Ownership structure and risk in publicly held and privately owned banks

Using detailed ownership data for a sample of European commercial banks, we analyze the link between ownership structure and risk in both privately owned and publicly held banks. We consider five categories of shareholders that are specific to our dataset. We find that ownership structure is significant in explaining risk differences but mainly for privately owned banks. A higher equity stake of either individuals/families or banking institutions is associated with a decrease in asset risk and default risk. In addition, institutional investors and non-financial companies impose the riskiest strategies when they hold higher stakes. For publicly held banks, changes in ownership structure do not affect risk taking. Market forces seem to align the risk-taking behavior of publicly held banks, such that ownership structure is no longer a determinant in explaining risk differences. However, higher stakes of banking institutions in publicly held banks are associated with lower credit and default risk.     

Monetary policy rules for a developing country: Evidence from Pakistan

This paper estimates forward-looking monetary policy rules to examine the interest rate setting behavior of the State Bank of Pakistan. Considering the external constraints on monetary policy, core inflation and a country-specific measure of the output gap, we demonstrate that the State Bank of Pakistan reacts to changes in inflation, the output gap and the federal funds rate.     

Long memory and structural breaks in modeling the return and volatility dynamics of precious metals

We investigate the potential of structural changes and long memory (LM) properties in returns and volatility of the four major precious metal commodities traded on the COMEX markets (gold, silver, platinum and palladium). Broadly speaking, a random variable is said to exhibit long memory behavior if its autocorrelation function is not integrable, while structural changes can induce sudden and significant shifts in the time-series behavior of that variable. The results from implementing several parametric and semiparametric methods indicate strong evidence of long range dependence in the daily conditional return and volatility processes for the precious metals. Moreover, for most of the precious metals considered, this dual long memory is found to be adequately captured by an ARFIMA–FIGARCH model, which also provides better out-of-sample forecast accuracy than several popular volatility models. Finally, evidence shows that conditional volatility of precious metals is better explained by long memory than by structural breaks.     

Technological choices and unemployment benefits in a matching model with heterogenous workers

This article aims at understanding the interactions between public policies, such as unemployment benefit systems, and firms’ technological choices. For this purpose, we use a matching model in which workers are vertically differentiated and where the nature of jobs is endogenous. We show that an improvement in unemployment benefits leads to an increase in productivity by making agents more selective and jobs more complex. However, the impact on labour market participation is negative.     

Mass Media Advertising in a Developing Country

This paper examines mass media advertising in the developing country of Morocco, with a special reference to the relevance of standardized versus localized advertising strategies. The advertising infrastructure is described, highlighting strengths and weaknesses of local advertising agencies. Advertising budgets are discussed according to size and type of company, before presenting a detailed assessment of the advertising media. Five selected campaigns serve to illustrate current advertising practices and problems. The authors conclude that knowledge of the local environment and a willingness to address consumers in their own terms are essential for advertising effectiveness in Morocco, and recommend use of localized rather than standardized marketing strategies.     

The expansion of services in European banking: Implications for loan pricing and interest margins

Our study of 602 European banks over 1996–2002 investigates how the banks’ expansion into fee-based services has affected their interest margins and loan pricing. We find that higher income share from commissions and fees is associated with lower margins and loan spreads. The higher the commission and fee income share, moreover, the weaker the link between bank loan spreads and loan risk. The latter result is consistent with the conjecture that banks price (or misprice) loans to increase sales of other services. That loss leader (or cross selling) hypothesis has implications for bank regulation and competition with (non-bank) lenders.     

Bank income structure and risk: An empirical analysis of European banks

The purpose of this paper is to investigate the relationship between bank risk and product diversification in the changing structure of the European banking industry. Based on a broad set of European banks for the period 1996–2002, our study first shows that banks expanding into non-interest income activities present higher risk and higher insolvency risk than banks which mainly supply loans. However, considering size effects and splitting non-interest activities into both trading activities and commission and fee activities we show that the positive link with risk is mostly accurate for small banks and essentially driven by commission and fee activities. A higher share of trading activities is never associated with higher risk and for small banks it implies, in some cases, lower asset and default risks.     

Falling under the control of a different type of owner:risk-taking implications for banks

European banks have experienced significant changes in the type of entity that owns them (another bank, an individual or a family, a non-financial company, an institutional investor, a government, a foreign entity, a domestic entity…). In this paper, we look at the influence of ownership type changes on risk and profitability. Working with a panel of commercial banks from 17 European countries, we find that although banks that experience a change in ownership type do not exhibit lower or higher risk or profitability than other banks, their risk and profitability is significantly affected after the change takes place. The type of the acquirer plays a significant role in explaining the observed changes. When the acquirer is a non-financial company, the state or an institutional investor, the level of risk increases after the change while the level of profitability remains unchanged. Conversely, when the acquirer is a bank, we find that the level of risk-adjusted profitability decreases. Banks acquired by a different type of owner during the global financial crisis do not perform better or worse than they did before.     

Local versus International Crises and Bank Stability: does bank foreign expansion make a difference?

We investigate the impact of global and local crises on bank stability in the MENA region and examine the effect of owning bank subsidiaries in other countries. We consider banks that experienced both types of crises during our sample period. Our findings highlight a negative impact of the Global Financial Crisis of 2007–2008 on bank stability but, on the whole, no negative impact of the local crisis. A deeper investigation shows that owning bank subsidiaries outside the home country is a source of increased fragility during normal times, yet a source of higher stability during the local crisis but not during the international crisis. Moreover, owning foreign subsidiaries in one or two world regions is insufficient to neutralize both types of crises, while being present in three or more regions is more stabilizing during a local crisis but also more destabilizing during an international crisis. Our findings contribute to the literature examining bank stability and have several policy implications.