Bank globalization and efficiency: Host- and home-country effects

Analyzing 126 countries for 1995–2013, we investigate the link between bank globalization and efficiency from the perspective of both host and home countries. We find strong and consistent evidence that foreign bank entry is associated with lower efficiency in host countries (host-country effect), while foreign expansion in the banking sector improves the efficiency of banks at home (home-country effect). We further observe that the effect of bank globalization is dependent on the regulatory and institutional regimes of the respective host (home) countries. Specifically, stringent activity restrictions, tight supervision, fewer limitations on foreign banks, lower market entry barriers, and less government interference all help mitigate the efficiency loss from foreign bank entry. Less supervision power, multiple supervisors, more restrictions on foreign banks, and a competitive banking market are all conducive to the higher efficiency gain of incumbent domestic banks from the respective country’s outward investments in the banking sector. Moreover, we find that the adverse impact on efficiency from foreign bank presence is less pronounced for less risky, more profitable, and larger banks, while banks that are more efficient, more profitable, taking on more risk, and/or smaller gain more efficiency from their country’s foreign expansion.     

Beyond state-owned banks: Evidence from Shanghai bank customers

In light of a reformed and liberalized banking sector in China, this article sets out to examine the role of socio-demographic factors and customers’ banking experiences and priorities in customers’ selection of banks. As state-owned banks have long dominated the banking industry, the article also investigates the receptiveness of the Shanghai Chinese towards newer commercial banks, such as the joint-stock banks, and the penetration of foreign banks into China's banking industry. Comparing customers who use state-owned banks only and those who patronize joint-stock banks, it is found that education, income, age, occupation sector and location of hometown affects customers of state-owned banks only. Further, it is also found that state-owned banks remain dominant despite the opening up of the banking sector, and perception towards state-owned banks remains favourable.     

Depositors’ Assessment of Bank Riskiness in the Russian Federation

In the period after the crises in the late 1990s, the banking industries in most emerging markets have undergone significant restructuring consistent with the Basel II Accord. The Central Bank of Russia’s efforts since 2000 have contributed to the consolidation and improvement of the banking industry. To measure the extent of market discipline in the Russian banking industry, we study the reaction of Russian depositors to excessive risk taking by large banks between 2000:1 and 2005:1. We find that during our analysis period, well-capitalized, more liquid banks significantly increase their deposits.     

State-Owned Banks as Competition Enhancers, or the Grand Illusion

We analyze the role of state ownership in the banking sector from the perspective of competition. That is, do state-owned banks play a special role as competition enhancers? Focusing on the market for mortgage loans in Switzerland, we test four hypotheses which are consistent with this view. First, are state-owned banks’ interest rates relatively cost sensitive? Second, are state-owned banks charging relatively low mark-ups? Third, are the state-owned banks’ interest rates particularly borrower friendly? And fourth, do state-owned banks exert a disciplinary effect on competitors’ prices? Based on a comprehensive database containing information at the individual bank level over the 1996–2002 period, our answer is ‘No.’     

Productivity,technology and efficiency of De Novo Islamic banks: Empirical evidence from Malaysia

The impact of foreign banks’ entry on the conventional banking sector has been well documented in the literature. However, empirical evidence on the impact of foreign banks’ entry on the Malaysian Islamic banking sector is completely missing from the literature. By employing the Malmquist Productivity Index method, the article provides, for the first time, empirical evidence on the impact of foreign banks’ entry on the efficiency and productivity of the Islamic banking sector. The empirical findings indicate that the De Novo foreign Islamic banks have been relatively more efficient and productive compared to their domestic and foreign Islamic bank counterparts. The results also suggest that the Malaysian Islamic banking sector has exhibited a higher level of total factor productivity during the post De Novo foreign Islamic banks’ entry period.     

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 Past, Present, and Probable Future for Community Banks

We review how deregulation, technological advance, and increased competitive rivalry have affected the size and health of the United States community banking sector and the quality and availability of banking products and services. We then develop a simple theoretical framework for analyzing how these changes have affected the competitive viability of community banks. Empirical evidence presented in this paper is consistent with the model’s prediction that regulatory and technological change has exposed community banks to intensified competition on the one hand, but on the other hand has left well-managed community banks with a potentially exploitable strategic position in the industry. We also offer an analysis of how the number and distribution of community banks may change in the future.     

Banking Deregulation and Industry Structure: Evidence from the French Banking Reforms of 1985

We investigate how the deregulation of the French banking industry in the 1980s affected the real behavior of firms and the structure and dynamics of product markets. Following deregulation, banks are less willing to bail out poorly performing firms and firms in the more bank‐dependent sectors are more likely to undertake restructuring activities. At the industry level, we observe an increase in asset and job reallocation, an improvement in allocative efficiency across firms, and a decline in concentration. Overall, these findings support the view that a more efficient banking sector helps foster a Schumpeterian process of “creative destruction.”     

Banking Market Size Structure and Financial Stability: Evidence from Eight Asian Countries

Using commercial bank data from eight major Asian countries, we examine the relationship between the banking market size structure and the stability of financial institutions. We also analyze the effect of bank upsizing on the financial stability. Our results show that a rise in large banks’ market power, accompanying an increase in their market shares, lowers the capital adequacy of small banks. Small banks’ nonperforming loans and the possibility of their bankruptcy also increase as large banks’ market shares rise. We further show that larger banks tend to have lower capital adequacy ratios, liquidity ratios, and distance-to-default ratios. Our study suggests that large banks’ greater market shares are associated with small banks’ financial instability. Overall, these findings are consistent with the notion of the recent banking literature that has important antitrust policy implications.     

The impact of the euro on risk exposure of the world’s major banking industries

In this paper, we examine if the introduction of the euro impacted the risk exposures, risk premiums and, hence, the cost of equity of the banking industry of 11 Eurozone countries, five non-Eurozone European countries, and three non-European countries. Using a multi-factor asset-pricing model that allows time variation in the risk exposures, we find a statistically significant and economically large decline in the cost of equity of the banking industry across the three groups of countries following the introduction of the euro. Though we find an increase in the market and currency exposures after the euro, consistent with increased competition among banks, the fall in the cost of equity arises from an economically large decline in the currency premium. As expected, the Eurozone banking industry experienced the largest decrease. Our results are inconsistent with the argument that increased banking competition arising from the legislative changes accompanying the introduction of the euro would result in an increase in the overall risk premium of the banking sector.     

Assessing competition in the banking industry: A multi-product approach

This paper investigates the competitive aspects of multi-product banking operations. Extending Panzar and Rosse’s (1987) model to the case of a multi-product banking firm, we show that higher economies of scope in multi-product banking are associated with lower Panzar–Rosse measures of competition in the banking sector. To test this empirical implication and determine the impact of multi-production on market power, we use a new dataset on the Brazilian banking industry. Consistent with our theoretical prediction, we find that banks that offer classic banking products (i.e., loans and credit cards) and other banking products (i.e., brokerage services, insurance and capitalization bonds) have substantially higher market power than banks that offer only classic products. These results suggest a positive bias in the traditional estimates of competition in which multi-output actions are not considered.     

Bank political connections and performance in China

We examine the effects of bank’s political connection on bank performance and risk in China. We use hand-collected information on CEOs’ professional background to identify their political affiliations, and find that banks whose CEOs have former government experiences have higher return on assets, lower default risk, and lower credit risk. Additionally, politically connected banks have disproportionally higher performance when the CEOs previous worked in the same city where the current bank’s headquarter locates, had past banking experiences, spend more on entertainment and travel costs, and have higher previous administrative rankings (e.g., at the provincial or state level). These results suggest that politically connected banks have better access to lending to politically connected firms, which are high yield assets and more likely to be bailed out when in distress. Our results offer a mechanism of political rent seeking, consistent with the institutional environment of China’s banking and political system.     

Credit risk and financial integration: An application of network analysis

Credit plays a significant role in the performance of the banking sector. This research relates financial integration to the credit risk of banks. We compute a measure of financial connectivity based on network statistics using syndicated loans. Using instrumental variable techniques for a panel of 39 countries over the periods of 1988 to 2014, we analyse the link between credit risk and financial integration. Our findings suggest that borrowing banks do not alleviate credit risk. Also, borrowing banks that are more active in the network also help to compound credit risk. However, the closeness centrality reveals a significant reduction in the credit risk of the borrowing banks. Our findings from individual countries reflect the significance of the country of operation of these banks in the international market.     

On the Contagion Effect in the US Banking Sector

By using the spatial econometrics methodology, this paper investigates the contagion of the risk taking by banks in the US banking sector during 2001 to 2012. In addition, the contagion signals up to the Subprime crisis in 2008 are analyzed and different channels of contagion are studied in order to identify fragile groups of banks. Our analysis reveals that there is no significant contagion transmitted to the whole banking system. However, we observe that the bank contagion is significantly spread locally and for the group of banks that share similar characteristics related to size and bank regulations.     

Sell-side analysts’ career concerns during banking stresses

We propose a new approach to examine sell-side analysts’ career concerns by relating their forecast boldness to their employers’ news flows. Specifically, we use banking sector news to proxy for the severity of career concerns. Analysts follow more closely the consensus forecast when the prospects of the banking sector are negative (and vice versa). The effect is both economically and statistically significant after controlling for various firm, analyst, brokerage house, and forecasting characteristics, as well as sector and economy wide effects. The more established analysts, in terms of reputation and experience, are generally unaffected by banking sector news. In contrast, their less established peers tend to cluster their forecasts near the consensus after a sequence of negative news flows for banks. Collectively, our results support the notion that during banking stresses when job security is low analysts’ tendency to imitate others increases.     

Specialization in Bank Lending: Evidence from Exporting Firms

We develop a novel approach for measuring bank specialization using granular data on borrower activities and apply it to Peruvian exporters and their banks. We find that borrowers seek credit from banks that specialize in their export destinations, both when expanding exports and when exporting to new countries. Firms experiencing country-specific export demand shocks adjust borrowing disproportionately from specialized banks. Specialized bank credit supply shocks affect exports disproportionately to countries of specialization. Our results demonstrate that firm credit demand is bank- and activity-specific, which reduces banking competition and affects the transmission and amplification of shocks through the banking sector.     

Stopping contagion with bailouts: Micro-evidence from Pennsylvania bank networks during the panic of 1884

Using a newly constructed historical dataset on the Pennsylvania state banking system, detailing the amounts of “due-froms” on a debtor bank-by-debtor bank basis, we investigate the effects of the Panic of 1884 and subsequent private sector-orchestrated bailout of systemically important banks (SIBs) on the broader banking sector. We find evidence that Pennsylvania banks with larger direct interbank exposures to New York City changed the composition of their asset holdings, shifting from loans to more liquid assets and reducing their New York City correspondent deposits in the near-term. Over the long-term though, only the lower correspondent deposits effect persisted. Our findings show that the banking turmoil in New York City impacted more exposed interior banks, but that bailouts of SIBs by the New York Clearing House likely short-circuited a full-scale banking panic.     

金融结构、银行业结构与产业结构调整

本文基于广东省的实践，分别考察了广东省金融结构、银行结构与产业结构调整的互动关系。运用2006-2011年广东省各市的面板数据，实证分析了广东省金融结构对产业结构调整影响，发现广东省银行业的发展对产业结构调整有明显的正向促进作用，而股票市场的发展对产业结构调整有一定的负向影响。这表明行业的发展在广东的经济发展中发挥着不可替代的作用，而股票市场由于不完善及多种非经济因素的影响，对产业结构调整产生了一定的阻碍作用。在此基础上运用1980-2011年广东省时间序列数据进一步分析了银行业结构与产业结构之间关系，结果表明广东省银行集中度的提高对产业结构调整有长期的负向影响。因此，必须提高银行业的竞争，逐步降低四大国有商业银行的垄断地位，同时加强股票市场的完善。     

The patterns of cross-border bank mergers and shareholdings in OECD countries

In recent years there has been a surge in mergers and acquisitions (M&As) in all sectors of economic activity. Cross-border operations have followed this trend, creating global companies operating in all major world markets. In this paper we study the pattern of cross-border M&As in the banking industry relative to the non-financial sector of the economy and investigate which factors make it more likely that a bank will expand its activities abroad. We find that cross-border M&As are rarer in banking than in other sectors, possibly owing to the importance of information asymmetries in banking relationships and to regulatory restrictions. Using data on almost 2500 banks from 29 OECD countries, we also show that the most significant features of banks with foreign equity interests relate to efficiency: banks with cross-border shareholdings are on average larger, more profitable, and based in countries with a more highly developed banking market.     

Management of environmental and social risks and topics in the banking sector - An empirical investigation

This paper investigates how environmental and social (E&S) risks and topics (i. e. E&S issues that are important in terms of adaptation to a changing business environment) are integrated in the banking sector. Despite banks’ key role in steering financial flows towards sustainable development, little is currently known as to whether and how banks integrate E&S aspects into their management control systems and whether this integration translates into E&S performance. Building on prior studies in the environmental management control literature, we design a conceptual model in which we link contextual factors, a proactive strategy approach, E&S management controls, and E&S performance. Following common practice in the banking sector, we differentiate between two paths of E&S management controls: risk management (value protection) and topic management (value creation). Based on survey data for a small sample of 50 European banks, we find evidence that contextual factors, reflected in the perceived power and legitimacy of clients, voluntary standard setters and NGOs, are positively related to a proactive strategy approach. This proactive strategy translates into both topic and risk management. Yet, in the next step, only topic management is positively related to the E&S performance of a bank, but not risk management.