Fiscal risk and financial fragility

We propose a new methodology to evaluate the importance of fiscal risk to financial stability. We first develop a method to estimate the probability of non-compliance of public entities, which takes into account the strict legal framework that is mandatory for governments. While in our model the evolution of public entities' revenues is stochastic and heavily depends on expectations about macroeconomic risk factors, the evolution of their personnel expenses and debt is rather deterministic due to the stickiness of the regulation. We then estimate the resilience of the financial sector to the public sector by simulating bank credit defaults in a multilayer network with interacting agents comprising banks, firms, and the public entities. Using Brazilian data at the state level, we establish a statistical link between states' probability of non-compliance and probability of default, enabling us to estimate the expected impact of the public sector in terms of financial losses on the economy. We find that, while most Brazilian states are struggling to comply with budget legal constraints on personnel expenses, the richest states are more likely to not comply with limits on their consolidated debts. We show that financial contagion is small mostly because banks that are more exposed to the public sector are highly capitalized.     

监管政策能否抑制商业银行亲周期行为——基于中国上市银行面板数据的经验证据

当前,实施逆经济周期的宏观审慎监管已成为国际组织和各国监管当局的共识.通过对2001-2009年国内上市银行面板数据进行估计,本文发现我国商业银行具有稳定的资本缓冲计提顺周期行为,但信贷活动并不具有明显的亲周期性特征,表明监管部门的资本监管政策总体上已经渐进有效.为了更有效地提升中国金融体系的稳健性,进一步实施宏观审慎和微观审慎协调的金融监管制度,完善逆周期的资本监管机制,抑制金融机构亲周期行为应成为中国金融监管改革的必要内容.     

Small business loan securitization and interstate risk sharing

Do credit risk transfers in general, and loan sales and securitizations in particular, by financial institutions enhance credit availability and financial stability? Or do they allow assets of poor credit quality to spread to unprotected investors, and thus create financial crises and destroy values? In this paper, we contribute to the continuing debate by examining the effect of small business loan securitizations on interstate personal income insurance. Using data of U.S. banks for the period 1995–2008, we find that small business loans securitizations contribute to the smoothening of state personal income volatility, and that this contribution is stronger in states where small businesses play a more important role in the local economy.     

Credit risk and bank competition in Sub-Saharan Africa

This paper investigates the relationship between bank competition and stability in Sub-Saharan Africa. Using financial statements on 221 banks from 33 countries over the period 2000–15, we provide evidence for a U-shaped relationship between bank competition and credit risk. Up to a certain threshold, higher levels of bank competition are associated with lower credit risk. Above this threshold, more competition increases credit risks as the positive effects of competition are outweighed by the adverse effects of rising competition. The optimal threshold appears to be higher for African banks compared to banks from developed countries. We also find that credit risk in Sub-Saharan Africa is not only related to macroeconomic determinants, such as growth, public debt, economic concentration and financial development, but also to the business and regulatory environment. In particular, bank risks appear to be lower in countries where credit registry coverage is higher and the tenure of supervisors is shorter.     

Analysis of the Role of Banks in the Corporate Financing Mix of Nigerian Quoted Manufacturing Enterprises

Abstract

The aim of this study is to investigate the role of Nigerian banks in funding the short-term and long-term financing requirements of Nigerian quoted manufacturing enterprises in an environment of economic reforms. It has been argued that the deregulation of the financial system induces financial fragility, credit rationing and bank disinterme-diation, thus limiting the effectiveness of the monetary transmission mechanism. We analyzed relevant data from selected authoritative official publications and found that the liberalization of the Nigerian economy in 1986 under the Structural Adjustment Program (SAP) resulted in deteriorating corporate liquidity, declining bank credit to the manufacturing sector, outrageous increases in interest rates, with the consequential decline in the contribution of the manufacturing sector to the GDP. As economic reforms commence, it is necessary for managers of banks and quoted manufacturing enterprises to maintain a well diversified portfolio of liquid assets. That way, spontaneous financial gaps can be better managed. Top management must make important borrowing decisions before relatively predictable events occur. As banks continue to emphasize high asset quality in their loan portfolio, manufacturing enterprises are expected to manage strategically the resulting credit crunch by expanding their corporate finance matrix in a way that matches their operating cycles. Monetary policy should be redirected to moderate interest rates, as well as improve credit supply in order to make the banking sector more relevant as competitive pressures intensify in the Nigerian financial services industry.     

地方政府债务对工业资本配置效率的非线性影响效应——基于动态面板平滑转换回归PSTR模型的检验

经济新常态下,提高工业资本等要素配置效率是实现经济向高质量增长转变的必然要求。本文在政府主导、投资驱动的工业发展模式下,结合地方债务压力和金融发展差异门限变量,在非线性框架下运用动态面板平滑转换回归模型实证检验地方债务规模与工业资本配置效率的渐进演变关系。研究发现,适度的地方债务规模有助于提高资本配置效率,但随着债务压力增加,举债对资本配置的正效应逐步减弱并产生负效应。究其原因,适度举债能补齐工业基础设施短板,压低土地成本,对工业发展产生杠杆效应,从而提高资本配置效率;但过度举债推升财政风险,占用信贷资源并强化企业融资约束,造成资本配置低效率。此外,研究发现,地方信贷规模提升,能缓解举债的融资约束,促进工业行业间的资本流动;而工业金融深化程度提高,能增强市场竞争机制在要素配置中的作用,缓解举债造成投资错配,从而增强资本配置效率。以上分析结果表明,地方政府举债应更理性、适度、规范。     

Do types of foreign capital matter for income equality?

We investigate the link between financial integration and income inequality, suggesting that different channels of financial integration have contrasting distributional effects. Using an unbalanced panel of 65 countries from 1992 to 2015 and employing dynamic panel data methods, we find that greater financial integration through debt-creating capital increases income inequality compared to equity-type capital. Furthermore, a larger share of direct investment in financial integration is associated with lower income inequality; the converse is true for loans and credit, while the share of portfolio investment has no significant effect when considered as a whole. Evidence also shows that increased financial integration and trade is beneficial for reducing the income inequality of emerging economies.     

The Choice between Bank Debt and Trace Credit in Business Start-ups

This paper investigates the choice between bank debt and trade credit in business start-ups. While trade credit is more expensive than bank debt, suppliers tend to follow a more lenient liquidation policy when client firms encounter financial distress. As a result, suppliers are more willing to renegotiate the outstanding debt or grant additional debt whereas banks are more likely to liquidate borrowers upon default. Given the risky nature of business start-ups, we argue that the entrepreneur’s choice of debt instruments reflects these differences in liquidation policy between lenders and is thus determined by the venture’s failure risk, the entrepreneur’s private control benefits that are lost upon liquidation and the liquidation value of firm assets. Using unique data on 325 first-time business start-ups, we find that firms in industries with high historical start-up failure rates and entrepreneurs who tend to highly value private benefits of control use less bank debt. These effects are especially prevalent in start-ups where assets have a high liquidation value and thus banks are more likely to liquidate the venture following default. An erratum to this article can be found at     

金融部门人力资本配置与实体企业金融资产投资

在实体经济“冷”与虚拟经济“热”的大背景下,中国实体企业投资于金融资产的比例快速提升,经济金融化格局正在加速形成。本文试图从金融部门的人力资本配置视角对实体企业金融资产配置的形成逻辑进行诠释。本文以人均受教育年限来衡量金融部门的人力资本配置,采用2008年经济普查微观数据库的数据构造地级市层面的度量指标,并匹配至2009—2018年非金融类上市公司进行实证检验。计量结果显示,金融部门的人力资本水平越高,实体企业金融资产配置越多,且该效应在信息不对称企业中尤为显著。进一步的机制检验发现,在金融部门人力资本提高的条件下,实体企业债务期限显著缩短,具体表现为短期负债增加而长期负债减少。本文研究结论表明,人力资本偏向金融部门增强了其在信贷合约中的市场势力,信贷供给短期化是实体企业金融化的重要原因之一。     

财务危机预警系统在商业银行信贷风险管理中的应用

目前,商业银行信贷风险管理中财务分析存在的贷款企业资料不真实、现金流量没得到应有重视、财务分析手段不丰富等主要问题,都会引发财务危机。在信贷风险管理中应用财务危机预警系统,通过对上市公司运营因子、盈利因子、偿债因子、成长因子、现金流量因子、规模因子、行业因子、股权集中度因子的分析,能够及时发现企业可能带来的危机影响。商业银行应准确合理地选择财务危机预警指标,为信贷风险管理提供强有力的依据;建立财务危机预警模型应在会计信息真实完整的基础上,通过对会计信息进行加工、处理来完成。     

Visualizing financial success: planning is key

Recent economic troubles in the US and abroad highlight the importance of family financial capability, including an understanding of financial markets. Financial capability is the foundation for desired financial behaviours, such as saving, budgeting, using credit wisely and planning. Study participants, a subsample of respondents to a Turkish university financial literacy survey (n = 374), who reported uninterrupted income for a 3‐year period were grouped as ‘planners’ and ‘non‐planners’. These groupings allowed examination of the relationships between planning, financial management decisions, and differential outcomes in daily household financial well‐being. The practice of preferred financial management behaviours was predictive of debt. This research makes a unique contribution to the literature, demonstrating the importance of uninterrupted income over income amount in support of the planning process. Findings of this study have implications for professionals in the family and consumer sciences field and other practitioners assisting consumers with improving financial management outcomes.     

Ultra-Easy Money: Digging the Hole Deeper?

The global situation we face today is arguably more fraught with danger than was the case when the crisis first began. By encouraging still more credit and debt expansion, monetary policy has “dug the hole deeper.” The fundamental analytical mistake has been to model the economy as an understandable and controllable machine rather than as a complex, adaptive system. This mistake also implies that the suggestion that central banks should necessarily reduce the “financial rate of interest,” in response to a presumed fall in the “natural rate,” is overly simplistic. In practice, ultra-easy policy has not stimulated aggregate demand to the degree expected but has had other unexpected consequences. Not least, it poses a threat to financial stability and to potential growth going forward. Further, “exit” threatens to be delayed in many countries, underlining the dangerous fact that the global economy has no nominal anchor. Much better would be policies, introduced by other arms of government, that would recognize that the fundamental problem is not inadequate liquidity but excessive debt and possible insolvencies. The policy stakes are now very high.     

The influence of bank ownership on credit supply: Evidence from the recent financial crisis

This study examines how bank ownership influenced the credit supply during the recent financial crisis in Russia, where the banking sector consists of a mix of state-controlled banks, foreign-owned banks, and domestic private banks. To estimate credit supply changes, we apply an original approach based on stochastic frontier analysis. We use quarterly data for Russian banks covering the period from the beginning of 2007 to the end of 2009. Our findings suggest that bank ownership affected credit supply during the financial crisis and that the crisis led to an overall decrease in the credit supply. Relative to domestic private banks foreign-owned banks reduced their credit supply more and state-controlled banks less. This supports the hypothesis that foreign banks have a “lack of loyalty” to domestic actors during a crisis, as well as the view that an objective function of state-controlled banks leads them to support the economy during economic downturns.     

Long-term debt maturity and financing constraints of SMEs during the Global Financial Crisis

We use the recent financial crisis to investigate financing constraints of private small and medium-sized enterprises (SMEs) in Belgium. We hypothesize that SMEs with a large proportion of long-term debt maturing at the start of the crisis had difficulties to renew their loans due to the negative credit supply shock, and hence could invest less. We find a substantial variation in the maturity structure of long-term debt. Firms which at the start of the crisis had a larger part of their long-term debt maturing within the next year experienced a significantly larger drop in investments in 2009. This effect is driven by firms which are ex ante more likely to be financially constrained. Consistent with a causal effect of a credit supply shock to corporate investments, we find no effect in “placebo” periods without a negative credit supply shock.     

Cross-border banking,credit access,and the financial crisis

We study the sensitivity of credit supply to bank financial conditions in 16 emerging European countries before and during the financial crisis. We use survey data on 10,701 applicant and non-applicant firms that enable us to disentangle effects driven by positive and negative shocks to the banking system from demand shocks that may vary across lenders. We find strong evidence that firms' access to credit was affected by changes in the financial conditions of their banks. During the crisis firms were more credit constrained if they were dealing with banks that experienced a decline in equity and Tier 1 capital, as well as losses on financial assets. We also find that access to credit reflects the balance sheet conditions of foreign parent banks. The effect of positive and negative shocks to a bank is greater for riskier firms and firms with fewer tangible assets.     

The Aggregate Behavior of Banks: A Proposal for Prudential Supervision

This study seeks to investigate a macroeconomic approach that could help bank regulators and supervisors perform their task of ensuring financial stability. To achieve this, an attempt is made to explain the behavior of banks by analyzing aggregate time series of credit lending and deposit-taking, which are the variables involved in financial intermediation. This article's main contribution is to present evidence of banks’ behavior in their role as financial intermediaries, in terms of the performance of the variables that represent their credit-granting or deposit-taking decisions. For this purpose the study used a vector autoregressive model to construct impulse response functions and the Granger test. The results demonstrate the existence of bilateral causality between credit lending and deposit--taking, suggesting that banks actively manage the financial intermediation process. In addition, the results show that shocks to deposits destabilize the credit lending process, and credit supply shocks, in turn, destabilize deposit-taking. The latter result is important for understanding how financial instability can arise, and is thus relevant for the bank regulator.     

基于KMV模型的银行信用风险测量

在过去的20年间,信用风险变得更加严重,它的破坏性、不确定性和联动性已经带来了严重的经济损失,并影响到经济体的投资决策和收益。我国金融市场由于缺乏足够的信用数据,直接利用股票市场数据来进行信用风险管理的KMV模型有着广泛的应用前景。本文在详细介绍了KMV模型的理论原理和主要内容的基础上,运用中国股市数据对该模型进行了实证分析。     

The ethical and policy implications of profiling ‘vulnerable’ customers

In the shadow of the global financial crisis, the issue of the marketing of credit has become an increasing concern in the past 12 months. Outstanding personal debt in the UK currently stands at £1479 billion and is rising by £1 million every 10.6 min. In Australia, there is currently $44.6 billion worth of outstanding credit card debt, and in the US, $2596 billion was owed on credit cards in 2008. At present, the banking sector utilizes sophisticated research methods to profile consumers, including those who might be considered financially vulnerable. However, the policy frameworks in most industrialized countries do not account for this form of target marketing when considering how to protect vulnerable groups. This paper is an initial attempt to examine the different methods by which profiling is conducted and the policy implications of this sophisticated form of segmentation and targeting. We argue that current consumer policies are inadequate in protecting vulnerable consumers from these marketing techniques, and recent recommendations from the Federal Reserve Bank of the United States, and the Australian Law Reform Commission to allow banks and lenders to ‘pre‐screen’ potential customers will exacerbate personal debt levels, rather than reducing them.     

Friend or foe: The divergent effects of FinTech on financial stability

Whether FinTech causes the fragility of financial institutions is a controversial issue. Using a panel sample of listed banks from 84 countries, we exploit the introduction of FinTech regulatory sandboxes as an exogenous shock and examine the heterogeneous effect of FinTech on the fragility of financial institutions. We find that (i) a shock to FinTech innovations has no net effect on the fragility of financial institutions when we ignore market characteristics, (ii) promoting FinTech decreases (increases) the fragility of financial institutions in emerging (developed) financial markets, and (iii) FinTech affects the fragility of financial institutions through the channel of profitability.     

Coercion in the selling of credit life insurance

Credit life insurance, which repays some or all of a borrower's outstanding debt in the event of death, has been a controversial subject for many years. Critics assert that, despite regulations that limit tied sales, pressure on loan officers to generate fee income through cross selling creates an incentive for coercion of borrowers. Allegedly, some sales techniques leave the consumer with the false impression that the purchase of credit insurance was necessary to obtain the loan. This article measures the frequency with which creditor efforts to sell credit insurance transform the sales message from persuasive to coercive. A methodology is developed for measuring the impact of coercive selling pressure applied to borrowers at the point of sale. Data used to measure the effect of coercive pressure are taken from an extensive survey of borrowers conducted during 1993. Not only are public policy concerns about coercion in the selling of credit insurance addressed, but more generally the article offers a methodology to quantify the influence of the customer's point-of-sale experience on the decision to purchase any financial service. © 1995 John Wiley & Sons, Inc.