This is explained in terms of specific bank credit activities that operate under oligopolistic structures, a condition that has not being modified by foreign multinational corporations’ dominance in developing banking markets.