Vertical integration to avoid contracting with potential competitors: Evidence from bankers' banks

We examine a vertical integration decision within the commercial banking industry. During the last quarter of the 20th century, some community banks reduced their traditional reliance on correspondent banks for upstream products and services by joining bankers' banks, a form of business cooperative. Research on vertical integration focuses primarily on firm-specific investment, market power, and government regulation. However, this case is difficult to explain in terms of these standard vertical integration motives. Our evidence suggests that bankers' banks are a response to technological change and deregulation that results in increased costs faced by community banks in dealing with correspondent banks as both suppliers and potential competitors. For instance, loan participations require sharing proprietary information about major loan customers, something a community bank would not want to provide to a potential competitor.     

Do Large Banks Have Lower Costs? New Estimates of Returns to Scale for U.S. Banks

This paper presents new, fully nonparametric estimates of ray‐scale and expansion‐path scale economies for U.S. banks based on a model of bank costs. Unlike prior studies that use models with restrictive parametric assumptions or limited samples, our methodology uses local polynomial estimators and data on all U.S. banks over the period 1984–2006. Our estimates indicate that as recently as 2006, most U.S. banks faced increasing returns to scale, suggesting that scale economies are a plausible (but not necessarily only) reason for the growth in average bank size and that the tendency toward increasing scale is likely to continue unless checked by government intervention.     

Branching restrictions and banking costs

Previous research of banking costs has been limited by the choice of the functional form, irregularities in the estimated cost functions, and a failure to rigorously examine the difference between banks in branching states and banks in unit-banking states. This paper addresses these shortcomings. Banks are modelled as three-input-three-output cost minimizing firms. A three equation system is estimated using 1985 Functional Cost Analysis data. The findings indicate that banks in unit-banking states experience diseconomies of scale Banks in branching states experience diseconomies of scale at the bank level but economies of scale at the branch level. We also find evidence of economies of scope for branch-state banks but not for unit-state banks.     

Do we need big banks? Evidence on performance,strategy and market discipline

For an international sample of banks, we construct measures of a bank’s absolute size and its systemic size defined as size relative to the national economy. We then examine how a bank’s risk and return on equity, its activity mix and funding strategy, and the extent to which it faces market discipline depend on both size measures. We show that bank returns increase with absolute size, yet decline with systemic size, while neither size measure is associated with bank risk as implicit in the Z-score. These results are consistent with the view that growing to a size that is systemic is not in the interest of bank shareholders. We also find that systemically large banks are subject to greater market discipline as evidenced by a higher sensitivity of their funding costs to risk proxies, consistent with the view that they can become too large to save. A bank’s interest costs, however, are estimated to decline with bank systemic size for all banks apart from those with very low capitalization levels. This suggests that market discipline, exercised through funding costs, does not prevent banks from attaining larger systemic size.     

Too Big to Be Efficient? The Impact of Implicit Subsidies on Estimates of Scale Economies for Banks

We examine whether “too‐big‐to‐fail” (TBTF) factors affect estimates of scale economies for large banks. From a standard model of bank production that does not control for any TBTF factors, we find evidence of scale economies for our sample of large banks. We then control for TBTF factors by using a measure of the “implicit subsidy” that emerges from a reduction in TBTF banks’ funding costs due to investor expectations of government support. We do this in two ways: first, we estimate scale economies from an augmented model of bank production that employs a proxy for the counterfactual price of debt that banks would face in the absence of any TBTF funding cost advantage; second, we estimate scale economies from a model of bank production that is estimated only for a sample of banks considered unlikely to be TBTF. After controlling for TBTF factors using either method, we no longer find evidence of scale economies for our sample of large banks. These results suggest that estimated scale economies for large banks are affected by TBTF factors.     

非银行金融科技与上市公司借贷成本——竞争压力还是信息溢出？

金融科技作为技术驱动的金融创新,是深化金融供给侧结构性改革、增强金融服务实体经济能力的重要引擎。基于我国A股上市公司数据,本文实证分析了针对中小微企业和个人的非银行金融科技发展对上市公司借贷成本的溢出效应。结果表明,非银行金融科技发展每提高10%,上市公司借贷成本平均下降1.6个百分点。进一步分析表明,这一结果同时受到“竞争压力”与“信息溢出”两种机制的作用:前者表现为在银行业竞争程度更高的地区,非银行金融科技的发展更能显著降低企业的借贷成本;后者表现为,非银行金融科技的发展能够显著降低商业银行不良贷款率,同时也能降低商业银行业务及管理费用开支。本文探索金融科技如何影响上市公司融资成本,为金融科技进一步增强金融服务实体经济能力提供了新的启示。     

Branching,scale economies,and banking costs

In this paper, we develop and estimate a model of bank costs based on a theory of the branch cost function. First, we show that convenient branch location is important to banking customers and implies that banks do not necessarily operate branches at minimum average cost. This theoretical result provides a rationale for including branch variables in the bank cost function. Second, we estimate a statistical cost equation derived explicitly from assumptions about the branch cost function and including branch output variables. Our empirical results suggest substantial economies of scale at the branch level, but no economies from expansion by branching. Finally, we show that the resulting cost structure of the banking industry does not imply that a highly concentrated banking structure is necessary for efficiency. Thus, economies of scale would not be expected to force small banks out of the market, even if current restrictions on interstate banking are liberalized.     

The efficiency and the conduct of European banks: Developments after 1992

We assess the efficiency of the European banking sector in the 5-year period following the implementation of the Second Banking Directive of the European Union (EU). We first determine the degree of cost efficiency of EU banks in 1993-1997. After that, we explore to what extent efficient European banks are managed differently than their inefficient peers. Our datasets comprise 5 years of observations on 1347 savings and 873 commercial banks. We use the new recursive thick frontier approach (RTFA) method to establish our results. We find that structural factors, such as technological progress or increased bank competition, have lowered the cost base of banks by about 5% annually during the sample period. Managerial inability to control costs (X-inefficiency) is with 17-25% the main source of bank inefficiency in the EU. Managerial efficiency varies a great deal within Europe, and there seems to be no tendency towards convergence. We find that small savings banks can exploit economies of scale. The EU savings bank sector would cut costs by about 3% if small savings banks merged.     

An international comparison of scale economies in banking: Evidence from Turkey

In this article economies of scale are examined for Turkish banks. The literature on economies of scale in depository institutions is substantial. Yet, virtually all published articles have examined production/costs using data for developed countries, such as the United States, Canada, and Israel. Here we examine data from a country that has an economic system vastly different in terms of per capita productivity. Despite the differences, the results are similar across countries in that we find no significant evidence of economies of scale at output levels near the sample mean. This suggests that the conclusion from examining banks in developed countries—that a bank does not have to be large in order to be competitive from a cost perspective—holds in a less developed country.     

Correspondent balances,services, and the money supply

This paper investigates the money supply process on a microeconomic level by developing an inventory-theoretic model of commercial bank reserves, correspondent balances, and correspondent services; by deriving the comparative-static properties of the model for member and non-member banks; and by incorporating these properties into a stochastic money supply framework. In general, correspondent balances and services were found to have mixed effects on the reserve-requirement and interest-rate sensitivities of both the expected value and the variance of the money supply, but most of this ambiguity should eventually be reduced by the Monetary Control Act of 1980.     

Raising rival's costs in the securities settlement industry

The competition between a central securities depository (CSD) and a custodian bank is analyzed in a Stackelberg model. Investor banks decide whether to use the services of the CSD or of the custodian bank, depending on the prices and their preferences for their inhomogeneous services. Since the custodian bank uses services provided by the CSD as input, the CSD can raise its rival's costs. The CSD's equilibrium market share is higher than socially optimal, unless the CSD is not allowed to charge negative prices. This result has important policy implications that are related to a discussion currently taking place in the securities settlement industry.     

网络外部性、银行规模与顾客转移成本

顾客转移成本与银行规模相关是前人在研究中发现的现象,出现这种现象的原因是网络外部性的存在使不同规模银行的顾客所获得的银行服务的价值不同,因而造成顾客的转移成本不同。网络所有者可通过价格手段将网络外部性内在化,并改变顾客转移成本。银行间差别定价就是一种内在化网络外部性的手段,采用这种定价政策可提高市场有效性,给银行提供按市场规律运行的环境,有利于向顾客提供多层次的银行服务,并有助于形成顾客在银行之间的合理分布。因此,根据银行规模差别定价是适合我国银行业现状的交易账户业务定价策略。     

赶超战略与大银行垄断——基于新结构经济学的视角

改革开放初期,中国有很多资本高度密集的大型国有企业,需要大量资金维持生产运营,若无法获得足够的银行贷款以致资金链断裂而破产倒闭,极易引发动荡。本文研究发现,在当时中国资本稀缺的要素禀赋结构下,为确保“重要而不能倒”的国有企业获得足够的银行贷款而不破产倒闭,不适合采用放开银行准入以促使银行竞争的方式,反而应限制银行准入,控制银行数量。原因在于,放开银行准入增加的仅是中小银行,其资金动员能力有限,与国有企业的规模特性不相匹配,更重要的是,大量中小银行进入会分流大银行的存款,降低大银行的资金动员及服务国有企业的能力,导致国有企业的贷款成本和破产风险因此而上升。本文指出,一个国家的银行业结构内生于该国的经济发展战略。限制银行准入的政策安排通过在金融方面支持国有企业,在改革初期起到了维护国防安全、保障国计民生和维持社会经济稳定的作用,为平稳推动改革创造了条件。     

In Banking,Is Small Beautiful?

The state‐led resolution of the 2007‐2009 financial crisis has proven to be costly. Calls are being heard in Belgium, the Netherlands and Switzerland to cap the size of domestic banks. Is small beautiful? In this policy paper, we first match bailing out cost data to the relative size of banks for a sample of 14 countries and 29 banks. An important observation is that some countries with relatively small banks faced large bailout cost when correlated systemic risk affected many banks. Secondly, we call to the attention that capping the size of banks can have an unintended effect: a lack of credit risk diversification. Risk diversification is needed to reduce the costs of financial distress, which are quite significant in the banking industry. If reducing public bail out costs is the right objective, capping the size of banks is not the best tool. So as to keep large banks that provide highly skilled employment opportunities in a services economy, we discuss four policy options that help to ensure financial stability: independence and accountability of bank supervisors, prompt corrective action mechanisms, burden sharing across countries, and an end to the too‐big‐to‐fail doctrine.     

Factor price misspecification in bank cost function estimation

Many studies of bank productivity implicitly assume that banks face imperfect factor markets in accessing labor and capital such that, in renting the same factor of production, at the same time, one bank will pay a price that will vary greatly from that of another bank. Usually, this implicit assumption is introduced by researchers’ simple expedience in calculating a factor price by dividing total cost attributable to a factor by the number of units rented. The range of factor prices so obtained, however, exceeds the reasonable bounds commonly observed in integrated factor markets. Our study contends that the wide variety of labor factor prices implicitly assumed is in fact a reflection of a variegated labor market and that the wide variety of financial capital costs is a reflection of incomplete specification of funds’ costs. We contend that, particularly in cross-sectional studies, it would generally be better for researchers to assume that banks faced competitive factor markets, thereby allowing the factor price term of cost functions to be eliminated. Not only would such elimination allow for a better estimate of true economies of scale and efficiency; it would also simplify greatly the estimation of many models. In this paper, we review briefly the significance of specifying factor prices in cost functions. Then we look at some actual factor prices that are reported in studies and used as inputs to cost function estimation. We conduct some simple tests to show what the reported factor prices in banking may actually represent. Having shown that factor prices reported are subject to misspecification, we estimate a set of cost functions with and without factor price specifications. We conclude by demonstrating that the improper specification of factor prices can affect inferences regarding measurement of inefficiency and returns to scale. Finally, we suggest methods by which these misspecifications may be rectified by use of time series, regional and international factor pricing data.     

Bank involvement with SMEs: Beyond relationship lending

The “conventional wisdom” in academic and policy circles argues that, while large and foreign banks are generally not interested in serving SMEs, small and niche banks have an advantage because they can overcome SME opaqueness through relationship lending. This paper shows that there is a gap between this view and what banks actually do. Banks perceive SMEs as a core and strategic business and seem well-positioned to expand their links with SMEs. The intensification of bank involvement with SMEs in various emerging markets is neither led by small or niche banks nor highly dependent on relationship lending. Moreover, it has not been derailed by the 2007–2009 crisis. Rather, all types of banks are catering to SMEs and large, multiple-service banks have a comparative advantage in offering a wide range of products and services on a large scale, through the use of new technologies, business models, and risk management systems.     

In search of a rational foundation for the massive IT boom in the Australian banking industry: Can the IT boom really drive relationship banking?

Information technology (IT) is meant to improve bank performance by lowering operational costs and improving the process of financial intermediation of banks. However, the empirical evidence has failed to reach a consensus on the precise effects of IT on bank performance as some find evidence to concur with the Solow Paradox, while others contradict this paradox. The heterogeneity in the quality of banking services is partly responsible for the inconsistency in the findings. To sidestep the issue of heterogeneity, we consider the top-tier Australian banks for which the quality of banking services is homogeneous. Applying the dynamic panel data methodology, i.e., panel autoregressive distributed lag (panel ARDL) and cross-sectionally augmented panel ARDL (CS-ARDL) models, we investigate the effect of IT on the cost and profit efficiency frontiers of the top-tier Australian banks during 2000–2019. We unequivocally establish that the frontiers of bank profits rise due to the adoption and diffusion of IT investment, contradicting the assumed failure of IT to adequately collect soft information in the banking industry. Furthermore, we find that the cost frontiers have risen, driven by the IT boom. Hence, there is evidence that despite increases in operational inefficiency, IT has shifted the profit frontiers up by enhancing relationship banking in Australia.     

Insiders and Outsiders: The Choice between Informed and Arm's-Length Debt

While the benefits of bank financing are relatively well understood, the costs are not. This paper argues that while informed banks make flexible financial decisions which prevent a firm's projects from going awry, the cost of this credit is that banks have bargaining power over the firm's profits, once projects have begun. The firm's portfolio choice of borrowing source and the choice of priority for its debt claims attempt to optimally circumscribe the powers of banks.     

互联网金融、存款竞争与银行风险承担

本文通过构建纳入互联网金融的银行环形城市模型,推演了“互联网金融→存款结构/付息成本→银行风险承担”的传导机制。在此基础上,以2003-2016年我国83家商业银行为样本,建立多重中介效应模型进行实证检验。研究结果表明:(1)互联网金融发展经由恶化存款结构和抬高付息成本两种渠道显著加重了银行风险承担水平,其中,恶化存款结构效应的相对贡献为50%左右,抬高付息成本效应的相对贡献为35%左右;(2)相较于互联网渠道构筑业态,互联网支付结算、互联网资源配置和互联网财富管理业态对银行存款结构和付息成本的不利影响更为强烈;(3)相对于国有、大规模、低流动性和低资本充足率商业银行,面对互联网金融的冲击,非国有、小规模、高流动性和高资本充足率商业银行的客户存款流失更快,平均付息成本上涨更多。     

商业银行对外担保业务面临的风险及对策

商业银行的对外担保业务跟随着企业走出去经营的步伐,发展迅猛,但同时也面临着国家外汇管理政策、客户信用、银行内部控制和收益水平、境外受益人和境外代理行等多方面的风险。为促进对外担保业务的良性发展,商业银行应多措并举,加强内部控制,仔细领会国家政策,全面了解自身客户,培养专门人才,提高业务收益,防范操作风险,同时充分借助境外代理行等多重第三方力量,将开出保函后在境外可能面临的各种风险压降到最低限度。