Establishing bank–corporate relationships and building competitive advantages

This article investigates how banks build competitive advantage through relationship banking. Using a grounded theory approach, 29 interviews were conducted with relationship managers and corporate banking directors in 21 case banks from 2004 to 2008. Grounded theory models were developed to illustrate the value creation process in relationship banking. It was found that long-term bank–corporate relationships were established through trust-based personal communications. In the case, banks customer information and knowledge advantages were created. Risk-adjusted returns on assets were used to measure customer relationship performance, and relationship managers were rewarded accordingly. The interviewees thought that bank performance could be improved by managing customer credit risk and identifying cross-selling opportunities. This study starts to open up the ‘black box’ of how banks create shareholder value through relationship banking, provides a picture of relationship banking as a social phenomenon, and supplies some theoretical and managerial implications. The article also links the literature relevant to relationship banking from different disciplines. This is a new way of looking at the relationship banking phenomenon and relevant literature in an integrated manner.     

Changes in Interstate Banking Laws: The Impact on Shareholder Wealth

This study examines the impact on shareholder wealth of changes in interstate banking laws. The research demonstrates that changes in state statutes which allow interstate banking have a positive impact on the stock prices of regional banking organizations and a negative impact on the stock prices of money center banks. Interstate banking statutes initially exclude those states in which the money center banks are headquartered. The findings provide evidence that, by excluding money center banks from expansion across state lines, the competition from the regional banks may have an adverse competitive effect on the money center banks.     

改进的效率测算模型、影子银行与中国商业银行效率

商业银行及其效率的高低是金融供给侧结构性改革的关键环节,而可以压缩的“坏”投入和影子银行对商业银行效率产生重要影响。本文首次建立理论模型并分析影子银行影响商业银行效率的路径;方法上,同时区分投入和产出的“好”或“坏”,拓展只区分产出的“好”或“坏”的效率测算模型;实证上,首次测算并分析“坏”投入、影子银行业务对商业银行利润、风险和效率的影响。结果表明:理论上,影子银行会同时增加风险承担和利润,但无法确定经风险调整后的利润增加能否提升效率;只区分产出的模型高估了效率,尤其是显著高估四大行和股份制商业银行第一阶段的效率,大型商业银行依靠网点的扩张不利于效率的提升;影子银行业务提升了四大国有银行尤其是股份制银行的效率,但对中小型商业银行效率影响较小。总的来看,压缩“坏”投入和规范影子银行是增加有效金融供给、优化金融供给结构和提升银行效率的重要途径。     

Measuring systemic importance of financial institutions: An extreme value theory approach

This paper proposes a set of market-based measures on the systemic importance of a financial institution or a group of financial institutions, each designed to capture different aspects of systemic importance of financial institutions. Multivariate extreme value theory approach is used to estimate these measures. Using six big Canadian banks as the proxy for Canadian banking sector, we apply these measures to identify systemically important banks in Canadian banking sector and major risk contributors from international financial institutions to Canadian banking sector. The empirical evidence reveals that (i) the top three banks, RBC Financial Group, TD Bank Financial Group, and Scotiabank, are more systemically important than other banks, while we also find that the size of a financial institution should not be considered as a proxy of systemic importance; (ii) compared to the European and Asian banks, the crashes of the U.S. banks, on average, are the most damaging to Canadian banking sector, while the risk contribution to the Canadian banking sector from Asian banks is quite lower than that from banks in the U.S. and euro area; (iii) the risk contribution to Canadian banking sector exhibits “home bias”, that is, cross-country risk contribution tends to be smaller than domestic risk contribution.     

A comparative analysis of US policy initiatives and their implications in a credit crisis: The Depression Era of the 1920s in a twenty-first century context

In the closing days of the recent current credit crunch, policymakers have been searching for solutions to make the global banking system more robust to withstand future crises. A range of options are presently under consideration, but principal concerns relate to three core issues: the adequacy of the capital bases of banks, the realisation that some banks are ‘too big to fail’ owing to the impact of failure on the wider economy, and the need to refocus lenders’ attention on the importance of the quality of the borrower as opposed to more abstract future cashflows derived from a project or line of business such as mortgages. This article considers the causes of a previous ‘credit crunch’, this being the banking crisis that preceded the Great Depression of the 1920s in the United States. Legislative responses by the US government at that time are evaluated in terms of potential applicability to the recent credit crunch. The article provides an informed analysis for marketing strategy formulation aimed at encouraging and promoting trust among banks themselves, and banks and their principal stakeholders. It argues that if new stakeholders or providers of additional bank capital are not forthcoming, formal legislative intervention may be the only solution available to regulators. In this regard, marketing and communications strategies take on a wholly new importance in promoting the stability of the international banking industry.     

基于六西格玛管理法的我国银行流程再造研究

基于六西格玛管理法的银行流程再造(PRSS),是以银行业务流程为切入点,引入六西格玛管理法的思想、步骤、目标、技术方法来规范、量化银行流程再造,并以其作为理论指导路径和实施框架,从而不断提高顾客满意度与绩效,使银行获得持续的动态竞争优势。它是一项复杂而持久的系统工程,需要对整个银行体系传统的经营理念和经营模式进行全面而深刻的变革。     

银行危机的蝴蝶效应、负外部性及其防治

对于银行突发事件,若处理不当则会演变成银行危机,乃至会对社会金融和经济产生严重影响。本文从内生性突发事件和外生性突发事件出发,探讨了“蝴蝶效应”导致发生局部银行危机的可能性;运用外部性经济学原理,对银行突发事件的负外部效应和风险溢出进行了探讨。对于突发事件与银行危机的解决,可以从监管机构与商业银行两个方面加强治理:对于监管机构而言,央行要发挥金融稳定职能实施外部援助,银行监管部门加强对商业银行的外部监督;对于商业银行而言,应加强内控机制建设,增强管理层对突发事件的预防和处置能力,防止工作人员道德风险的产生。     

Swiss banking secrecy: the stock market evidence

We examine the stock price reactions of four Swiss banks to negotiations between Switzerland and the European Union and between Switzerland and the United States to (i) obtain an estimate of the value of banking secrecy to Swiss banks, and (ii) distinguish between tax evasion and genuine privacy concerns as sources of that value. We find that the value of banking secrecy to the private banks is large, accounting for 8 to 14% of their market value; in contrast, the value of banking secrecy to the universal banks is small. We further find that tax evasion may be less important and privacy concerns more important a source of value of banking secrecy than might previously have been thought.     

Quasi‐Nationalisation in the UK Banking Crisis: A Problematic Policy Option

The systemic banking crisis in 2008 led to the quasi‐nationalisation of two UK listed banks: The Royal Bank of Scotland and Lloyds Banking Group (National Audit Office, 2010). Using property rights and agency theory as the theoretical frameworks, this paper analyses whether the quasi‐nationalisation of these banks has been successful. It is argued that as a rescue mechanism, quasi‐nationalisation was a positive development. However, questions arise over its effect as an instrument of banking reform. The State's arm's length approach to management represents a lost opportunity to change the culture of profitability over people that contributed to the banking crisis.     

The profitability of small single-market banks in an era of multi-market banking

This paper examines the relationship between the profitability of small single-market banks and the presence in the market of large banking organizations and banking organizations that operate primarily outside of the local banking market. We find that, in rural banking markets, the profitability of small single-market banks is significantly related to the presence of both large and small primarily-out-of-market banks. We also find that an increased presence of large or small primarily-out-of-market banks in rural banking markets reduces the positive effect of an increase in concentration on small single-market bank profits. This finding is consistent with theoretical predictions reported in the recent literature and has important implications for antitrust policy. In urban banking markets, we find little evidence of any relationship between the profitability of small single-market banks and the presence of large or primarily-out-of-market banks.     

The Impact of Mergers and Acquisitions on the Efficiency of the US Banking Industry: Further Evidence

Abstract:  Using the Stochastic Frontier Approach (SFA), this study investigates the cost and profit efficiency effects of bank mergers on the US banking industry. We also use the non-parametric technique of Data Envelopment Analysis (DEA) to evaluate the production structure of merged and non-merged banks. The empirical results indicate that mergers have improved the cost and profit efficiencies of banks. Further, evidence shows that merged banks have lower costs than non-merged banks because they are using the most efficient technology available (technical efficiency) as well as a cost minimizing input mix (allocative efficiency). The results suggest that there is an economic rational for future mergers in the banking industry. Finally, mergers may allow the banking industry to take advantage of the opportunities created by improved technology.     

Shadow Banking,Risk Transfer,and Financial Stability

Shadow banking is the process by which banks raise funds from and transfer risks to entities outside the traditional commercial banking system. Many observers blamed the sudden expansion in 2007 of U.S. sub‐prime mortgage market disruptions into a global financial crisis on a “liquidity run” that originated in the shadow banking system and spread to commercial banks. In response, national and international regulators have called for tighter and new regulations on shadow banking products and participants. Preferring the term “market‐based finance” to the term “shadow banking,” the authors explore the primary financial instruments and participants that comprise the shadow banking system. The authors review the 2007–2009 period and explain how runs on shadow banks resulted in a liquidity crisis that spilled over to commercial banks, but also emphasize that the economic purpose of shadow banking is to enable commercial banks to raise funds from and transfer risks to non‐bank institutions. In that sense, the shadow banking system is a shock absorber for risks that arise within the commercial banking system and are transferred to a more diverse pool of non‐bank capital instead of remaining concentrated among commercial banks. The article also reviews post‐crisis regulatory initiatives aimed at shadow banking and concludes that most such regulations could result in a less stable financial system to the extent that higher regulatory costs on shadow banks like insurance companies and asset managers could discourage them from participating in shadow banking. And the net effect of this regulation, by limiting the amount of market‐based capital available for non‐bank risk transfer, may well be to increase the concentrations of risk in the banking and overall financial system.     

Islamic Banks and Financial Stability: An Empirical Analysis

The relative financial strength of Islamic banks is assessed empirically based on evidence covering individual Islamic and commercial banks in 19 banking systems with a substantial presence of Islamic banking. We find that (a) small Islamic banks tend to be financially stronger than small commercial banks; (b) large commercial banks tend to be financially stronger than large Islamic banks; and (c) small Islamic banks tend to be financially stronger than large Islamic banks, which may reflect challenges of credit risk management in large Islamic banks. We also find that the market share of Islamic banks does not have a significant impact on the financial strength of other banks.     

The Impact of Internet-Banking on Brick and Mortar Branches: The Case of Turkey

The increased adoption and infiltration of the Internet has recently redefined the playground for retail banks. Retail banks are now offering their services primarily through their Internet banking branches. The repercussions of this change to “brick and mortar” banks have been studied in the context of developed market economies. In this paper, we contribute to the literature by studying the impact of Internet banking adoption on banks’ deposit collection, lending activities, and performance in an emerging market setting. By using a panel of 18 retail banks that operate in Turkey from 1990–2008, we demonstrate that Internet banking adoption has a positive impact on the level of profits, deposits and loans per branch. As operational activities are now provided via Internet branches, Internet banking facilitates banking activities in branches that require more human input. We also find that Internet banking adoption has a negative impact on bank profitability after 2 years of adoption as Internet banking increases competition and results in lower interest income. Accordingly, Internet banking complements brick and mortar branches.     

Banks as Catalysts for Industrialization

We provide a new theory of the role of banks as catalysts for industrialization. In their influential analysis of continental European industrialization, Gerschenkron and Schumpeter argued that banks promoted the creation of new industries. We formalize this role of banks by introducing financial intermediaries into a “big push” model. We show that banks may act as catalysts for industrialization provided they are sufficiently large to mobilize a critical mass of firms and that they possess sufficient market power to make profits from coordination. The theory provides simple conditions that help explain why banks seem to play a creative role in some but not in other emerging markets. The model also shows that universal banking helps to reduce the cost of acting as catalyst. Journal of Economic Literature Classification Numbers: G21, N2, O14, O16.     

风险分担机制变迁、银行经营模式转型与银行安全

经济全球化过程中,金融市场横向风险分担机制侵蚀了银行中介跨期风险分担机制;一部分资金从银行中介转移到金融市场,致使商业银行传统盈利模式遭受冲击。银行必须从传统的存贷款经营模式转变为参与金融市场和衍生工具交易的、提供综合金融服务的现代经营模式。在这一转型过程中,如果转型过快或者银行不能适应变化,银行体系则可能积累大量风险,并导致银行危机。实证检验结果显示,风险分担机制变迁显著增加了银行危机的概率。     

Back to the basics in banking? A micro-analysis of banking system stability

This paper analyzes the relationship between banks’ divergent strategies toward specialization and diversification of financial activities and their ability to withstand a banking sector crash. We first generate market-based measures of banks’ systemic risk exposures using extreme value analysis. Systemic banking risk is measured as the tail beta, which equals the probability of a sharp decline in a bank’s stock price conditional on a crash in a banking index. Subsequently, the impact of (the correlation between) interest income and the components of non-interest income on this risk measure is assessed. The heterogeneity in extreme bank risk is attributed to differences in the scope of non-traditional banking activities: non-interest generating activities increase banks’ tail beta. In addition, smaller banks and better-capitalized banks are better able to withstand extremely adverse conditions. These relationships are stronger during turbulent times compared to normal economic conditions. Overall, diversifying financial activities under one umbrella institution does not improve banking system stability, which may explain why financial conglomerates trade at a discount.     

The economic effects of foreign bank presence: Evidence from the Philippines

This study examines the economic effects of the liberalization of foreign bank entry in the Philippines from 1990 to 2006. The findings provide strong evidence on the dominance of competition effects from foreign bank presence which lead to the reduction in the profitability and overhead costs of domestic commercial banks. These findings, which reveal that both the actual market penetration and mere presence of foreign banks seem to exert competitive pressure to domestic banks, imply that foreign banks may serve as an effective competitive force, reducing the excess profits earned by domestic banks and compelling domestic banks to update their production technologies and techniques to improve their cost efficiency.From a policy perspective, the findings on competition effects of foreign banks in the domestic banking system justify the liberalization of foreign bank entry in the Philippines. The main findings demonstrate that the goal of banking liberalization in transforming domestic banks to be more competitive and efficient works considerably well in the case of the Philippines. Aside from the policy of easing the entry of foreign banks, bank-specific conditions can have significant impact on the performance of domestic banks. Therefore, a sustained improvement in the efficiency of domestic commercial banks requires not only liberalizing the entry of foreign banks, but also on continued strengthening of domestic prudential regulation and supervision on the commercial banking system.     

Banks as delegated risk managers

Risk management, although of major importance in the banking industry in practice, plays only a minor role in the theory of banking. We reduce this gap by putting forward a model in which risk managers – specialists that can find out correlations between risky assets – endogenously take over typical functions of banks. They grant loans, they consult on financial questions with firms that are threatened by bankruptcy, and they sign tailor-made hedge transactions with these firms. Delegation costs are innately low if banks assume the function of risk managers in an economy. Risk management can be seen as a core competence of banks.     

The return to retail and the performance of US banks

The US banking industry is experiencing a renewed focus on retail banking, a trend often attributed to the stability and profitability of retail activities. This paper examines the impact of banks’ retail intensity on performance from 1997 to 2004 by developing three complementary definitions of retail intensity (retail loan share, retail deposit share, and branches per dollar of assets) and comparing these measures with both equity market and accounting measures of performance. We find that an increased focus on retail banking across US banks is linked with significantly lower equity market and accounting returns for all banks, but lower volatility for only the largest banking companies. We conclude that retail banking may be a relatively stable activity, but it is also a low return one.