Evidence on the financial characteristics of banks that do and do not use derivatives

While the use of derivatives by U.S. commercial banks has exploded in recent years, the growth has not been evenly distributed. At present, only about five percent of banks are involved in the market for derivatives. Although the concentration of derivatives activities in the largest banks is well known, we know less about other factors underlying a bank’s decision to use derivatives. This article investigates the financial characteristics of banks that use derivatives and those that do not. We find that user banks, compared to nonusers, are associated with riskier capital structures (more notes and debentures and less equity capital), larger maturity mismatches between assets and liabilities, greater net loan charge-offs, and lower net interest margins. We also find that banks, especially smaller ones, benefit from being associated with bank-holding companies. Finally, our evidence does not support a regulatory hypothesis in which banks must have stronger capital positions to engage in derivative activities.JEL Classification: G21, G28, G32     

Systemic financial risk indicators and securitised assets: an agent-based framework

The paper presents an agent-based model of a credit economy which includes a securitisation process and a bailout mechanism for bank bankruptcies. Within this framework, banks are able to sell mortgages to a financial vehicle corporation, which finances its activity by creating mortgage-backed securities and selling them to a mutual fund. In turn, the mutual fund collects liquidity by selling shares to households and remunerates them with a monthly interest. The impact of this mechanism is analysed by means of computational experiments for different levels of banks’ securitisation propensity. Furthermore, we study a set of systemic risk indicators which have the aim of assessing the imbalances in the financial system. Two of them are the mortgage-to-GDP ratio and the capital adequacy ratio, which are constructed to detect only the on-balance sheet changes in banks’ credit exposure. We consider two additional indicators, similar to the previous ones with the only difference that they are also able to account for the off-balance sheet items. Moreover, we adopt an indicator, the so-called “virtuous–unvirtuous cycle” indicator, which, besides off-balance assets, targets also the GDP. The results show that higher securitisation propensity weakens the financial stability of banks with relevant effects on different sectors of the economy. Most importantly, the analysis of systemic risk reveals the important issue of designing suitable systemic risk indicators for predicting incoming financial crises, finding that an essential feature of these indicators should be to integrate banks’ off-balance sheet assets.

     

BANK CAPITAL REQUIREMENTS, BUSINESS CYCLE FLUCTUATIONS AND THE BASEL ACCORDS: A SYNTHESIS

Abstract.  In order to survey the mechanisms through which the introduction of Basel II bank capital requirements is likely to accentuate the procyclical tendencies of banking, this paper brings together the theoretical literature on the bank capital channel of propagation of exogenous shocks and the literature on the regulatory framework of capital requirements under the Basel Accords. We conclude that the theoretical models that revisit the bank capital channel under the new accord generally support the Basel II procyclicality hypothesis and that the magnitude of the procyclical effects essentially depends on (i) the composition of banks' asset portfolios, (ii) the approach adopted by banks to compute their minimum capital requirements, (iii) the nature of the rating system used by banks, (iv) the view adopted concerning how credit risk evolves through time, (v) the capital buffers over the regulatory minimum held by the banking institutions, (vi) the improvements in credit risk management and (vii) the supervisor and market intervention under Basel II. The recent events and instability in financial markets all over the world have led the procyclicality issue to enter the agendas of several political international  fora  and some measures to mitigate procyclicality are being put forward. The bank capital channel literature should now play an important role in evaluating their effectiveness.     

我国商业银行表外业务发展面临的风险问题探究

随着我国资本市场的逐渐成熟,我国商业银行表外业务也蓬勃发展,呈现一片良好势头,但是,由于表外业务无法体现在银行的财务报表中,缺乏足够的信息透明度,因此表外业务成为了部分银行一定程度上规避监管的一种手段,这使得银行的管理层和监管机构都承担着较大的风险。文中主要通过分析当前一些表外业务在快速迅猛地发展过程中暴露出的问题,又结合与当前的会计准则进行研究,得出银行以及相关信息使用者和投资者应该注意的主要风险问题,并提出相应的一些风险应对措施,希望能给我国商业银行发展表外业务提供理论建议。     

Securitization and optimal retention under moral hazard

Securitization improves liquidity in capital markets by allowing originators to remove issued loans from its balance sheet and use the proceeds for other purposes. Securitization is often suspected of being one of the main reasons for the recent financial crisis. One concern is that securitization leads to moral hazard in lender screening and monitoring. By selling loans to investors and removing them from their books, banks have a lesser incentive to carefully evaluate and monitor borrowers’ credit quality to ensure that they can repay their loans. One problem in the literature is that the analysis of securitization is very general and suffers from a lack of specific security design analysis under asymmetric information. We address the moral hazard problem using a principal–agent model where the investor is the principal and the lender is the agent. We show that the optimal contract must contain a retention clause in the presence of moral hazard. The optimal retention is affected by tranching and credit enhancement.     

Credit risk of subsidiaries of foreign banks in CEE countries: Impacts of the parent bank and home country economic environment

In this study, using dynamic panel data, we investigated the influences of the home country economic environment and parent bank condition on the credit risk of foreign banks in Central and Eastern European (CEE) countries. We concentrated on the international transmission of credit risk through the internal capital market of multinational banks. Our theoretical assumptions follow studies that document how the parent bank condition and home country macroeconomic environment affect lending in subsidiaries in CEE countries. However, our results go one step further. We provide evidence that these relationships are reflected in subsidiaries’ credit risk in CEE countries. Our results suggest that the size and profitability of the parent bank have negative influences, while the liquidity and credit risk of the parent bank have positive influences on the subsidiaries’ credit risk. Moreover, the GDP growth in the parent bank’s country has a negative effect on the credit risk of the subsidiary, while the lending rate and liquidity in the parent bank country cause growth in the credit risk. These results indicate a new channel of international risk transfer from parent bank countries to host countries through foreign-owned banks.     

商业银行市场风险管理中的VAR模型

巴塞尔新资本协议规定金融机构满足资本充足率的要求,并将风险分为信用风险、市场风险和操作风险。针对市场风险的管理,本文着重介绍VAR模型的概念、VAR的种类以及主要特点,并指出VAR面临的主要问题及其在我国金融应用的前景。     

Emergence of a core-periphery structure in a simple dynamic model of the interbank market

This paper studies a simple dynamic model of interbank credit relationships. Starting from a given balance sheet structure of a banking system with a realistic distribution of bank sizes, the necessity of establishing interbank credit connections emerges from idiosyncratic liquidity shocks. Banks initially choose potential trading partners randomly, but over time form preferential relationships via an elementary reinforcement learning algorithm. As it turns out, the dynamic evolution of this system displays a formation of a core-periphery structure with mainly the largest banks assuming the roles of money center banks mediating between the liquidity needs of many smaller banks. Statistical analysis shows that this evolving interbank market shares the majority of the salient characteristics of interbank credit relationship that have been put forth in recent literature. Preferential interest rates for borrowers with strong attachment to a lender may prevent the system from becoming extortionary and guarantee the survival of the small peripherical banks.     

Off-balance sheet activities and bank default-risk premia: A comparison of risk measures

This paper examines the market discipline of off-balance sheet activities on the default-risk premia of subordinated bank debt. The standard approach for determining whether market prices of subordinated debt reflect the risk of default is to regress the yield spread against accounting measures of bank risk. This approach may be inadequate because yield spreads are neither linear nor monotonic functions of bank risk. Moreover, the standard approach fails to consider that banks are regulated. This paper compares this approach and one where risk is measured with a contingent claims pricing model. Observed yields on subordinated bank debt over equivalent maturity treasuries are used to compute implied asset variances. OBS banking activities appear to reduce both linear risk-premia and implied asset variances. These results suggest that bank regulators may be overly concerned with the risk exposure of off-balance sheet banking activities.     

我国商业银行与创业投资的投贷联动模式研究

金融创新是商业银行核心竞争力的重要来源。近年来创业投资行业发展迅猛,但较之美国等创业投资发达的国家,我国商业银行对创业投资的参与相对有限,与创业投资相关的业务创新缺乏。我国商业银行应借鉴美国硅谷银行投贷联动模式,建立健全创业企业信用担保体系、丰富与创业投资公司的合作模式、建立专业行业金融团队、完善增值服务体系,通过金融创新实现商业银行与创业投资的双赢。     

Endogenous credit standards and aggregate fluctuations

Widespread empirical evidence shows that credit standards fluctuate over the business cycle. We build a macroeconomic model in which countercyclical lending standards emerge as an equilibrium outcome. In the model, banks compete on lending rates as well as collateral requirements. The presence of lending relationships between firms and banks gives rise to endogenous fluctuations in interest rate margins and collateral requirements. We demonstrate that endogenous credit standards amplify business cycles, driving up output volatility by around 25% when compared to a model without lending relationships. Finally, we show that in order to combat the effects of endogenous credit standards on macroeconomic volatility, a countercyclical loan-to-value ratio is an effective macroprudential policy tool.     

Does Targeted Monetary Policy Matter? A Perspective from China

Several major central banks have experimented with targeted monetary policy to improve credit resource allocation. This policy only applies to ‘eligible’ banks. For example, The People's Bank of China conducted seven targeted reductions of reserve requirements during 2014–15. This article documents the phenomenon of targeted monetary policy and evaluates its effects. The results show that, in the case of China, this policy has generated an extra significant, positive return on the stocks of eligible banks, amounting to 1.2–1.3 per cent in a four‐day treatment period. This substantial return gives commercial banks an extra incentive to align with the policy goals of central banks.     

从金融资本的本性看中小企业融资难

中小企业融资难和融资贵是社会关注的焦点,银行作为金融资本的主要供给者一直受到社会人的关注,有的认为银行信贷政策存在歧视,有的认为中小企业风险高,褒贬者均有。论文从金融资本的角度论证分析了银行优先满足大型企业、国有企业的资金需求,对中小企业资金需求不积极的原因,并提出相应的对策和建议。     

Directed Credit? The Loan Market in High‐Growth Japan

Observers routinely claim that the Japanese government of the high-growth 1960s and 1970s rationed and ultimately directed credit. It barred domestic competitors to banks, insulated the domestic capital market from international competitive pressure, and capped loan interest rates. In the resulting credit shortage, it promoted industrial policy by rationing credit.
As much as the government purported to ration and to direct credit, it apparently accomplished nothing of the sort. It did not block domestic rivals to banks successfully, did not insulate the market from international forces, and did not set maximum interest rates that bound. Using evidence on loans to all 1,000-odd firms listed on Section 1 of the Tokyo Stock Exchange from 1968 to 1982, we find that observed interest rates reflected borrower risk and mortgageable assets and that banks did not use low-interest deposits to circumvent any interest caps. Instead, the loan market seems to have cleared at the nominal rates.
We follow our empirical inquiry with a case study of the industry to which the government tried hardest to direct credit: ocean shipping. We find no evidence of credit rationing. Despite the government programs to allocate capital, nonconformist firms funded their projects readily outside authorized avenues. Indeed, they funded them so readily that the nonconformists grew with spectacular speed and earned their investors enormous returns.     

Is foreign-bank efficiency in financial centers driven by home or host country characteristics?

This paper investigates whether home or host country factors can explain differences in technical efficiency among foreign banks operating in the Luxembourg financial center. We first address heterogeneity across banks by using the group-wise bootstrap to compare DEA measures of bank efficiency between branches and subsidiaries, focused and diversified banks, and euro area and non-euro area banks. We then control for these factors in a second-stage regression indentifying the impact of country-specific regulatory and macroeconomic variables on individual bank efficiency scores. Our regulatory indicators capture the strictness of capital requirements, private monitoring, official disciplinary power and restrictions on bank activities. Our macroeconomic indicators capture GDP per capita in the home country and its position in the business cycle. Our results carry policy implications for bank regulators in both home and host countries and provide insight into banks’ choice between establishing a branch or a subsidiary to develop cross-border activities through international financial centers.     

商业银行信贷风险的监督管理途径

深化金融体制改革的背景下,商业银行在发展上需要更好的业务开展与管理活动开展。商业银行在持续经营发展中需要面临多种风险,其中,信贷风险的管理十分重要。商业银行信贷风险的监督管理虽然得到了很多关注,但信贷风险监督管理状况并不良好,信贷风险监督管理层面更是存在诸多不足和问题。论文分析了新时期商业银行信贷风险监督管理的具体状况、存在的具体问题等,并就如何更好地进行信贷风险监督管理提出合理建议。     

Bank fee-based shocks and the U.S. business cycle

Efficient liquidity matching requires from banks to track external shocks (e.g., GDP growth shocks, stock market shocks and monetary policy shocks) in order to optimally allocate their assets between loans and other business lines. Profit maximizing banks have to rebalance their product-mix to take advantage of these changes. However, even though banking is cyclical, and contemporaneously reacts to shocks outside the banking sphere, there may also be some feedback effects at play, whereby bank changes, in turn, could affect economic and financial conditions. Generalizing the results of Marcucci and Quagliariello (2006, 2009), who indeed find an asymmetric impact of credit shocks on economic and financial time series in recession, we use a similar VAR framework to show that an even stronger feedback effect is prevalent for fee-based shocks. If the feedback effects of credit and fee-based shocks might have been both at play before the subprime crisis, the feedback effect of credit shocks seems to have faded away during the subprime crisis, whereas the feedback effect stemming from fee-based shocks has gained further strength.     

Risk contagion in the banking network: New evidence from China

Based on data from 111 Chinese banks over the 2013–2016 period, this paper estimates the interbank bilateral lending matrix using the maximum entropy method. The estimated matrix is used to simulate the effects of credit and liquidity shocks on China’s banking network. Simulation results show that, under the extreme pressure scenario, the contagion arising from a liquidity shock is significantly stronger than the effect of a credit shock, indicating the importance of liquidity in the banking system. The contagion effect arising from a credit shock does not vary much over the sample period. However, the contagion effect arising from a liquidity shock decreases significantly, which could be attributed to contraction in interbank business due to stricter interbank business supervision. The simulation results also identify the most important and most vulnerable nodes of the banking system. An increase in the level of capital level can enhance the ability of banks to withstand credit and liquidity shocks. Our analysis also suggests that risk contagion faced by China’s banks varies across banking network structures.     

How Do Small Businesses Finance Their Growth Opportunities?—The Case of Recovery from the Lost Decade in Japan

Previous studies argue that bank loans are cheaper than trade credit, so less‐constrained firms largely depend on bank loans and use trade credit less, especially in financially developed economies. However, the Japanese evidence does not support this view. First, small businesses with higher credit demand increase trade credit more during the period of the recovery from a severe recession. Second, creditworthy firms also increase trade credit to finance their growth opportunities. Third, firms in unstable industries increase trade credit more. This suggests that suppliers are able to offer credit, unlike banks, as they have a relative advantage in day‐by‐day monitoring. Copyright © 2012 John Wiley & Sons, Ltd.     

Bank asset structure,real-estate lending,and risk-taking

The banking industry changed substantially in the 1990s as the number of banks declined rapidly, and as we document, commercial banks dramatically shifted their assets to real-estate loans. The portfolio restructuring seems to be followed mainly by capital-constrained banks as real-estate banks have lower risk-based-capital ratios relative to those of our benchmark group. Trading off credit risk for interest-rate risk is only one of the ways to arbitrage regulatory capital. We also show that real-estate banks keep higher ratios of fixed-rate loans to total assets and face higher probabilities of insolvency. The increasing proportion of banks specializing in real-estate lending, the incentives of regulatory discipline, and the weaknesses of risk-management strategies could stress the condition of the banking system during periods of large unexpected increases in interest-rates and are important issues for regulators and bank managers.