BANK MERGERS AND ACQUISITIONS – AN EVALUATION OF THE ‘FOUR PILLARS’ POLICY IN AUSTRALIA*

This paper examines the efficiency consequences of bank mergers and acquisitions with particular reference to the ‘four pillars’ policy preventing mergers among the four major banks. Using data envelopment analysis, the technical efficiencies of banks operating in Australia over the period from 1983 to 2001 are estimated. A second‐stage regression is used to evaluate ex‐post efficiency performance of banks involved in mergers and acquisitions. The empirical results demonstrate that for the time being mergers among the four major banks may result in much poorer efficiency performance in the merging banks and the banking sector.     

CROSS‐MARKET TRADING IN CHINA'S LARGE STATE‐OWNED COMMERCIAL BANKS, 2006–2011

This paper examines the differential between the share prices of China's large state‐owned commercial banks traded in Shanghai versus prices observed in Hong Kong. We find a significant role for investor sentiment, as reflected in relative price‐earnings ratios, in explaining these price differentials for all four banks. The share price in Shanghai tends to move ahead of the share price in Hong Kong when more positive sentiment in Shanghai makes local investors willing to pay more for the same predicted earnings. We also identify common trends in relative bank price‐earnings ratios and price differentials across the two markets. (JEL G14, G15)     

Mortgage‐backed Securitization and SME Lending During the Financial and Economic Crisis: Evidence from the Italian Cooperative Banking System

I investigate the determinants of the securitization activities of Italian cooperative banks during the financial and economic crisis (2007–2014) and the impact of securitization on the supply of loans to SMEs. The less deposit‐funded, less profitable and less capitalized cooperative banks are, the more likely they are to securitize and the more likely it is that they will securitize to a larger extent. Furthermore, I find that securitization has not directly affected the supply of new SME loans. However, there is strong evidence of a risk‐rebalancing effect of securitization on the balance sheet, especially in the period 2010–2014.     

Management Behaviour in Vietnamese Commercial Banks

This study identifies managerial behaviour in Vietnamese banks between the years 2000 and 2014, based on the managerial framework of banks, as identified by Rossi et al. ( 2009 ). This framework is built on the interrelationships between efficiency, risk, capital and diversification. This study uses the Z‐score to measure insolvency risk, the SFA to estimate cost efficiency, the ratio of total equity to total assets to capture bank capital and the HHI index to measure the diversification of revenue and earning assets. The results from the 3SLS estimator indicate that revenue diversification has an insignificant impact on insolvency risk, capital ratio and cost efficiency, but earning assets diversification has a negative effect on these three variables, supporting ‘classical diversification’, ‘economic capital’ and ‘monitoring’ behaviours. Moreover, a decline in cost efficiency leads to a rise in insolvency risk, implying ‘bad management’ behaviour; an increase in risk results in a reduction in cost efficiency, indicating ‘bad luck’ behaviour; and a reduction in capital ratio in the poorly capitalised banks leads to a growth in risk, suggesting ‘moral hazard’ behaviour. The results remain strongly robust when using an alternative risk measurement (the loan loss provision ratio) and an alternative SFA model.     

HOW DID STATE‐OWNED BANKS RESPOND TO PRIVATIZATION? EVIDENCE FROM THE INDIAN EXPERIMENT

ABSTRACT ** : The paper examines the response of banks to privatization. Using data on all state‐owned banks for the period 1990–2006, the findings indicate that fully state‐owned banks are significantly less profitable than partially privatized ones. The improvements in performance by partially privatized banks are, in fact, sustained after privatization. In addition, the analysis indicates that privatization improves profitability, efficiency and improves bank soundness, while lowering bank risk. While the improvement in bank risk is typically spread out over a much longer period, the progress in terms of profitability and economic efficiency typically occurs in the post‐privatization period.     

BANK COMPETITION AND FINANCIAL STABILITY: LIQUIDITY RISK PERSPECTIVE

We study whether competition affects banks' liquidity risk‐taking, which was at the heart of the 2008 financial crisis. We find that banks with greater market power take more liquidity risk, implying that decreased competition leads to financial fragility. During a financial crisis, however, the effect of market power on liquidity risk varies across bank size. Small banks with greater market power reduce liquidity risk while large banks with greater market power do not change their liquidity risk‐taking behavior. This suggests that enhanced charter values due to reduced competition lowers small banks' risk‐shifting incentives when their default risk significantly increases during a crisis. (JEL G21, G28)     

Basel III and perceived resilience of banks in the BRICS economies

This study investigates how the additional capital and liquidity requirements of Basel III would increase the resilience of banks. In particular, using panel data from 2007 to 2014, we examine the resilience of banks in the BRICS economies. Our results suggest that a 10% increase in capital adequacy ratio (CAR), Tier 1 capital ratio (TRA), and leverage ratio (LEV), the resilience (as measured by Z-Score of banks) increases by about 2.18, 0.89 and 1.31%, respectively. Similarly, for a 100% increase in liquidity coverage ratio (LCR), the resilience of banks increases by 0.51%, 1.10% and 1.19%, respectively, in the models associated with CAR, TRA, and LEV. Hence, our findings suggest that the CAR is robust to increase the resilience of banks. Our study also reveals that the LCR and LEV are the most effective to increase the resilience of banks if implemented simultaneously. We also find that the stage of economic development does not matter in formulating policies for the BRICS economies, and finally, we provide empirical evidence that economy-wide risk, such as a financial crisis, does not affect the resilience of banks and it influences the resilience of banks in the BRICS economies in the same way before and after the crisis.     

Bank capital,the state contingency of banks’ assets and its role for the transmission of shocks

I show how the evolution of bank capital depends on the share of non-state-contingent assets in banks’ balance sheets and present the implications for macroeconomic dynamics. State-contingent securities impact on banks’ balance sheets through changes in their returns (and their prices), both of which depend on the current state of the economy. Non-state-contingent assets are signed before shocks are realized and their repayment is guaranteed. For this reason, they insulate banks’ balance sheets from recent economic activity in the absence of defaults. Non-state-contingent assets in banks’ balance sheets attenuate the amplification of shocks resulting from financial frictions. The same effect can be achieved if more weight is placed on the state-contingent assets in the equity related constraint against the costs of long-run output losses.     

上市商业银行表外项目的风险与价值相关性研究：基于信用承诺业务*

本文建立了资产负债表模型和净收益模型对中国上市商业银行表外承诺项目的价值相关性进行检验。研究证实表外项目在总体层面和分项目层面均与银行业股票价格显著负向相关,进一步研究证实该负向关系在国有商业银行和非国有商业银行均显著存在。以上结果表明,信用承诺的风险内涵大于收益内涵,具有负债属性。该结论提示投资者将表外项目作为风险因子,建议企业改进表外项目信息披露透明度,在年报中增设表外项目风险自评报告,加强表外项目风险监管。本文对信用承诺价值相关性的研究为理解不同金融发展水平下的表外业务风险提供了经验证据。     

Japanese Bank Productivity, 2007–2012: A Dynamic Network Approach

We estimate a dynamic network (DN) directional output distance function for 100 Japanese banks operating during 2007–2012. Network production occurs in that deposits and other funds raised are produced as intermediate products in stage 1 and those intermediate products are used to generate a portfolio of assets in stage 2. The dynamic technology links production periods via nonperforming loans (NPL) and carryover assets, which take the form of excess reserves. Carryover assets expand the future production possibility set while NPL shrink future production possibilities. We extend previous DN methods to measure the performance of three types of Japanese commercial banks: city banks, regional banks and second regional banks. We test for and find differences in the three bank technologies relative to a common technology. Such differences are likely due to different institutional and regulatory structures. Unlike previous DN studies, we also allow for a non‐uniform abatement factor between previously‐produced NPL and other inputs in stage 1 and between performing loans and NPL in the current period. Measured productivity change is greater when each bank faces their own group technology rather than the pooled technology consisting of all bank types.     

Measuring and Optimizing Portfolio Credit Risk: A Copula‐based Approach*

In this work, we present a methodology for measuring and optimizing the credit risk of a loan portfolio taking into account the non‐normality of the credit loss distribution. In particular, we aim at modelling accurately joint default events for credit assets. In order to achieve this goal, we build the loss distribution of the loan portfolio by Monte Carlo simulation. The times until default of each obligor in portfolio are simulated following a copula‐based approach. In particular, we study four different types of dependence structure for the credit assets in portfolio: the Gaussian copula, the Student's t‐copula, the grouped t‐copula and the Clayton n‐copula (or Cook–Johnson copula). Our aim is to assess the impact of each type of copula on the value of different portfolio risk measures, such as expected loss, maximum loss, credit value at risk and expected shortfall. In addition, we want to verify whether and how the optimal portfolio composition may change utilizing various types of copula for describing the default dependence structure. In order to optimize portfolio credit risk, we minimize the conditional value at risk, a risk measure both relevant and tractable, by solving a simple linear programming problem subject to the traditional constraints of balance, portfolio expected return and trading. The outcomes, in terms of optimal portfolio compositions, obtained assuming different default dependence structures are compared with each other. The solution of the risk minimization problem may suggest us how to restructure the inefficient loan portfolios in order to obtain their best risk/return profile. In the absence of a developed secondary market for loans, we may follow the investment strategies indicated by the solution vector by utilizing credit default swaps.     

WHAT CAUSES THE EFFICIENCY AND THE TECHNOLOGY GAP UNDER DIFFERENT OWNERSHIP STRUCTURES IN THE CHINESE BANKING INDUSTRY?

This paper estimates and compares the cost efficiency of the Chinese banking industry among different ownership types for the period 2003–2014, using the stochastic metafrontier model. We find that foreign banks have the lowest cost frontier, while state‐owned commercial banks undertake the least sophisticated technology. Moreover, the results of the upward trend in the technology gap ratio (TGR) and in metafrontier cost efficiency support that a more open financial market is able to enhance banking efficiency. As for the role of environmental conditions, off‐balance sheet items, non‐performing loans, and financial market structure significantly impact the TGRs of different bank types. (JEL C51, G21, D24)     

Estimating bilateral exposures in the German interbank market: Is there a danger of contagion?

Credit risk associated with interbank lending may lead to domino effects, where the failure of one bank results in the failure of other banks not directly affected by the initial shock. Recent work in economic theory shows that this risk of contagion depends on the precise pattern of interbank linkages. We use balance sheet information to estimate a matrix of bilateral credit relationships for the German banking system and test whether the breakdown of a single bank can lead to contagion. We find that in the absence of a safety net, there is considerable scope for contagion that could affect a large proportion of the banking system. The financial safety net (in this case institutional guarantees for saving banks and cooperative banks) considerably reduces—but does not eliminate—the danger of contagion. Even so, the failure of a single bank could lead to the breakdown of up to 15% of the banking system in terms of assets.     

A test for the too-big-to-fail hypothesis for European banks during the financial crisis

Motivated by the theoretical prediction of the opportunistic behaviour of large banks that face expected public intervention, we test a full and a partial form of the too-big-to-fail (TBTF) hypothesis. The full form of the hypothesis implies the increase in the risk undertakings and profitability of banks that exceed a certain dimension; the partial form of the hypothesis implies only an augmented risk appetite of large banks compared to their smaller counterparts. The examined area is the European banking industry, whose behaviour is observed over the first wave of the present financial crisis (2007/09). The estimation of a quadratic fit that links change in a bank’s credit risk profile and profitability retention rates with a bank’s size suggests the existence of a partial form of the TBTF hypothesis. However, a more precise, local rolling windows estimation of the size sensitivities reveals that large banks – those whose liabilities exceed approximately 2% of the country of origin’s GDP (15% of our sample) – show an increase in credit risk profile and a superior capability of retaining higher ROA scores, vis-à-vis their smaller counterparts. With the caveats of our investigation, we interpret these results as evidence of a full form of the TBTF hypothesis.     

论国有商业银行不良资产证券化技术的运用和推广

不良资产证券化是一种已经被国际经验证明的大规模处置不良资产的技术和手段。商业银行通过实施资产证券化能够将其不良资产以"真实出售"的方式转移到资产负债表外,使其风险加权资产减少,从而在不增加资本的情况下提高资本充足率。在中国,实施不良资产证券化还有助于国有商业银行提高自身的综合经营能力和积累市场化资本运作经验。本文正是从这一角度对不良资产证券化的技术要领进行了深入的探讨,力图从证券化产品的角度分析影响不良资产证券化的主要因素以及如何在不同市场条件下,运用和推广不良资产证券化的核心技术即不良资产证券化交易结构的选择和设计。     

The effects of cross‐border M&As on the acquirers’ domestic performance: firm‐level evidence

Abstract This paper provides empirical evidence on the effects of cross‐border mergers and acquisitions (M&As) on the acquiring firms’ domestic performance in the U.K. and France. We build a new firm‐level data set that combines a global M&A database with balance sheet data for the years 2000 to 2007. Combining matching techniques with a difference‐in‐differences estimator, we find that cross‐border M&As boost on average acquirers’ domestic sales and investment, and they are not accompanied by a downsizing of the domestic labour force in either country. Further, cross‐border M&As in knowledge‐intensive industries lead to improvements in domestic productivity. Our results display some heterogeneity across industries and types of acquisitions, suggesting a connection between the motives for international M&As and their resulting effects.     

Portfolio separation and the dynamics of bank interest rates

We develop a dynamic model of the interest rates of a monopolistic bank, providing both intermediation and payment services. We obtain testable restrictions on portfolio separation from the dynamic terms of the reduced‐form solutions, and test the model using balance‐sheet data from large banks of 17 OECD countries, over the period 1988–2007. We find strong evidence against the portfolio separation hypothesis. In line with the predictions of the model, interest margins rise with higher market interest rates, lower revenues from fees, and higher industrial costs and loan loss provisions.     

The emerging Russian banking system1

Value-added in Russian banks grew by 43 per cent while GDP declined by 32 per cent in the early years of the transition in Russia. This paper offers explanations for the unusual success of the Russian banking sector and the determinants of individual bank performance. The evidence comes from balance sheet data for 563 Moscow banks and 160 regional banks on January 1, 1995 and January 1, 1996. Important factors include the Central Bank policy of channelling low-interest directed credits to state enterprises through banks, the ability of banks to obtain large-scale interest-free deposits, and the resulting high interest rate spreads in an environment of high inflation, and the extent to which banks were formerly part of the Soviet system.     

基于可流动性资产负债表的我国政府债务风险研究

政府资产是政府债务顺利偿还的基础,当政府资产低于其负债时,政府债务将面临一定风险,因此基于政府资产负债的视角,本文结合中国实际首先编制了一个简化的政府"可流动性资产"负债表,然后,分析了1998—2008年我国政府仅考虑直接债务时的政府债务风险,并且对2009—2010年的政府债务风险进行了分析。研究表明,2003—2006年因外汇储备急剧增长使我国政府债务风险总体较小且比较稳定,但因金融危机的爆发,我国政府债务风险在此期间前后的两次金融危机中都比较大,金融危机对政府债务风险的影响显著。研究还表明,积极的财政政策对短期降低政府债务风险具有明显效果,且1997年亚洲金融危机和2007年美国次贷危机对我国政府债务风险的影响具有相似性,即金融危机爆发后的几年内政府债务风险会因积极的财政政策而经历"大—小—大"的变化过程。最后,通过引入政府或有债务,分析了具有或有债务时的政府债务风险。本文认为,只要我国政府的或有债务规模不超过24万亿元人民币,则我国的政府债务风险较小。     

THE RISK OF FIRE SALES IN THE TRI‐PARTY REPO MARKET

This paper studies the risk of “fire sales” in the tri‐party repo market, a large and important market where securities dealers find short‐term funding for a substantial portion of their own and their clients' assets. We distinguish between fire sales of assets by a dealer who, facing a run that could lead to default, sells securities to generate liquidity, and fire sales of assets by repo investors after a dealer's default has occurred. While fire sales do cause damage no matter how they arise, the tools available to lessen the harm from the two types of fire sales are different. We find that limited tools are available to mitigate the risk of predefault fire sales and that no established tools currently exist to mitigate the risk of postdefault sales. (JEL G01, G18)