The Theory of the Second Best and the Competitive Equilibrium Model

We study the international transmission of bank liquidity shocks from multinational, Islamic, bank-holding companies to their subsidiaries. Based on a total sample of 120 Islamic and conventional bank subsidiaries, we test whether foreign bank lending for Islamic and conventional banks is determined by different factors. We estimate a model that includes subsidiary and parent bank characteristics as well as host and home country variables. Our empirical findings show that lending is negatively affected by the fragility of conventional parent banks' subsidiaries. Nevertheless, we show that parent Islamic banks do not significantly affect lending by subsidiaries. Finally, we examine the market discipline regarding the transmission of liquidity shocks. We also find that reduction in foreign Islamic bank lending is stronger for those that are dependent on the interbank market. We establish that the depositors react to a deterioration of bank performance and punish their institutions by withdrawing their money. We show that market discipline has a more important role for Islamic banks, whereas liquidity needs determine the change in conventional banks.     

The Role of Banks in Monetary Policy Transmission: Empirical Evidence from Russia

This paper focuses on the role of the banking sector in monetary policy transmission in an emerging economy with a rapidly developing financial system. Specifically, we examine whether the central bank's monetary policy stance affects banks' lending behavior. Based on a comprehensive quarterly dataset on all Russian banks from 1Q1999 to 1Q2007, we find evidence for the existence of a bank lending channel in Russia. Contrary to several studies on developed economies, the level of a bank's capitalization matters for the transmission process. Better capitalized banks are less likely to adjust their lending practices following a change in the monetary policy stance.     

The Effects of Screening and Monitoring on Credit Rationing of SMEs

In this paper, we seek to empirically assess which determinants of the capability and incentives of banks to screen and monitor firms are significant in explaining credit rationing to Italian SMEs. After testing for the presence of non‐random selection bias and the potential endogeneity of some determinants of interest, the probit model results we obtain suggest that the average banking size and the multiple banking relationship phenomenon are statistically significant factors affecting credit rationing, presumably through their impact on the aforementioned banks' capability and incentives. Other potential determinants of banks' incentives to monitor and screen, such as local banking competition and firm' capacity to collateralize, are never significant. However, when we split the sample according to the level of competition in credit markets, we find that the estimated marginal effects of all significant determinants of interest are larger in absolute value than those obtained when using the whole sample.     

Desperately seeking cash: Evidence from bank output measurement

We examine the impact of a “near-zero” interest rate policy on bank output. Specifically, we document the existence of negative banking output on deposits for French banks from 2009. We show a structural break in banks' long run interest rate pass-through that explains this change in their business model during the 2003–2012 period. Since the crisis, banks are desperately seeking cash, and deposits have become a cost center. This is due to the new monetary policy and reveals banks' adaptation to the new banking regulation on liquidity. This new environment raises questions about banks' increasing exposure to interest rate risk and shows the necessity of coordinating monetary and regulatory policies.     

The welfare cost of banking regulation

The Basel Accords promote the adoption of capital adequacy requirements to increase the banking sector's stability. Unfortunately, this type of regulation can hamper economic growth by shifting banks' portfolios from more productive, risky investment projects toward less productive but safer projects. This paper introduces banking regulation in an overlapping-generations model and studies how it affects economic growth, banking sector stability, and welfare. In this model, a banking crisis is initiated by an aggregated shock (in the risky sector) in a banking system with implicit bailout, and banking regulation is modeled as a constraint on the maximal share of banks' portfolios that can be allocated to risky assets. This model allows us to evaluate quantitatively the key trade-off, inherent in this type of regulation, between ensuring banking stability and fostering economic growth. The model implies an optimal level of regulation that prevents crises but at the same time is detrimental to growth. We find that the overall effect of optimal regulation on social welfare is positive when productivity shocks are sufficiently high (for example, in the subprime banking crisis episode) and economic agents are sufficiently risk-averse. Finally, we find that there is a trade-off between regulating the economy upfront (i.e. before the shock) and facing the challenge of making a huge bailout after the crisis.     

Dual market competition and deposit rate setting in Islamic and conventional banks

This paper addresses the issue of competition in dual banking markets by analyzing the determinants of deposit rates in Islamic and conventional banks. Using a sample of 20 countries with dual banking systems over the 2000–2014 period, our results show significant differences in the drivers of Islamic and conventional banks' pricing behavior. Conventional banks with stronger market power set lower deposit rates but market power is not significant for Islamic banks. In predominantly Muslim environments, conventional banks set higher deposit rates and further higher when their market power is lower. Whereas conventional banks are influenced by the competitiveness of Islamic banks, Islamic banks are only affected by their peers in predominantly Muslim countries. Our findings have important implications regarding competition and bank stability in dual banking markets.     

Business cycle and bank lending procyclicality in a dual banking system

The paper studies bank lending behaviour over the business cycle in a dual banking system, Malaysia, with the objective of ascertaining whether Islamic banks have a role in stabilizing credit. The study makes use of unbalanced panel data of 21 conventional banks and 16 Islamic banks covering mostly the period 2001–2013. Applying dynamic GMM estimators, we find the aggregate loans by banks to be pro-cyclical in conformity with existing studies. However, when we segregate the lending/financing behaviour of conventional and Islamic banks, the cyclicality of bank lending seems to be true only for conventional banks. As for the Islamic banks, the business cycle does not seem to affect their financing decisions. Indeed, there is indication that the Islamic banks in general and the full-fledged Islamic banks in particular can even be counter-cyclical in their financing decisions. This conclusion is fairly robust to a different loan measure, alternative model specifications, and to an alternative business cycle measure. Hence, our results provide further support to the “stability” view of the Islamic banks in that they have the ability to stabilize credit.     

Are Islamic Banks More Resilient During Financial Panics?

Islamic banking is one of the fastest growing segments of the financial sector in developing countries. Rapid growth of this segment is accompanied with claims about its relative resilience to financial crises as compared to conventional banking. However, little empirical evidence is available to support such claims. Using data from Pakistan, where Islamic and conventional banks co‐exist, we compare the behaviour of Islamic and conventional banks during a financial panic. Our results show that Islamic bank branches are less prone to deposit withdrawals during financial panics, both unconditionally and after controlling for bank characteristics. The Islamic branches of banks that have both Islamic and conventional operations tend to attract (rather than lose) deposits during panics, which suggests a role for religious branding. We also find that Islamic bank branches grant more loans during financial panics and that their lending decisions are less sensitive to changes in deposits. Our findings suggest that greater financial inclusion of faith‐based groups may enhance the stability of the banking system.     

Volatility transmission between oil prices and banks' stock prices as a new source of instability: Lessons from the United States experience

This paper examines whether American banks' exposure to the oil industry could lead to instability in both oil and financial markets. To address this issue, we investigate volatility spillovers between oil prices and the stock prices of the four major American banks involved in the oil industry by employing the vector autoregressive fractionally integrated moving average framework. We use high-frequency data from January 3, 2006, to June 30, 2016. Our results support the existence of such volatility spillovers, as evidenced by the significant volatility responses of oil price (banks' stock price) to a shock in banks' stock price (oil price). These responses, more pronounced following the banks' exposure to the shale industry, mainly reflect the financial fragility of shale companies and their high indebtedness levels. Thus, this paper emphasises how the shale oil industry could trigger turmoil in both oil and financial markets.     

Islamic Banking in Malaysia: Unchartered Waters

This paper explores the Islamic banking business in Malaysia since its beginning in 1983. The Islamic banking sector has achieved its target of 20% market share in assets and deposits in 2010. To boost the industry's competitiveness and efficiency, the demands of the market forces will have to be delicately balanced with the dictates of the Shari'ah. The search for niche Islamic banking products warrants enhancements in the current regulatory, legal, and fiscal infrastructure for Islamic banking, without which these products cannot be a viable alternative to the conventional ones. While the prevailing infrastructure is conducive to Islamic banking products that hold similar characteristics with interest‐bearing loans, Shari'ah compliance can be a futile exercise when the purpose of the law (maqasid al‐shari'ah) is overlooked, for there is much more to Islamic banking than the elimination of interest.     

市场规模结构、竞争程度与小微 企业关系型贷款*

本文研究了银行业竞争度与小微企业关系型贷款之间的关系，以及市场规模结构对该关系的影响。信息假说认为，由于信息不对称和代理问题，垄断增加了银行内部化关系型贷款的收益，关系型贷款与竞争度之间呈负相关。然而，越来越多的研究对信息假说提出了质疑。本文在数理推导的基础上，采用江苏省县域地区352家小微企业2011-2015年非平衡面板数据，运用Fractional Logit模型进行实证分析。研究结果表明：市场规模结构是决定竞争度与关系型贷款之间关系的重要因素，当信贷市场中大银行的市场份额占比较大时，银行竞争的加剧对关系型贷款是不利的；当市场中小银行的市场份额占比较大时，竞争的加剧有利于关系型贷款的发放。以往研究对于市场规模结构的忽视可能是导致不同研究结论存在巨大差异的重要原因。本文在此基础上，提出了完善金融基础设施等相关政策建议。     

Management practices and SME performance

We examine the association between management practices and SME performance in Britain over the period 2011–2015, using a unique dataset which links survey data on management practices with firm performance data from the UK's official business register. We find that SMEs are less likely to use formal management practices than larger firms. However, such practices appear to have demonstrable benefits for those SMEs who use them, being positively associated with firm survival, growth and productivity. Our results add further weight to policy initiatives which seek to encourage SMEs to improve their management skills and capabilities.     

银行结构与中小企业融资

本文建立了一个中小企业融资问题的分析框架。文章发现 ,中小企业的非匀质性 (heterogeneity)、贷款抵押和交易成本是影响中小企业从银行获得信贷的三个主要因素 ;缓和信息不对称程度、增加贷款抵押、降低交易成本 ,都将使中小企业得到的信贷增加。进一步 ,在一定的前提假设下 ,文章将中小金融机构引入模型 ,发现引入中小金融机构将使中小企业得到的信贷增加 ,增加社会的总体福利 ;并且在中小金融机构的信息优势、数量和中小企业的融资总额之间存在着正向关系。文章最后按照这一框架的思路 ,对中国的中小企业融资难题进行了分析 ,并提出了相应的政策建议。     

How ‘Islamic’ is Islamic Banking?

Islamic Banks hold well over US $700 billion in assets and are growing at over 15% p.a. Islamic Banking and Finance (IBF) involves wider ethical and moral issues than simply ‘interest-free’ transactions. Its advocates argue that these make it more economically efficient than conventional banking and promote greater economic equity and justice. To what extent, then, do actual Islamic Banking practices live up to the ideal, and how different are they from conventional banking? A preliminary investigation shows that, three decades after its introduction, there remain substantial divergences between IBF's ideals and its practices, and much of IBF still remains functionally indistinguishable from conventional banking. This runs counter to claims by IBF advocates that it would rapidly differentiate itself from conventional banking. However, despite not providing an alternative to conventional banking and finance, IBF does strengthen a distinctly Islamic identity by providing the appropriate Islamic terminology for de facto conventional financial transactions.     

Foreign Banks and Political Sovereignty: The Case of Argentina

Abstract

This paper analyzes a seldom discussed aspect of Argentina's banking crisis of 2001–2002: the conflict that arose between foreign banks and the national government over the economic policies applied in response to the banking crisis. In particular, the paper will examine the foreign banks' strategy to dollarize the economy and to impede the national government's strategy of pesofication.     

银行业结构对中小企业融资的影响*

本文结合世界银行关于中国中小企业的调查数据和中国银监会发布的银行业分布数据,分析了银行业结构与中小企业融资的关系。本文发现：银行业结构与中小企业受到信贷配给的概率呈现“U型”关系,即存在最优水平的银行业集中度使中小企业受到信贷约束的概率最低。根据本文研究,我国银行业集中度总体上高于最优水平,但不同地区又有所差异。本文还发现,考察银行业集中度不能只关注国有大型商业银行比重的下降,大型股份制商业银行比重的替代性上升也没有有效解决中小企业融资难的问题。因此,鼓励发展中小金融机构,才是支持中小企业融资的有效途径。     

Access to Finance by Small and Medium Enterprises: a Cross‐Country Analysis with A New Data Set

Access to finance has always been a challenge for small and medium enterprises (SMEs), but the need to address this issue became more pronounced after the global financial crisis, as SMEs are perceived as engines of growth and job creation. However, lack of consistent indicators for SME finance at the country level restricts cross‐country analyses. The present paper introduces a supply‐side data set to fill this gap, and provides the first set of analyses with this new data set. Global SME lending volume is predicted as $US10tn, 70% of which is in high‐income OECD countries. On average, SME loans constitute 13 and 3% of GDP in developed and developing countries, respectively.     

European development banks and the political cycle

This paper investigates whether the lending activity of European development banks is affected by opportunistic political behavior, by looking at the change in loans extended by these entities in election years. The empirical analysis leverages on a unique manually collected dataset that includes all the development banks headquartered in Europe, for the period 2002–2015.A comparison with the rest of the European banking system reveals that while the political view of development banks cannot be supported as a general rule, it finds empirical evidence in flawed democracies, where large development banks actually tend to increase their lending activity in election years.     

British SMEs’ e-commerce technological investments and firm performance: an RBV perspective

Despite the heated debate on the Information Technology (IT) investment–performance paradox, the resource-based view (RBV) has received relatively little attention as an approach to explain such phenomena, particularly in the small and medium enterprise (SME) and e-commerce context. This study draws on the RBV perspective to empirically examine the association between SME e-commerce investments and firm performance. We collected firm-level data from 430 British SMEs across 16 industry sectors. Results demonstrate that RBV provides strong theoretical support, that is, business resources, human resources, and external resources (i.e. e-commerce readiness) strongly contribute to enhanced firm performance. The sophistication of SMEs' e-commerce websites contribute to firm performance, but those firms' capital investments in IT and e-commerce training per se are not significant performance drivers. Our findings suggest that UK SMEs can and do differentiate themselves on the basis of their e-commerce capability, which is created by the synergistic combination of e-commerce resources with other organisational resources and capabilities.     

Sukuk vs. conventional bonds: A stock market perspective

The last decade witnessed a wide expansion of Islamic finance in Middle Eastern and Southeast Asian countries. Sukuk issues, which are Islamic financial instruments structured to replicate the cash flows of conventional bonds, have notably proliferated, fuelling the debate on the similarity between Islamic and conventional finance. Using an event study methodology on a sample of Malaysian listed companies, we investigate whether stock market investors react differently to the announcements of sukuk and conventional bond issues. We find that the stock market is neutral to announcements of conventional bond issues, but it reacts negatively to announcements of sukuk issues. We attribute this finding to the excess demand for Islamic investment certificates and to an adverse selection mechanism that favors sukuk issuance by lower-quality debtor companies.