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.     

Bank-to-bank lending channel and the transmission of bank liquidity shocks: Evidence from France

Good liquidity is essential for the banking system to function properly and supply credit to the real sector. However, several banks all over the world face large shocks to their liquidity supply due to numerous factors. This study contributes to the literature on the transmission of liquidity shocks by investigating the bank-to-bank lending behavior of French banks during the global financial crisis (2008 and 2009). In addition, we examine the factors strongly influencing the liquidity of the interbank deposits market. First, using a fixed-effects model on a sample of 85 French banks for the period from 2005 to 2010, we find that the deposits channel plays an important role in the transmission of liquidity shocks across the banking system. Second, we use difference-in-difference methodology to study the effects of liquidity shock on bank lending. Our results show that French banks reduced their bank-to-bank lending significantly during the financial crisis period. Moreover, our results suggest that the reduction could have been due to deposit activities.     

An analysis of nontraditional activities at U.S. commercial banks

In recent years, commercial banking in the United States has experienced a decline in its traditional business of financing loans by issuing deposits. Simultaneously, banks have become more involved in nontraditional activities that provide financial services and generate fee income. As a result, real aggregate noninterest income has risen relative to income from traditional activities. This paper examines features common to banks that are heavily engaged in nontraditional areas. The empirical analysis suggests that these banks tend to be larger, have smaller net interest margins, have relatively fewer core deposits, and exhibit less risk. These findings have intuitive appeal and conform to conventional wisdom; while larger banks have fewer core deposits and face more competitive interest rate conditions, resulting in narrow spreads from traditional intermediation, they have more diverse sources of revenue and greater access to financial markets, which reduces risk.     

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。     

Do consumers pay for one-stop banking? Evidence from an alternative revenue function

In providing financial services jointly, banks may reduce costs due to complementarities in production (cost economies of scope) or raise revenues from complementarities in consumption (revenue economies of scope). Cost economies of scope between bank deposits and loans have been found to be small. Revenue economies of scope are investigated here for the first time and found to be insignificant over 1978–1990 for both small and large banks and for those on or off the revenue-efficient frontier. The lack of complementarities between deposits and loans — where benefits are most likely to occur — suggests that claims of important synergies from an expansion of banking powers be taken with caution.     

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.     

Why do banks promise to pay par on demand?

We survey the theories on why banks promise to pay par on demand and examine evidence on the conditions under which banks have promised to pay the par value of deposits and banknotes on demand when holding only fractional reserves. The theoretical literature is divided into four strands: liquidity provision; asymmetric information; legal restrictions; and a medium of exchange. We assume that it is not zero cost to make a promise to redeem a liability at par value on demand. If so, then the conditions in the theories that result in par redemption are possible explanations why banks promise to pay par on demand. If the explanation based on customers’ demand for liquidity is correct, payment of deposits at par will be promised when banks hold assets that are illiquid in the short run. If the asymmetric-information explanation based on the difficulty of valuing assets is correct, the marketability of banks’ assets determines whether banks promise to pay par. If the legal restrictions explanation of par redemption is correct, banks will not promise to pay par if they are not required to do so. If the transaction explanation is correct, banks will promise to pay par if the deposits are used in transactions. We examine the history of banking in several countries in different eras: fourth century Athens, medieval Italy, Tokugawa Japan, and free banking and money market mutual funds in the United States. Each of the theories explains some of the observed banking arrangements and none explains all of them.     

Who Benefits from Deregulating the Separation of Banking Activities? Differential Effects on Commercial Bank,Investment Bank,and Thrift Stock Returns

We analyze the deregulation impact on commercial banks, investment banks, and thrifts associated with four major events progressively integrating commercial and investment banking activities in the United States during the 1990s. We find that commercial banks are the only group to react favorably to Federal Reserve announcements relaxing firewalls and easing restrictions on commercial bank revenues from investment banking activities. These regulations primarily benefit large banks. The Bankers Trust acquisition announcement of investment bank Alex Brown is associated with increased wealth for each of the three types of financial service institutions. At the eventual deregulation of the financial services industry, with the passage of the Financial Services Modernization Act in 1999, the values of commercial banks and investment banks increase significantly although thrifts are not affected.     

Variations in Market Liquidity and the Intraday Interest Rate

Most central banks offer banks participating in large‐value real‐time gross settlement (RTGS) systems a free intraday overdraft facility to discourage banks from actively managing their daylight liquidity. In this paper, we ask whether this facility has kept the intraday interest rate at zero. Using a unique transaction‐level data set on collateralized interbank loans for 2006–12, we find that during periods of financial distress, rates for morning transactions are higher than those in the afternoon. Moreover, this intraday rate correlates with market liquidity, suggesting that rates contain a liquidity premium. This intraday pattern is reduced, but not eliminated by the Eurosystem's accommodative liquidity provision.     

德国利率市场化改革的特点与其金融业发展

利率市场化是指金融机构在货币市场经营融资的利率由市场供求来决定,它包括利率决定、利率传导、利率结构和利率管理的市场化。文章考察了德国利率市场化改革的特点及其对金融业发展的积极影响。德国利率市场化改革分步骤平稳推进。改革后,在全能银行模式下德国金融业没有出现象美、英那样的银行集中倒闭危机;银行贷款在非金融部门融资中仍居于主导地位,而住户部门的金融资产结构发生显著变化;德国的货币政策主要是通过改变银行的流动性来影响金融市场利率,进而间接影响银行信贷政策以及实体经济。     

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.     

Does lending relationship help or alleviate the transmission of liquidity shocks? Evidence from a liquidity crunch in China

We examine China’s June 2013 liquidity crunch as a negative shock to banks and analyze the wealth effects on exchange-listed firms. Our findings suggest that liquidity shocks to financial institutions negatively impact borrower performance, particularly borrowers reporting outstanding loans at the end of 2012. Stock valuations of firms with long-term bank relationships, however, outperform the market and experience smaller subsequent declines in investment than peers lacking solid banking relationships. This effect is the strongest for firms that enjoy good relations with China’s large state-owned banks or foreign banks, and weakest for firms whose connections are solely with local banks. We document a positive correlation between the stock performances of firms and the stock performances of lender banks and the likelihood of lender banks operating as net lenders in the interbank market. These results suggest that banks transmit liquidity shocks to their borrowing firms and that a long-term bank-firm relationship may mitigate the negative effects of a liquidity shock.     

The seeds of a crisis: A theory of bank liquidity and risk taking over the business cycle

We examine how the banking sector could ignite the formation of asset price bubbles when there is access to abundant liquidity. Inside banks, to induce effort, loan officers are compensated based on the volume of loans. Volume-based compensation also induces greater risk taking; however, due to lack of commitment, loan officers are penalized ex post only if banks suffer a high enough liquidity shortfall. Outside banks, when there is heightened macroeconomic risk, investors reduce direct investment and hold more bank deposits. This ‘flight to quality’ leaves banks flush with liquidity, lowering the sensitivity of bankers’ payoffs to downside risks and inducing excessive credit volume and asset price bubbles. The seeds of a crisis are thus sown.     

第三方合作存款与商业银行风险承担

近年来与第三方互联网平台合作推出存款产品一度成为部分中小银行吸收存款的重要手段,监管部门对此高度关注并出台监管措施,但相关的学术研究较为匮乏。本文基于国内上市银行2012—2020年的面板数据,实证分析开展第三方合作存款业务对银行风险承担的影响并考察内在机理。研究发现,开展该业务显著提高了银行风险承担水平,表现为加权风险资产的扩张及高风险行业信贷资产配置的提升。机制研究表明,合作银行的储蓄存款规模显著扩张,流动性资金的过快增长刺激银行信贷向高利率贷款、高风险行业倾斜。本文研究对完善互联网存款监管,防控商业银行风险具有一定的启示意义。     

Shadow Banks and Macroeconomic Instability

We develop a macroeconomic model in which commercial banks can offload risky loans to a “shadow” banking sector, and financial intermediaries trade in securitized assets. The model can account both for the business cycle comovement between output, traditional bank, and shadow bank credit, and for the behavior of macroeconomic variables in a liquidity crisis centered on shadow banks. We find that following a liquidity shock, stabilization policy aimed solely at the market in securitized assets is relatively ineffective.     

A Crisis of Banks as Liquidity Providers

Can banks maintain their advantage as liquidity providers when exposed to a financial crisis? While banks honored credit lines drawn by firms during the 2007 to 2009 crisis, this liquidity provision was only possible because of explicit, large support from the government and government‐sponsored agencies. At the onset of the crisis, aggregate deposit inflows into banks weakened and their loan‐to‐deposit shortfalls widened. These patterns were pronounced at banks with greater undrawn commitments. Such banks sought to attract deposits by offering higher rates, but the resulting private funding was insufficient to cover shortfalls and they reduced new credit.     

U.S. financial deregulation : Upheaval and promise

Financial deregulation in the U.S. has ample ramifications for international banking. For U.S. based international banks, the deregulation shifts the emphasis back to the now deregulated U.S. market. For foreign banks in the U.S. deregulation is a mixed blessing. One aspect of the deregulation is interstate banking, another is merger across industry lines. Thus Parker, a pen manufacturer, owns several financial institutions including a bank. All this functional integration may be exaggerated. Banks will continue to operate more or less as they have done in the past. The changes will be evolutionary rather than revolutionary in nature, and they will lead our industry from the production of banking services to the production of financial services.     

A lost century in economics: Three theories of banking and the conclusive evidence

How do banks operate and where does the money supply come from? The financial crisis has heightened awareness that these questions have been unduly neglected by many researchers. During the past century, three different theories of banking were dominant at different times: (1) The currently prevalent financial intermediation theory of banking says that banks collect deposits and then lend these out, just like other non-bank financial intermediaries. (2) The older fractional reserve theory of banking says that each individual bank is a financial intermediary without the power to create money, but the banking system collectively is able to create money through the process of ‘multiple deposit expansion’ (the ‘money multiplier’). (3) The credit creation theory of banking, predominant a century ago, does not consider banks as financial intermediaries that gather deposits to lend out, but instead argues that each individual bank creates credit and money newly when granting a bank loan. The theories differ in their accounting treatment of bank lending as well as in their policy implications. Since according to the dominant financial intermediation theory banks are virtually identical with other non-bank financial intermediaries, they are not usually included in the economic models used in economics or by central bankers. Moreover, the theory of banks as intermediaries provides the rationale for capital adequacy-based bank regulation. Should this theory not be correct, currently prevailing economics modelling and policy-making would be without empirical foundation. Despite the importance of this question, so far only one empirical test of the three theories has been reported in learned journals. This paper presents a second empirical test, using an alternative methodology, which allows control for all other factors. The financial intermediation and the fractional reserve theories of banking are rejected by the evidence. This finding throws doubt on the rationale for regulating bank capital adequacy to avoid banking crises, as the case study of Credit Suisse during the crisis illustrates. The finding indicates that advice to encourage developing countries to borrow from abroad is misguided. The question is considered why the economics profession has failed over most of the past century to make any progress concerning knowledge of the monetary system, and why it instead moved ever further away from the truth as already recognised by the credit creation theory well over a century ago. The role of conflicts of interest and interested parties in shaping the current bank-free academic consensus is discussed. A number of avenues for needed further research are indicated.     

Finance companies in Mexico: Unexpected victims of the global liquidity crunch

We study the connection between the global liquidity crisis and the severe credit crunch experienced by finance companies (SOFOLES) in Mexico using firm-level data between 2001 and 2011. Our results provide supporting evidence that, as a result of the liquidity shock, SOFOLES faced severely restricted access to their main funding sources (commercial bank loans, loans from other organizations, and public debt markets). After controlling for the potential endogeneity of their funding, we find that the liquidity shock explains 64 percent of SOFOLES’ credit contraction during the recent financial crisis (2008–2009). We use our estimates to disentangle supply from demand factors as determinants of the credit contraction. After controlling for the large decline in loan demand during the financial crisis, our findings suggest that supply factors (such as nonperforming loans and lower liquidity buffers) also played a significant role. Finally, we find that financial deregulation implemented in 2006 may have amplified the effects of the global liquidity shock.     

What do financial intermediaries do?

This paper presents evidence that the traditional banking business of accepting deposits and making loans has declined significantly in the US in recent years. There has been a switch from directly held assets to pension funds and mutual funds. However, banks have maintained their position relative to GDP by innovating and switching from their traditional business to fee-producing activities. A comparison of investor portfolios across countries shows that households in the US and UK bear considerably more risk from their investments than counterparts in Japan, France and Germany. It is argued that in these latter countries intermediaries can manage risk by holding liquid reserves and intertemporally smoothing. However, in the US and UK competition from financial markets prevents this and risk management must be accomplished using derivatives and other similar techniques. The decline in the traditional banking business and the financial innovation undertaken by banks in the US is interpreted as a response to the competition from markets and the decline of intertemporal smoothing.