The Determinants of Optimal Interchange Fees in Payment Systems

This paper presents a model of a card payment system as a two-sided market that allows for partial participation by heterogeneous consumers and merchants. Taking into account the strategic effects arising from competition between merchants, the model is used to characterize the optimal structure of fees between those charged to cardholders and those charged to merchants and, more specifically, the level of the interchange fee that banks charge each other. The results modify the existing characterizations of the interchange fee, and explain the source of potential deviations between the privately and socially optimal level of the fee.     

Interchange fee regulation and service investments

This paper analyzes the impact of interchange fee regulation on the investment incentives of a payment card platform in the presence of full merchant internalization. We distinguish between investment in consumer and retailer services. We find that the optimally regulated interchange fee can be above the privately optimal one to induce the platform to invest more in retailer services. We also demonstrate that the two prominent regulatory benchmarks of a zero interchange fee and regulation according to the “tourist test” tend to set too low investment incentives under a total welfare standard. Instead, “tourist test” regulation can be a reasonable approximation under a total user surplus standard.     

Fixed Come Hell or High Water? Selection and Prepayment of Fixed‐Rate Mortgages Outside the United States

We examine the decision to prepay a fixed‐rate mortgage in the United Kingdom, Canada, Ireland, Australia and New Zealand. These countries are characterized by having substantial fees which are associated with breaking a fixed‐rate mortgage. We develop a model which allows for fluctuations both in banks’ wholesale rates and credit spreads. We find that households can achieve economically significant benefits both from following an optimal prepayment strategy contingent on the break fee used by their bank and also by selection of fixed interest rate term and (where available) break fee structure.     

Platform Competition With Cash-Back Rebates Under No Surcharge Rules

We analyze competing strategic platforms setting fees to a local monopolist merchant and cash-back rebates to end users, when the merchant may not surcharge platforms’ customers, a rule imposed by some credit card networks. Each platform has an incentive to gain transactions by increasing the spread between its merchant fee and user rebate above its rival's spread. This incentive yields non-existence of a pure strategy equilibrium in many natural environments. In some circumstances, a mixed strategy equilibrium exists where platforms choose fee structures that induce merchants to accept only one platform with equal probability, a form of monopolistic market allocation.     

Pricing with Consumer Switching Costs: Evidence from the Credit Card Market

The credit card market is a natural setting for investigating the relationship between pricing and consumer switching costs. I find, using a detailed panel of credit card issuers, that switching costs are an important influence on pricing for commercial banks. The results are stronger for commercial banks with risky customer bases, suggesting that there is a relationship between default and switching costs. Switching costs appear to have almost no influence on pricing for credit unions, a result that is consistent with their status as not–for–profit entities.     

Failed Bank Resolution and the Collateral Crunch: The Advantages of Adopting Transferable Puts

Current methods of failed bank resolution are unnecessarily expensive for taxpayers and impose substantial costs on borrowers at failed banks. This situation is the result of distorted incentives imbedded in the standard contract between the government and acquirers of failed banks, which result in more loan foreclosures than if the loan were held by a well-capitalized bank. This paper proposes a modification to the standard contract in the form of a transferable put, which would introduce market-based incentives to the disposition of failed bank assets.     

Access Pricing under Competition: An Application to Cellular Networks

A new class of access pricing problems is analyzed in which upstream firms compete for customers and access to these customers is required by downstream markets. Using fixed–to–cellular calls as an example, a model is presented which shows that the determination of cellular termination charges is quite different to standard access pricing problems. Competition between cellular firms leads to access prices being set either at, or above, the monopoly level. Applications are given for other market settings, including the termination of long–distance calls on competing local exchange networks and the setting of interchange fees in payment systems.     

政府监管对银行稳健性的影响研究——基于中国上市商业银行的实证检验

以2006～2012年16家上市银行为样本,实证分析了特许权价值、资本监管、隐性保险对银行稳健性的影响。研究结果表明：特许权价值对银行风险存在自律效应,对银行绩效和银行流动性没有显著影响;资本监管能够降低银行风险,然而却降低了银行流动性,对银行盈利性没有显著影响;隐性保险制度对于稳健性差的银行保护较多;银行规模越大,银行稳健性越好,即存在“大而不倒”的情况;资本杠杆和经营杠杆对银行稳健性的影响不大：次贷危机对银行稳健性的影响不大,但金融危机对银行稳健性的影响依然存在。     

中国银行业盈利影响因素分析

考察了2001年至2007年14家商业银行的盈利状况,并选择银行资产利润率为银行盈利水平的测度变量,分析银行机构的个体特征变量、宏观经济变量和金融结构变量对中资银行利润率的影响。结果发现,商业银行的盈利能力主要由个体特征变量决定,其中,银行信贷率与银行利润率呈显著正相关关系,而银行规模、所有权性质与银行利润率之间呈显著负相关关系;宏观经济变量和金融结构变量与银行利润率的关系在总体上不显著,其中,只有通胀率与银行利润率呈显著负相关关系,存款和公债投资与银行利润率之间也呈负相关关系,但是没有显著性。     

Bank Regulatory Agreements and Real Estate Lending

Recent studies have found that banks with low capital ratios have significantly decreased their lending to the real estate sector. This correlation between real estate lending and bank capital could be the result of voluntary decisions by banks to recapitalize, or it could be the result of direct actions taken by bank regulators. We find that banks with low capital ratios reduce their real estate lending substantially more after formal regulatory actions have been initiated by regulators. Furthermore, this reduction in lending is particularly large for the categories of real estate borrowers most likely to be bank dependent.     

Asymmetric interactions between foreign and domestic banks: effects on market entry

An inverted U‐shaped relationship is thought to exist between the number of firms entrenched in a market and the rate of new entrants. This study examined early and late entry by foreign and U.S. banks into the California market following a deregulation in the banking industry in the early 1980s. The study was designed to elucidate the competitive interactions between foreign and domestic banks. Specifically, what response did the entry of foreign banks elicit from domestic banks and what influence did the entry of domestic banks exert on the evolution of the foreign banks in the market. Data covering the period from 1979 to 1988 demonstrate that the density of foreign banks operating in the market had a U‐shaped relationship with the rate of entry of U.S. banks, supporting the argument that foreign investment can encourage the expansion of domestic banks. Although foreign banks were not an obstacle to domestic bank entries, the presence of domestic banks deterred the entry of foreign banks. Copyright © 2008 John Wiley & Sons, Ltd.     

Credit rationing and implicit contract theory : An empirical study

This paper investigate whether or not implicit contract relations predominate in the Japanese bank loan market and produce equilibrium credit rationing. The empirical evidence suggests that risks are shared between banks and firms through interest rate arrangements. This implies that commercial banks in Japan operate in a market dominated by implicit contract relations. However, the evidence does not support the view that Japanese commercial banks execute credit rationing in the sense of Fried and Howitt (1980). Furthermore, the results show that large banks differ from small banks in the risk consideration of loan contracts. These empirical results are completely consistent with the intermarket business group hypothesis such that the group formation aims to share risks and profits among members.     

Bank Capital and the Credit Crunch: The Roles of Risk-Weighted and Unweighted Capital Regulations

We investigated whether in recent years banks have increased their holdings of securities at the expense of their holdings of business loans in response to shortfalls of their capital relative to risk-weighted capital standards and relative to a capital standard that made no explicit allowance for credit risk. We estimated that bank credit fell by about $4.50 for each $1 that a bank's capital fell short of the unweighted capital standard. Banks that had less capital than required by the risk-weighted standard appear to have shifted away from assets with low risk weights (securities and single-family mortgages) and to have shifted toward assets with higher risk weights (commercial real estate and commercial and industrial loans). When we included both shortfall variables in a regression, shortfalls relative to the unweighted capital standard significantly affected bank credit, while shortfalls of capital relative to the risk-weighted standard did not. We found no significant effects of capital shortfalls at other, local-competitor banks on bank portfolios. Delinquencies in a given category of a bank's loans generally had significantly negative effects on that bank's holdings of loans in that category. In contrast, banks tended to increase holdings of loans in categories in which local-competitor banks were experiencing higher delinquency rates.     

Bank Efficiency, Risk-Based Capital, and Real Estate Exposure: The Credit Crunch Revisited

The turbulent real estate market during the early 1990s coincided with the implementation of risk-based capital standards for commercial banks. In this study we use non-parametric linear programming techniques to identify the lost real estate lending due to bank inefficiency. Inefficiency may arise from one of three sources: risk-based capital standards which constrain bank real estate lending, inefficiency stemming from managerial oversight of real estate lending, and scale inefficiency which arises from banks not operating at constant returns to scale. The results indicate that the lost real estate lending associated with risk-based capital standards averaged 2.7% of total bank assets. However, banks could compensate by exercising better managerial oversight of real estate lending and by operating at constant returns to scale.     

CONSUMER SWITCHING COSTS AND FIRM PRICING: EVIDENCE FROM BANK PRICING OF DEPOSIT ACCOUNTS*

We employ extensive information on bank deposit rates and area migration patterns to examine pricing relationships implied by switching costs. We argue that, because of the trade‐off between attracting new customers and exploiting old ones, banks offer higher deposit rates in areas experiencing more in‐migration. Further, because greater out‐migration implies that a locked‐in customer will not be with the bank for as many periods, banks will offer lower deposit rates in areas exhibiting greater out‐migration. Also, because this effect of out‐migration logically depends on the extent of in‐migration, an interaction effect exists. We find evidence strongly supporting these relationships.     

中国银行业规模经济效益与相关产业组织政策

大银行具有规模优势,但银行规模并不是越大越好,最佳规模是位于一定区域之内的。同时,银行业的规模经济要受到市场结构、银行制度、管理体制以及金融创新等因素的影响。本文运用指标分析、“生存竞争法”分析,以及Translog成本函数对中国银行业进行了实证考察。结果表明,规模经济在中国银行业中的确存在,但“最大”并不是“最好”,四大国有商业银行呈现一种规模不经济的状态,本文对其原因进行了剖析,并提出相应的政策建议。     

知识产权保护、行业异质性与技术创新

为了探究知识产权保护对技术创新影响的行业差异，本文运用中国37个行业2006～2011年的面板数据，基于技术差距和相对规模，探究了知识产权制度变革对产业创新影响的行业异质性。研究发现：人均专利数量是衡量技术创新的理想指标；加强知识产权保护，有利于促进技术进步；技术创新渠道正在发生变化，即更注重国内自主创新和内部技术转移；技术差距越小越有利于技术进步，相对规模越大越有利于技术创新。本文建议：在研究技术创新时，可以选择从业人员人均专利数量作为创新指标；加强知识产权执法水平，提升知识产权保护力度；技术创新过程中更应该注重自主创新和内部技术转移，不断缩小与发达国家的技术差距，同时还应该扩大行业相对规模。     

Using information‐processing theory to understand planning/performance relationships in the context of strategy

This study reveals the importance of viewing planning processes within the context of strategic orientation. Information‐processing theory is used to examine the differences in planning processes given variable strategy content in the banking industry. Findings suggest that banks implementing different strategies require their planning systems to focus on different kinds and amounts of information. Moreover, the relationship between planning and bank performance is clarified when information requirements of a specific strategy are considered. It appears the strategy moderates the relationship between planning and performance. Copyright © 1999 John Wiley & Sons, Ltd.     

Payment Card Interchange Fees and Price Discrimination

We consider the implications of platform price discrimination in the context of card platforms. Despite the platform's ability to price discriminate, we show that it will set fees for card usage that are too low, resulting in excessive usage of cards. We show this bias remains even if card fees (or rewards) can be conditioned on each type of retailer that the cardholder transacts with. We use our model to consider the European Commission's objection to the rules card platforms have used to sustain differential interchange fees across European countries.     

Non-price strategic behavior: the case of bank branches

We perform an empirical study of banks’ branching decisions as a strategic non-price variable in an oligopolistic setting. Using panel data of banks from Norway, we find clear evidence that banks act strategically in their branching decisions, taking into consideration the future response from rival banks. The analysis is applied to a unique data set which covers the entire banking sector during both pre- and post-banking crisis periods, where very different types of conduct are found in each of these periods both for banks and borrowers. Moreover, we find that a bank specific branch-network does not confer externality on other banks. As a result branch network affects only market shares but not market size.