Loan pricing under Basel capital requirements

We analyze the loan pricing implications of the reform of bank capital regulation known as Basel II. We consider a perfectly competitive market for business loans where, as in the model underlying the internal ratings based (IRB) approach of Basel II, a single risk factor explains the correlation in defaults across firms. Our loan pricing equation implies that low risk firms will achieve reductions in their loan rates by borrowing from banks adopting the IRB approach, while high risk firms will avoid increases in their loan rates by borrowing from banks that adopt the less risk-sensitive standardized approach of Basel II. We also show that only a very high social cost of bank failure might justify the proposed IRB capital charges, partly because the net interest income from performing loans is not counted as a buffer against credit losses. A net interest income correction for IRB capital requirements is proposed.     

Ability of accounting and audit quality variables to predict bank failure during the financial crisis

We examine the ability of selected accounting and audit quality variables measured in a period prior to the financial crisis (i.e., the four quarters of 2006), to predict banks that subsequently failed during the financial crisis. We employ two sets of samples from the US: a troubled banks sample that includes banks that failed in or after 2007 as well as banks classified as being troubled based on profitability, loan quality, and balance sheet position in 2007, and a full sample that includes all banks with available required data. Using the troubled banks sample, we identify six reliable predictors of bank failure: auditor type, auditor industry specialization, Tier 1 capital ratio, proportion of securitized loans, growth in loans, and loan mix. For the larger full sample of banks, we identify the following ten predictors of bank failure: auditor type, Tier 1 capital ratio, proportion of securitized loans, nonperforming loans, loan loss provisions, growth in commercial loans, growth in real estate loans, growth in overall loans, loan mix, and whether the bank is a public bank.     

Capital Constraints,Asymmetric Information,and Internal Capital Markets in Banking: New Evidence

A growing literature investigates the role of internal capital markets in mitigating financial constraints faced by the subsidiaries of a conglomerate. Most studies have relied on indirect tests based on correlations between the cash flows and the investment of the subsidiaries. In contrast, we avoid the widespread criticisms of such specifications by providing direct tests that focus on the mechanisms through which internal reallocations of funds occur. We find that internal capital markets are used by multibank holding companies to mitigate capital constraints faced by individual bank subsidiaries. In addition, we show that internal capital management within a multibank holding company involves not only the movement of capital to those subsidiaries with a relatively greater need for capital but also the movement of assets (loans) from less well capitalized to better capitalized subsidiaries by means of loan sales and purchases among the subsidiaries. Furthermore, net loan sales are used to allow efficiency‐enhancing specialization among bank subsidiaries, insofar as those subsidiaries with the best loan origination opportunities are able to focus on loan originations even if they do not have sufficient capital to hold the loans. Our evidence is consistent with banks affiliated with holding companies more actively participating in loan sales and purchases because, by using their internal secondary loan market, they are able to avoid the “lemons” problem faced by stand‐alone banks.     

Government guarantees of loans to small businesses: Effects on banks’ risk-taking and non-guaranteed lending

We analyzed the loan guarantees that the Japanese government provided for banks’ loans to small and medium-sized enterprises (SMEs). We modeled and estimated how much and under what conditions loan guarantees affected banks’ risk-taking and banks’ non-guaranteed lending.In the presence of controls for bank capital and other factors that might affect supplies of bank credit, our estimates supported our model's implications that loan guarantees increased banks’ risk-taking.Consistent with our model, our estimates imply that, when banks initially had fewer guaranteed loans and then got more guaranteed loans, guaranteed loans were complements to, rather than substitutes for, non-guaranteed loans. As complements, loan guarantees could be “high-powered” in that they generated increases not only in guaranteed loans, but also increases in non-guaranteed loans that were a multiple of the increases in guaranteed loans. In addition, banks’ having more capital was associated with doing more non-guaranteed lending.     

Bad luck or bad management? Emerging banking market experience

A large number of bank failures occurred in transition countries during the 1990s and at the beginning of the 2000s. These were related to increases in non-performing loans and deteriorated cost efficiency of banks. This paper addresses the question of the causality between non-performing loans and cost efficiency in order to examine whether either of these factors is the deep determinant of bank failures. We extend the Granger-causality model developed by [Berger, A., DeYoung, R., 1997. Problem loans and cost efficiency in commercial banks. J. Banking Finance 21, 849–870] by applying GMM dynamic panel estimators on a panel of Czech banks between 1994 and 2005. Our findings support the bad management hypothesis, according to which deteriorations in cost efficiency precede increases in non-performing loans. Banking supervisors should consequently focus on enhanced cost efficiency of banks in order to reduce the likelihood of bank failures in transition countries.     

Financial Dampening

We propose a novel mechanism, “financial dampening,” whereby loan retrenchment by banks attenuates the effectiveness of monetary policy. The theory unifies an endogenous supply of illiquid local loans and risk sharing among subsidiaries of bank holding companies (BHCs). We derive an instrumental variable (IV) strategy that separates supply-driven loan retrenchment from local loan demand by exploiting linkages through BHC internal capital markets across spatially separate BHC member banks. We estimate that retrenching banks increase loan supply substantially less in response to exogenous monetary policy rate reductions. This relative decline has persistent effects on local employment and thus provides a rationale for slow recoveries from financial distress.     

Herding behaviour in the Australian loan market and its impact on bank loan quality

We examine the effect of herding behaviour on the credit quality of bank loans in Australia. We find that bank herding varies with different types of loans. It tends to be more prevalent in owner‐occupied housing loans and credit cards than other types of loans. During the global financial crisis period, herding in owner‐occupied housing loans was most pronounced due to the flight‐to‐quality phenomenon in the housing sector. Furthermore, we find that the big four banks tend to herd more than smaller and regional banks. Bank herding behaviour is countercyclical, as it is negatively related to real GDP growth and the cost of funding but is positively related to market risk. Regulatory capital requirements may also encourage herding as banks are required to hold less risk‐weighted capital for residential loans. Most importantly, bank herding is related to higher impaired assets and therefore lower loan quality. Our findings may have implications for policymakers and bank regulators.     

The bank loan distribution effect of government spending expansion: Evidence from China

Rather than focusing on the spread of enterprises' bank loans, we focus on the impact of government spending expansion on the amount of bank loans obtained by enterprises. We first build a theoretical model to show that there are the demand effect and loan cost effect of government spending expansion on the bank loans and then use the fixed effects approach to analyze the bank loan distribution effect of government spending expansion by using the data of enterprises listed on the China Stock Exchange between 2003 and 2019. Empirical results show that the demand effect plays a leading role for the central government state-owned enterprises (SOEs), helping them obtain more bank loans from banks. In contrast, for private enterprises, the loan cost effect plays a leading role, hurting them in obtaining bank loans from banks. Further research shows that government spending expansion's crowding-in or crowding-out effect differs from Neoclassicism and (new) Keynesianism. This paper provides a new explanation for why the financing problem of private enterprises is getting worse in China. The policy implication is that when the government implements expansionary fiscal policies, it should also provide convenience for private enterprise financing through window guidance to prevent the expansionary fiscal policies from crowding out private enterprise bank loans.     

Countercyclical prudential buffers and bank risk-taking

We investigate the effects of countercyclical prudential buffers on bank risk-taking. We exploit the introduction of dynamic loan loss provisioning in Spain, mandating that banks use historical average loss rates in their estimation of loan loss provisions. We find that dynamic loan loss provisioning is associated with reductions in timely loan loss provisioning. Banks that previously recognized loan losses in a timely fashion exhibit the greatest reductions in timeliness and consequently extend loans to riskier borrowers with lower accounting quality. Our results have policy implications for the debate on the use of financial reporting requirements in mitigating capital pro-cyclicality.     

Capital ratios and bank lending: A matched bank approach

This paper examines the impact of bank capital ratios on bank lending by comparing differences in loan growth to differences in capital ratios at sets of banks that are matched based on geographic area as well as size and various business characteristics. We argue that such comparisons are most effective at controlling for local loan demand and other environmental factors. For comparison we also control for local factors using MSA fixed effects. We find, based on data from 2001 to 2011, that the relationship between capital ratios and bank lending was significant during and shortly following the recent financial crisis but not at other times. We find that the relationship between capital ratios and loan growth is stronger for banks where loans are contracting than where loans are expanding. We also show that the elasticity of bank lending with respect to capital ratios is higher when capital ratios are relatively low, suggesting that the effect of capital ratio on bank lending is nonlinear. In addition, we present findings on the relationship between bank capital and lending by bank size and loan type.     

Corporate Taxes and Securitization

Most banks pay corporate income taxes, but securitization vehicles do not. Our model shows that, when a bank faces strong loan demand but limited deposit market power, this tax asymmetry creates an incentive to sell loans despite less‐efficient screening and monitoring of sold loans. Moreover, loan‐selling increases as a bank's corporate income tax rate and capital requirement rise. Our empirical tests show that U.S. commercial banks sell more of their mortgages when they operate in states that impose higher corporate income taxes. A policy implication is that tax‐induced loan‐selling will rise if banks’ required equity capital increases.     

The effect of relationship banking on firm efficiency and default risk

Does relationship bank oversight reduce firm default risk and improve firm operational efficiency? I find that a new loan from a relationship bank reduces the default probability and increases the efficiency of a borrowing firm, benefiting both banks and borrowers. Moreover, inefficient and less creditworthy firms experience the highest reductions in their default risks and improvements in their efficiencies in the years following new relationship bank loans. Further, these benefits are disrupted when the relationship bank is acquired.     

Capital regulation,heterogeneous monitoring costs,and aggregate loan quality

This paper develops a banking-sector framework with heterogeneous loan monitoring costs. Banks are exposed to the moral hazard behavior of borrowers and endogenously choose whether to monitor their loans to eliminate this exposure. After analyzing an unregulated banking system, we examine several cases in which regulatory capital requirements bind the notional loan supplies of various subsets of banks. To gauge the impact of capital requirements, we define loan ‘quality’ in terms of either the ratio of monitored to total loans or the ratio of monitoring banks to total bank population. Under the assumption of a specific cross-sectional distribution of banks, our simulations show that the imposition of binding capital requirements on a previously unregulated banking system unambiguously increases the market loan rate and reduces aggregate lending, but has an ambiguous effect on loan ‘quality’. Nevertheless, once capital requirements are in place, the simulations indicate that regulators can contribute to higher overall loan ‘quality’ by toughening capital requirements.     

公司治理与银行借款融资

本文以中国深沪两市A股上市公司为样本,检验了公司治理在银行信贷决策中的作用。通过检验公司治理水平对企业银行借款融资能力和融资成本的影响,我们发现,企业银行借款融资能力方面,无论长期借款还是短期借款,公司治理因素对企业银行借款融资能力均没有影响,银行更看重企业的经营状况。企业银行借款融资成本方面,我们发现公司治理机制中只有监事会特征和股权集中度对企业银行借款融资成本有显著影响。具体地,监事会规模越大,融资成本越低;股权集中度越高,融资成本越高。本文结果说明公司治理因素在我国银行放贷决策中的作用有限。     

Do capital buffers matter? Evidence from the stocks and flows of nonperforming loans

This paper investigates the determinants of the stocks and flows (both in- and outflows) of nonperforming loans (NPLs) by considering a bank-specific factor that is not adequately analysed in the literature, namely, bank capital buffers. Using unbalanced panel data with 6,087 bank-year observations for the 2006–2018 period and a two-step system generalised method of moments (GMM) estimation, we find that banks with higher levels of capital buffers (both in terms of Tier 1 and total capital) have fewer NPL stocks and generate fewer NPL inflows. When we control for the characteristics of the loan portfolio, real guarantees collected by the bank increase the stocks and flows of new, impaired loans, while personal guarantees favour the outflow of bad loans.     

Bank ownership and lending patterns during the 2008–2009 financial crisis: Evidence from Latin America and Eastern Europe

This paper examines the impact of bank ownership on credit growth in developing countries before and during the 2008–2009 crisis. Using bank-level data for countries in Eastern Europe and Latin America, we analyze the growth of banks’ total gross loans as well as the growth of corporate, consumer, and residential mortgage loans. While domestic private banks in Eastern Europe and Latin America contracted their loan growth rates during the crisis, there are notable differences in foreign and government-owned bank credit growth across regions. In Eastern Europe, foreign bank total lending fell by more than domestic private bank credit. These results are primarily driven by reductions in corporate loans. Furthermore, government-owned banks in Eastern Europe did not act counter-cyclically. The opposite is true in Latin America, where the growth of government-owned banks’ corporate and consumer loans during the crisis exceeded that of domestic and foreign banks. Contrary to the case of foreign banks in Eastern Europe, those in Latin America did not fuel loan growth prior to the crisis. Also, there are less pronounced and robust differences in the behavior of foreign and domestic banks during the crisis in Latin America.     

年报风险信息披露与银行贷款利率

既有文献较少从银行视角关注年报风险信息披露的经济后果。银行更有能力解读年度风险信息,银行利益也更直接受到年报风险信息的影响,银行贷款利率更能体现年报风险信息披露的经济后果。本文基于2008-2017年单笔银行贷款利率数据的研究发现:总体上我国年报风险信息披露降低了银行贷款利率,说明我国年报风险信息披露更符合趋同观假说。中介效应检验发现:我国年报风险信息披露通过提高信息透明度,降低银行风险感知水平进而降低了银行贷款利率,即信息质量和风险是我国年报风险信息披露影响银行贷款利率的不完全中介。进一步分析发现:我国年报风险信息披露与银行贷款利率的负相关关系主要体现在货币政策紧缩组、非国有企业组以及公司治理水平较高组。本文首次研究银行贷款利率与年报风险信息披露的关系,有助于丰富风险信息披露文献和银行贷款文献。     

Efficiency and risk in European banking

We assess the inter-temporal relationship between bank efficiency, capital and risk in a sample of European commercial banks employing several definitions of efficiency, risk and capital and using the Granger-causality methodology in a panel data framework. Our results suggest that lower bank efficiency with respect to costs and revenues Granger-causes higher bank risk and that increases in bank capital precede cost efficiency improvements. We also find that more efficient banks eventually become better capitalized and that higher capital levels tend to have a positive effect on efficiency levels. These results are generally confirmed by a series of robustness tests. The results have potentially important implications for bank prudential supervision and underline the importance of attaining long-term efficiency gains to support financial stability objectives.     

Intellectual property rights reform and the cost of corporate debt

This paper investigates the role of intellectual property rights (IPR) protection on the cost of bank loans for firms in 48 countries. Using substantial reforms of patent rights as a source of identifying variation, the paper provides strong evidence that borrowers from countries that underwent IPR reform experience significant reductions in the cost of bank debt. Importantly, the effects of IPR reform on loan rates are significantly larger in industries that are more IP-intensive. Additional analysis shows that in the wake of reforms borrowers obtain larger size loans, which indicates that improvements in IPR are associated with greater credit availability. IPR reform also increases foreign lenders participation in loan syndicates. Overall, these findings suggest that legal protection afforded to intellectual property has a significant impact on the cost of corporate borrowing and the ability of innovative firms to raise debt capital.     

Optimal credit risk transfer, monitored finance, and banks

We examine the implications of optimal credit risk transfer (CRT) for bank-loan monitoring, and the incentives for banks to engage in optimal CRT. In our model, properly designed CRT instruments allow banks to insure themselves against loan losses precisely in those states that signal monitoring. We find that optimal CRT enhances loan monitoring and expands financial intermediation, in contrast to the findings of the previous literature. Optimal CRT instruments are based on loan portfolios rather than individual loans and have credit-enhancement guarantees, pretty much as banks do in practice. But the extent of credit enhancement needs to be precisely delimited. Above that exact level, monitoring incentives are undermined (loan quality deteriorates) and wealth is transferred from the bank's financiers to the bank. Properly designed risk-based capital requirements are shown to prevent such a wealth transfer and to provide banks with the incentive to engage in optimal CRT.