Economies of scale and scope in French commercial banking industry

This paper presents estimations of economies of scale and scope in the French banking industry. Using a translog model of bank costs, the paper demonstrates the existence of economies of scale for French banks, particularly in what concerns operating costs. Economies of scale are observed in all classes of bank size. Results also suggest that cost subadditivity exists in the French banking industry.     

The evolution of scale economies in US banking

Continued consolidation of the US banking industry and a general increase in the size of banks have prompted some policymakers to consider policies that discourage banks from getting larger, including explicit caps on bank size. However, limits on the size of banks could entail economic costs if they prevent banks from achieving economies of scale. This paper presents new estimates of returns to scale for US banks based on nonparametric, local‐linear estimation of bank cost, revenue, and profit functions. We report estimates for both 2006 and 2015 to compare returns to scale some 7 years after the financial crisis and 5 years after enactment of the Dodd–Frank Act with returns to scale before the crisis. We find that a high percentage of banks faced increasing returns to scale in cost in both years, including most of the 10 largest bank holding companies. Also, while returns to scale in revenue and profit vary more across banks, we find evidence that the largest four banks operate under increasing returns to scale.     

Income diversification and bank risk in Asia Pacific

This paper investigates the effect of income diversification on bank risk for a large sample of commercial banks in 14 Asia Pacific economies over the period 2011–2016. Using a dynamic panel data model with a system generalized methodof moments estimator, we find that banks with a higher level of income diversification are less risky in general. We further consider both developed and emerging economies according to the International Monetary Fund's classification of the level of economic development. Specifically, for emerging economies, the results indicate that banks with a higher level of income diversification face less risk. However, the diversification of commercial bank income has no significant impact on bank risk in developed Asia Pacific economies.     

国有商业银行最优规模选择

我国国有商业银行资产规模的扩大并没有带来规模经济。本文从现实、理论及银行风险控制管理等角度对商业银行的最优规模问题进行了经济学分析，通过中美两国商业银行规模及布局进行比较，提出了银行规模调整的政策建议，并分析了近阶段国有商业银行规模调整的侧重点。     

Efficiency in Islamic and conventional banking: an international comparison

The paper investigates the efficiency of a sample of Islamic and conventional banks in 10 countries that operate Islamic banking for the period 1996–2002, using an output distance function approach. We obtain measures of efficiency after allowing for environmental influences such as country macroeconomic conditions, accessibility of banking services and bank type. While these factors are assumed to directly influence the shape of the technology, we assume that country dummies and bank size directly influence technical inefficiency. The parameter estimates highlight that during the sample period, Islamic banking appears to be associated with higher input usage. Furthermore, by allowing for bank size and international differences in the underlying inefficiency distributions, we are also able to demonstrate statistically significant differences in inefficiency related to these factors even after controlling for specific environmental characteristics and Islamic banking. Thus, for example, our results suggest that Sudan and Yemen have relatively higher inefficiency while Bahrain and Bangladesh have lower estimated inefficiency. Except for Sudan, where banks exhibits relatively strong returns to scale, most sample banks exhibit very slight returns to scale, although Islamic banks are found to have moderately higher returns to scale than conventional banks. While this suggests that Islamic banks may benefit from increased scale, we would emphasize that our results suggest that identifying and overcoming the factors that cause Islamic banks to have relatively low potential outputs for given input usage levels will be the key challenge for Islamic banking in the coming decades.     

The temporal behavior of scale economies within A banking firm

Examining the time path of the scale economies has not received much attention until recently. Moreover, the time path of scale economies for a given firm has not been studied in the banking literature at all. Examining scale economies, either from cross-sectional or panel data, based only on a single estimate ignores the dynamic behavior (both cost- and production-wise) of a banking firm as well as of the banking industry. We study the time-varying scale economies of commercial banking firms. We employ the Kalman-filter approach in estimating the translog cost function. The Kalman filter allows the parameters of the translog cost function and therefore the scale economies to be time dependent and varying. The estimation results indicate significant variation in inter- and within-firm scale economies over time for sample banks.     

Parametric Decomposition of a Generalized Malmquist Productivity Index

This paper provides a parametric decomposition of a generalized Malmquist productivity index which takes into account scale economies. Unlike Balk (2001), the contribution of scale economies to productivity change is evaluated without recourse to scale efficiency measures, which are neither bounded for globally increasing, decreasing, or constant returns to scale technologies nor for ray-homogeneous technologies. An empirical application using panel data from Spanish savings banks is included. This application shows the advantages of the suggested method compared to Balk's approach. The results show an increase of total factor productivity which can be mainly attributed to technical progress and the positive effect of returns to scale.     

Bank valuation in new EU member countries

This paper studies the role of institutional reforms in affecting bank valuation in new European Union (EU) member countries. It takes advantage of the dynamic nature of institutional reforms in transition economies and explores the causal effects of those reforms on banks’ Tobin's Q over the period of 1997–2008. Using a difference-in-difference approach, the paper shows that Tobin's Q increases substantially after these countries reform their legal institutions and liberalize banking. However, it decreases after stock market reforms. After further examination of the interactive relationships between different reforms and bank valuation, it is observed that when the banking reform is well implemented, legal reform can have a stronger impact on banks’ Tobin's Q. On the other hand, banking reform and security market reform has a substitutive relationship. The analysis also suggests that foreign ownership, market power, and asset diversification significantly affect Tobin's Q. These results are robust even after simultaneously controlling for equity risk.     

Commercial property prices and bank performance

We seek to assess the relationship between commercial property price movements and the behavior and performance of individual banks in a range of industrialized economies, extending the existing micro literature on bank performance. Our results suggest that commercial property prices tend to be positively associated with bank lending and profitability, and negatively associated with banks’ net interest margin and bad loan ratios. Further extensions show that the degree to which such a relationship holds is related to the size of the bank. The results underline the relevance of commercial property prices as a macroprudential variable that warrants scrutiny by the authorities.     

资本账户开放缩窄了商业银行利差吗？——来自41个新兴市场经济体的证据

银行利差反映银行业效率,研究资本账户开放对银行利差的影响及作用机理具有重要的现实意义。构建一个包含异质性企业的多部门分析框架,从微观层面剖析资本账户开放影响银行利差的内在机制,并运用41个新兴市场经济体国家1996—2016年的数据进行实证检验,研究结果表明：资本账户开放显著降低了商业银行利差,法定型和事实型开放指数每增加一单位标准差,银行利差分别下降0.68和0.90个百分点。由此可见,加快推进资本账户开放是新常态下提升银行业效率,降低社会融资成本,进而实现经济高质量发展的重要途径。商业银行应大力拓展非利息业务,促进产品和业务升级,创造新的盈利增长点,以弥补利差缩窄带来的不利影响。     

‘Customers were not objects to suck blood from’: Social relations in UK retail banks under changing performance management systems

Utilising an analytical framework informed by a moral economy approach, this article examines the social relationships between bank workers and customers in the context of changing performance management. Informed by 46 in‐depth interviews with branch workers and branch managers from UK banks, this article focusses on the interplay of the pressures arising from an intensified and all‐encompassing performance management system and bank workers lay morality. The article seeks to analyse why one group of bank workers engages with customers in a primarily instrumental manner, while another group tends to mediate and engage in oppositional practices which aim to avoid such an instrumentalisation. The article argues that moral economy gives voice to the agency of workers and the critical concerns of the social, economic and moral consequences of market‐driven and purely profit‐oriented workplace regimes.     

Is foreign-bank efficiency in financial centers driven by home or host country characteristics?

This paper investigates whether home or host country factors can explain differences in technical efficiency among foreign banks operating in the Luxembourg financial center. We first address heterogeneity across banks by using the group-wise bootstrap to compare DEA measures of bank efficiency between branches and subsidiaries, focused and diversified banks, and euro area and non-euro area banks. We then control for these factors in a second-stage regression indentifying the impact of country-specific regulatory and macroeconomic variables on individual bank efficiency scores. Our regulatory indicators capture the strictness of capital requirements, private monitoring, official disciplinary power and restrictions on bank activities. Our macroeconomic indicators capture GDP per capita in the home country and its position in the business cycle. Our results carry policy implications for bank regulators in both home and host countries and provide insight into banks’ choice between establishing a branch or a subsidiary to develop cross-border activities through international financial centers.     

Foreign banks and short-term macroeconomic fluctuations: Do financial development and regions matter?

In this paper, we investigate the association between bank integration, measured with the share of foreign banks in the banking industry, and macroeconomic volatility in emerging economies. We find a negative and significant relationship between bank integration and short-run fluctuations in output, consumption and investment, controlling for financial development, bank concentration and the real effective exchange rate. However, this relationship is found to be positive at high levels of financial development. We also explore the association at the regional level and show that the presence of foreign banks in Latin America is negatively and significantly correlated with macroeconomic volatility both in normal times and times of crisis. Despite widespread concerns in emerging Europe, which experienced greater financial vulnerability during the global financial crisis, we find no significant association between growth volatilities and bank integration.     

How does the money market development impact the bank lending channel of emerging Countries? A case from China

Transforming from quantitative-based instruments to price-based instruments is the primary goal of the monetary policy transformation in emerging economies. In essence, this process is gradually replacing the interest rate channel with the credit channel from the perspective of the monetary policy transmission mechanism, which is mainly achieved by promoting financial development to reduce the financial friction. However, there are opposite effects of financial development on the bank lending channel; thus, the topic is controversial. Using banks’ data from 2010 to 2018, this paper studies whether and how the money market development weakens the effect of the bank lending channel in China. The result shows that the mechanism through which the money market development influences the bank lending channel is realized by affecting the substitution elasticity of the asset and liability structure of banks’ balance sheets. Different from the theoretical expectation, the effect of the money market development on the bank lending channel is nonsignificant in China but appears to be weakened when the interest rate market-oriented reform is considered. However, further research based on structural analysis demonstrates that the money market development exerts heterogeneous effects on the bank lending channel under different types of sub-markets and different characteristics of the banks considered.     

A quality and risk-adjusted cost function for banks: Evidence on the “too-big-to-fail” doctrine

We estimate a multiproduct cost function model incorporating measures of bank output quality and the probability of failure. We model a bank's uninsured deposit price as an endogenous variable depending on the bank's output level, output quality, financial capital level, and risk measures. Accounting for these aspects in the cost model significantly affects measures of scale and scope economies. We find evidence that the too-big-to-fail doctrine significantly affects the price a bank pays for its uninsured deposits. For large banks, an increase in size, holding default risk and asset quality constant, significantly lowers the uninsured deposit price.     

The operating efficiency of financial holding and nonfinancial holding banks—Epsilou‐based measure metafrontier data envelopment analysis model

Previous bank efficiency studies assumed that the same efficient frontier system exists in different types of banks, but the conventional radial data envelopment analysis (DEA) model slacks are not counted in efficiency scores, and nonradial DEA models do not consider radial features. This paper develops an Epsilou‐based measure meta‐DEA approach for measuring the efficiencies and technology gaps of different bank types. The results are as the follows: The average efficiency and technology gaps of nonfinancial holding banks are better than those of financial holding banks. The nonfinancial holding banks are more efficient than financial holding banks in investment and other income.     

A SYSTEMS APPROACH TO BANK PRUDENTIAL MANAGEMENT AND SUPERVISION: THE UTILIZATION OF FEEDFORWARD CONTROL

This paper explores the operational characteristics of a new systems approach for monitoring the prudential strength, or safety, of modern commercial banks. It exploits the principle of feedforward control through the simulated contingency analysis of a bank's planned financial and associated management positions. This approach will be shown to have operational potential for both individual bank managements and the supervisory authorities who monitor the prudential soundness of all banks. Most of the research to date in this field has been concerned with assessing the adequacy of a bank's capital funds, its capital adequacy position. The primary function of bank capital is to act as a kind of internal insurance fund in order to protect a bank against uncertainties.     

How Do Small Businesses Finance Their Growth Opportunities?—The Case of Recovery from the Lost Decade in Japan

Previous studies argue that bank loans are cheaper than trade credit, so less‐constrained firms largely depend on bank loans and use trade credit less, especially in financially developed economies. However, the Japanese evidence does not support this view. First, small businesses with higher credit demand increase trade credit more during the period of the recovery from a severe recession. Second, creditworthy firms also increase trade credit to finance their growth opportunities. Third, firms in unstable industries increase trade credit more. This suggests that suppliers are able to offer credit, unlike banks, as they have a relative advantage in day‐by‐day monitoring. Copyright © 2012 John Wiley & Sons, Ltd.     

银行业改革、赶超与开放——基于Malmquist TFP指数的实证分析

为评估近年来中国国有银行改革、城市商业银行赶超与银行业对外全面开放5年来外资银行效率的变化,主要采取"中介法",利用2005～2010年数据对中国本土和外资银行Malmquist TFP指数及其组成部分进行了测算分解和实证分析。研究表明:改革促进了中国银行业效率的提高;城市商业银行的"赶超"战略显著提升了效率;中国本土银行的纯技术效率亟待改善;中国银行业对外全面开放后,外资银行的全要素生产率有所提高,但规模效率和技术进步有待改进;股权/资产比率等因素降低了银行效率。     

Understanding the consequences of diversification on financial stability

In this paper, we study the consequences of diversification on financial stability and social welfare using an agent based model that couples the real economy and a financial system. We validate the model against its ability to reproduce several stylized facts reported in real economies. We find that the risk of an isolated bank failure (i.e. idiosyncratic risk) is decreasing with diversification. In contrast, the probability of joint failures (i.e. systemic risk) is increasing with diversification which results in more downturns in the real sector. Additionally, we find that the system displays a “robust yet fragile” behaviour particularly for low diversification. Moreover, we study the impact of introducing preferential attachment into the lending relationships between banks and firms. Finally, we show that a regulatory policy that promotes bank–firm credit transactions that reduce similarity between banks can improve financial stability whilst permitting diversification.