Social networks in the global banking sector

We show that banks with shared social connections partner more often in the global syndicated loan market and that central banks in the network play dominant roles in various interbank transactions, indicating that social connections facilitate business connections. However, more centralized banks in the network also contribute significantly to the global systemic risk. Moreover, we find the soft information generated by social networks is particularly valuable when potential partners operate under different accounting and regulatory standards. Finally, we show that the recent banking crisis significantly limited the positive soft information effects of social networks in the global banking system.     

Sufficiency of an outside bank and a default penalty to support the value of fiat money: Experimental evidence

We present a model in which an outside bank and a default penalty support the value of fiat money, and experimental evidence that the theoretical predictions about the behavior of such economies, based on the Fisher-condition, work reasonably well in a laboratory setting. The import of this finding for the theory of money is to show that the presence of a societal bank and default laws provide sufficient structure to support the use of fiat money and use of the bank rate to influence inflation or deflation, although other institutions could provide alternatives.     

Extent of corporate governance disclosure by banks and finance companies listed on Nepal Stock Exchange

Corporate governance disclosure has seen renewed interest by researchers, policy makers, and regulating bodies internationally, but has remained only an emerging construct in Nepal. The primary purpose of this study was to assess the extent of mandatory corporate governance disclosure in Nepal. The secondary purpose was to examine the associations between the extent of disclosures and five firm-specific characteristics. The third purpose was to assess the significant determinants to explain variations of disclosures. The study's sampling frame consisted of 125 banking and finance companies listed on Nepal Stock Exchange. A sample size of 59 companies was randomly selected. On average, companies disclosed 91% of items in the mandatory category, 48% in the voluntary category, and 74% in total. A significant positive correlation existed between governance disclosures and firm characteristics of size, leverage, and foreign ownership. There was no significant relation between governance disclosure and listing age or profitability. With regards to determinants, bank size was a significant predictor of governance disclosure. Three regression models for total disclosures (DScore), mandatory disclosures [DScore (M)], and voluntary disclosures [DScore (V)] with three predictors of size, leverage, and foreign ownership were significant and explained 47%, 24%, and 54% variations respectively in total, mandatory, and voluntary corporate governance disclosures in Nepal. This research provides guidelines to policy makers and standard setters for developing future regulations and accounting policies.     

The design and communication of systematic monetary policy strategies

The efficacy of central bank communications is inextricably linked to the characteristics of the monetary policy framework. Therefore, this paper presents a set of fundamental principles regarding the joint design of monetary policy strategy and communications. The practical implications of these principles are illustrated by considering a number of significant policy challenges faced by central banks in the advanced economies.     

National politics and bank default risk in the eurozone

We study the impact of national politics on default risk of eurozone banks as measured by the stock market-based Distance to Default. We find that national electoral cycles, the power of the government as well as the government’s party ideological alignment significantly affect the stability of banks in the eurozone member countries. Moreover, we show that the impact of national politics on bank default risk is more pronounced for large as well as weakly capitalized banks.     

Western sanctions—Only half the challenge to Russia’s economic union

Tensions over Russia’s recent actions in Ukraine and the Middle East have resulted in wide-ranging Western sanctions. An understanding the destabilizing regional and institutional effects of sanctions is, therefore, fundamental for policymakers on both sides. Data from 2007 to 2015 are used to analyze the effect of funding, bank ownership and credit quality across Russia’s wider Economic Union. Results enable systemic insights into an often opaque region during a period of crises and sanctions. Specifically we find that sanctions result in institutional illiquidity, limited capital market access and a rise in state funding coupled with bank take-overs by governments. Government Institutions exploit their access to state funding to increase market share but the positive effects are limited since there is clear evidence of ongoing poor credit management. An increase in loan loss provisions, lagged abnormal credit losses, suggest that until this second but significant ‘weak management’ effect is addressed, it will be difficult for institutions in the region to overcome the debilitating effects of sanctions.     

The effects of resolution methods and industry stress on the loss on assets from bank failures

In this paper, we examine how the value of failed bank assets differs between two types of FDIC resolution methods: liquidation and private-sector reorganization. Our findings show that private-sector reorganizations do not deliver the expected cost-savings from 1986 to 1991, a period of industry distress. On a univariate basis, the net loss on assets is lower for a private-sector reorganization than for a liquidation in both a period of industry distress and of industry health. However, institutions with higher quality assets and higher franchise values are more likely to be resolved using a private-sector resolution. Once we control for this selection bias, we find that institutions that are resolved during periods of industry distress result in higher resolution costs than liquidation. During periods of industry health, private-sector resolutions are less costly than liquidations. We show that if a bank that failed during the post-crisis period instead failed during the crisis period, its net loss as a percent of assets would have been 3.232 percentage points higher. Given that the average net loss on assets ratio is 21.42 percent during our sample period from 1986 to 2007, the increase in costs is economically significant.     

The impacts of risk-taking behaviour and competition on technical efficiency: Evidence from the Chinese banking industry

This paper tests the impact of risk and competition on efficiency in the Chinese banking industry over the period 2003–2013. Comprehensive types of risk-taking behaviour are considered including credit risk, liquidity risk, capital risk, and insolvency risk. Competition is measured by the Lerner index. The results are cross-checked using an alternative econometric technique as well as an alternative competition indicator. The findings show that the technical and pure technical efficiencies of Chinese commercial banks are significantly and negatively affected by liquidity risk. They further show that greater competition precedes declines in technical and pure technical efficiencies of Chinese commercial banks. The results suggest that Chinese bank efficiency is significantly affected by bank diversification, banking sector development, stock market development, inflation and GDP growth rate. The findings also indicate that, compared to state-owned commercial banks, joint-stock commercial banks and city commercial banks have lower technical and pure technical efficiencies.     

Why do commercial banks hold government bonds? The case of Japan

We investigate the determinants of the demand for Japanese government bonds (JGBs) by commercial banks in Japan. In particular, by estimating portfolio equations for JGB demand and bank loans, based on a panel data set from the late 1990s to the 2000s, we rigorously test the popular assertion that the long stagnation of the real economy caused a shift in the portfolios of commercial banks from bank lending to JGBs. We find that the popular assertion is not empirically supported. Rather, the portfolio shift from loans to JGBs has been caused by a fall in the ratio of the loan rate to unit lending costs, or the bank’s price–cost margin for lending.     

Does the Stock Market Compensate Banks for Diversifying into the Insurance Business?

This paper explores a wide range of corporate restructurings, all available deals from wire services, in the banking and insurance sectors that led to bancassurance ventures. An event study methodology is employed to calculate excess returns on and around the deals’ announcement date. Using both univariate and multivariate analysis the paper finds bank driven mergers, deal's size and regional categorization all triggering positive and significant market reactions. Unlike the univariate framework, multivariate analysis shows that geographic focus and language are not significant factors. The results also indicate that markets are indifferent with respect to bank withdrawals from the bank‐insurance operations. Finally, Canadian, U.S. and European bank‐insurance deals produce positive results, while Australasian bidders offer statistically insignificant equity returns.