Commercial Bank Portfolio Behavior and Endogenous Uncertainty

This paper demonstrates how Bayesian information may be analyzed as a variable input in determining an optimal bank portfolio and investigates the impact of information in a way that is statistically satisfactory. A portfolio model is developed, and the impact of information is analyzed. Information is treated as an economic input that is used up to the point where its predicted marginal benefit is exactly equal to its marginal cost, and, from there, the optimal demand for information is derived. A comparative-static analysis demonstrates that the reaction of optimal portfolio holdings to interest rate changes under variable uncertainty is dramatically different from portfolio behavior when uncertainty is exogenous. Finally, the elasticity of reserves with respect to scale is examined under the assumption of variable uncertainty.     

Economic policy uncertainty and the credit channel: Aggregate and bank level U.S. evidence over several decades

Economic policy uncertainty affects decisions of households, businesses, policy makers and financial intermediaries. We first examine the impact of economic policy uncertainty on aggregate bank credit growth. Then we analyze commercial bank entity level data to gauge the effects of policy uncertainty on financial intermediaries’ lending. We exploit the cross-sectional heterogeneity to back out indirect evidence of its effects on businesses and households. We ask (i) whether, conditional on standard macroeconomic controls, economic policy uncertainty affected bank level credit growth, and (ii) whether there is variation in the impact related to banks’ balance sheet conditions; that is, whether the effects are attributable to loan demand or, if impact varies with bank level financial constraints, loan supply. We find that policy uncertainty has a significant negative effect on bank credit growth. Since this impact varies meaningfully with some bank characteristics – particularly the overall capital-to-assets ratio and bank asset liquidity-loan supply factors at least partially (and significantly) help determine the influence of policy uncertainty. Because other studies have found important macroeconomic effects of bank lending growth on the macroeconomy, our findings are consistent with the possibility that high economic policy uncertainty may have slowed the U.S. economic recovery from the Great Recession by restraining overall credit growth through the bank lending channel.     

Stochastic reserve changes and expansion of bank credit: The case of additional risks

In this paper we examine the effects of introducing additional risks to the Orr-Mellon-Cooper model on the asymptotic behavior of bank credit expansion, and derive monetary policy implications therefrom. Our model of additional risks corrects a loss of generality existing in the Orr-Mellon-Cooper model. It shows that the local solution for optimal credit expansion is the global solution, regardless of the parameters of the reserve loss functions, when the default risk is introduced. The analysis further points out necessary conditions to determine the direction of credit changes caused by a monetary injection under uncertainty.     

On the determinants of bank interest margins under credit and interest rate risks

This paper explores the determinants of optimal bank interest margins based on a simple firm-theoretical model under multiple sources of uncertainty and risk aversion. The model demonstrates how cost, regulation, credit risk and interest rate risk conditions jointly determine the optimal bank interest margin decision. We find that the bank interest margin is positively related to the bank's market power, to the operating costs, to the degree of credit risk, and to the degree of interest rate risk. An increase in the bank's equity capital has a negative effect on the spread when the bank faces little interest rate risk. The effect of rising interbank market rate on the spread is ambiguous and depends on the net position of the bank in the interbank market. Our findings provide alternative explanations for the empirical evidence concerning bank spread behavior.     

Economic policy uncertainty and credit growth: Evidence from a global sample

This study extends the research of Bordo, Duca, and Koch (2016) and Hu and Gong (2018) by examining the influences of economic policy uncertainty (EPU) at domestic and global levels on aggregate bank credit growth. The empirical analysis is conducted through both supply and demand side factors of bank credit growth in 22 economies over the period 2001–2015. This study employs different measures of EPU and applies panel-corrected standard errors (PCSE) and feasible generalized least squares (FGLS), which are suitable for unbalanced panel data models. Three principal findings are follows. First, higher level of EPU has negative impact on bank credit growth, which is significant for domestic EPU measures. Second, the positive change in EPU appears to have favorable effects on bank credit growth. The effects in both cases are different for the credit demand and supply sides. The findings suggest the need for appropriate measures to tackle bank credit risk-taking activities in uncertain conditions. Third, the impacts of EPU in emerging economies are negative and somewhat stronger than in advanced economies.     

Asymmetric information effects on loan spreads

This paper estimates the cost arising from information asymmetry between the lead bank and members of the lending syndicate. In a lending syndicate, the lead bank retains only a fraction of the loan but acts as the intermediary between the borrower and the syndicate participants. Theory predicts that asymmetric information will cause participants to demand a higher interest rate and that a large loan ownership by the lead bank should reduce this effect. In equilibrium, however, the asymmetric information premium demanded by participants is offset by the diversification premium demanded by the lead. Using shifts in the idiosyncratic credit risk of the lead bank's loan portfolio as an instrument, I measure the asymmetric information effect of the lead's share on the loan spread and find that it accounts for approximately 4% of the total cost of credit.     

经济政策不确定性与企业贷款成本

基于大样本微观银行信贷数据,本文研究经济政策不确定性对企业的银行贷款成本的影响。研究发现,经济政策不确定性升高导致企业的银行贷款成本增加,且使得在中小型银行贷款的企业成本增加更多。异质性分析表明,经济政策不确定性升高对受政策因素影响较大的企业如小微企业、私营企业等的银行贷款成本的影响更为明显。进一步,对企业的银行贷款违约风险的研究发现,随着经济政策不确定性升高,企业的银行贷款违约风险反而降低。这表明,经济政策不确定性升高使得银行选择风险评级更低的贷款,符合谨慎性动机。本文研究结论表明,经济政策不确定性升高时,银行“自我保险”动机的增强使得企业的银行贷款成本增加,这在中小型银行中表现得更加明显,同时也更多地转嫁给中小企业。本文为经济政策不确定性对企业投资、宏观经济波动等的研究提供了微观解释机制,并揭示了政府经济政策的一致性、稳定性对维护金融稳定的重要作用。     

Credit line takedown and endogenous bank capital

This paper investigates the implications of the uncertain timing and usage of loan commitments for the optimal level of bank capital. We use trended Brownian motion to proxy the stochastic takedown of credit lines. Relying on “time to first passage” mathematics, we derive a probability density function for the time to depletion of the bank credit line as well as the likelihood for the time to exhausting the sources of liquidity that fund the loan takedown. Armed with these analytical results, we solve for the optimal level of bank capital within a simultaneous equation framework in order to capture the interrelationships of the endogenous variables. The optimality conditions produce a system of integral differential equations which refuse to yield reduced form solutions and provide no immediate intuition. Therefore, the maximizing values of the bank’s decision variables were simulated over a host of realistic scenarios. We document the comparative static behavior of the bank’s decision variables when equity is unencumbered by capital requirements and, also, examine the impact of the same parametric changes on bank behavior when equity is a fixed proportion of lending. Further simulations produce the expected time to liquidity depletion under different capital requirement schemes.     

Credit rationing in small firm-bank relationships

I study credit rationing in small firm-bank relationships by using a unique data set of matched loan applications and contracts. I establish the degree of credit rationing by relating a firm's requested loan amount to the bank's granted amount. In line with theoretical predictions, credit rationing is higher for opaque than transparent firms at the beginning of their bank relationships and decreases over time for both. After testing for several alternative explanations, the results suggest that information and incentive problems explain the observed credit rationing and its dynamics.     

Disequilibrium in the UK corporate loan market

In the last decade, a debate has resurfaced about whether financial constraints stemming from asymmetric information and incentive problems play an important role in propagating monetary policy shocks. This paper investigates the monetary transmission mechanism in the UK and its impact on the availability of bank credit to small and medium size firms.The empirical specification is based on a disequilibrium model that allows for the possibility of transitory credit rationing. Sample firms are classified endogenously into ‘borrowing constrained’ and ‘borrowing unconstrained’. The analysis of credit rationing takes into account not only firm specific variables, but also important macroeconomic factors such as the prevailing monetary conditions and the stage of the business cycle.We find that (i) firms’ assets play an important role as collateral in mitigating borrowing constraints; (ii) during periods of tight monetary conditions corporate demand for bank credit increases, whereas the supply of bank loans is reduced; (iii) to avoid bank credit rationing smaller companies increase their reliance on interfirm credit; (iv) the proportion of borrowing constrained firms is significantly higher during the recession years of the early 1990s than at other times.     

Product differentiation,market dynamics and the value relevance of trade payables: Evidence from UK listed firms

This paper provides a comprehensive evidence on how product and market dynamics affect the value relevance of trade payables. Using a sample of 2559 UK listed firms over the period 2005–2014, we find a positive relationship between trade payables and firm performance. Our evidence suggests that trade payables increase (decrease) performance in firms with differentiated products and demand uncertainty (larger market share). We demonstrate that the relative value relevance of bank credit versus suppliers’ credit is dependent on the nature of the product, the level of sales volatility, and market share. We use an innovative approach to assess the robustness of our results to omitted variable bias.     

Money and credit in liquidity provision

This paper studies the liquidity provision in a model where the roles of money are challenged by other financial instruments. Alternative to money, credit can be used as means of payment and rate dominating assets are available to serve as stores of value. Two features are found to be crucial in rendering money valuable in this environment: information asymmetry in credit trading relationship and uncertainty in individuals' liquidity demand. In general, the model economy can display a payment mechanism of money-only, credit-only, or mixed-use of money and credit in transactions, depending on the severity of the information asymmetry. The optimal quantity of money in our paper is shown to contrast those in other monetary models.     

Good disclosure,bad disclosure

We study real-efficiency implications of disclosing public information in a model with multiple dimensions of uncertainty where market prices convey information to a real decision maker. Paradoxically, when disclosure concerns a variable that the real decision maker cares to learn about, disclosure negatively affects price informativeness, and in markets that are effective in aggregating private information, this negative price-informativeness effect can dominate so that better disclosure negatively impacts real efficiency. When disclosure concerns a variable that the real decision maker already knows much about, disclosure always improves price informativeness and real efficiency. Our analysis has important empirical and policy implications for different contexts such as disclosure of stress test information and regulation of credit ratings.     

Financial and economic performance of major Brazilian credit cooperatives

The credit union's main functions are the provision of individual financial loans based on collective savings, reaching up to provide full banking services, with expansion of its social function. Cooperatives are an alternative to supply a credit demand in the market, because a third of the municipalities have no bank branches. Although the participation of cooperatives in credit operations is still small compared to the Brazilian national banking system, its continued growth demonstrates the importance of this sector. In this sense, the analysis of the performance of these cooperatives becomes relevant to the extent that incentives to industry expansion differ from other financial institutions. In this context, this study aimed to analyze which the financial and economic performance of Brazil's largest credit unions. This performance analysis was performed using the indicators proposed by the CAMEL model, then the data envelopment analysis (DEA). It can be seen that there is a positive relationship between the use of variables in the model and the measurement of financial performance of credit unions. Moreover, according to the results, it can be observed that Uniprime Northern Paraná, Sicoob Cocred and Sicredi North RS/SC were cooperatives that stood out as efficient.     

Credit stimulus and corporate excess employees

This study examines how the large and unexpected Chinese credit stimulus in 2008 affects firms' labor decision. Using a large sample of industrial firms, we find that state-owned enterprises tend to hire more employment than their counterparts after the credit stimulus. Mechanism analysis shows that the credit stimulus package is followed by lower financing costs and more bank loans for the state-owned enterprises, enhancing the degree of their excess employment compared with their counterparts. Moderating effect tests suggest that the overemployment effect is stronger in provinces with a high unemployment level, where the political leaders have stronger promotion incentives, in industries that are selected as the key stimulating industry, and in provinces with higher bank competition level, but weaker in provinces with higher marketization level. Finally, we find that the firm's overemployment caused by the credit stimulus plans decreases firm labor productivity. Overall, our findings shed light on how credit policy influence firms' labor decision and offer important implications for regulators.     

融资约束对企业出口影响的Heckman验证-基于银行信用风险的视角

基于中国工业企业数据库1998-2014年7032家企业的平衡面板数据,从银行信用风险内部评级的视角,研究融资约束对企业出口的影响.结果表明:银行信贷融资约束与企业的出口决策及出口强度间有显著负相关关系.同时,使用Heckman二阶段模型研究发现:不同形式的商业信用对企业出口决策及出口强度的影响和作用机制会因企业所处供求端位置的不同而存在差异.其中,需求端的商业信用仅与企业出口决策显著正相关,而与出口强度的相关性并不显著;供给端的商业信用则与企业出口强度显著负相关.     

Asymmetric information and the mode of entry in foreign credit markets

In a newly liberalized credit market, foreign banks with cost advantages are likely to be less informed than domestic banks that hold information on credit risks. These relative advantages may generate incentives for a foreign bank to negotiate acquisition of a domestic bank in order to capture information endowments. However, if it is difficult to assess the value of information held by banks, the foreign bank will face important choices about the optimal mode of entry and what acquisition price to pay. These choices have implications for the survival of domestic banks and how capital is allocated after liberalization.     

银行信贷中会计信息的使用情况调查与分析

贷款人对企业财务信息的关注不只是会计信息决策有用性的理论问题, 更重要的是银行如何加强对贷款风险有效控制的一个非常实际的问题。本项工作通过问卷调查的方式, 了解银行授信过程中会计信息的应用情况及银行对非财务信息的使用情况。我们发现, 银行对长短期借款、主营业务收入、资产负债率、流动比率和速动比率等财务信息高度重视, 对有助于进一步判别企业潜在风险的报表附注信息也比较重视。     

Deflation,bank credit growth,and non-performing loans: Evidence from Japan

In this paper, I examine the link between bank credit growth and non-performing loans in an economy with deflationary pressures. Using panel OLS regressions and two-step GMM regressions, I find evidence for the time-varying relationship between bank credit growth and non-performing loans in a sample of 82 publicly listed commercial banks in Japan during the period 1993–2013. I show that bank credit growth positively correlates with non-performing loans prior to the onset of the global financial crisis of 2007 but negatively correlates with non-performing loans afterwards. I find evidence to support the notion that large banks drive the observed effects of credit growth on non-performing loans. In addition, credit growth and non-performing loans have no effect on profitability. Overall, the findings suggest that while the increase in the supply of bank loans increases the level of non-performing loans, it does not lead to higher profitability.     

The International Transmission of Bank Liquidity Shocks: Evidence from an Emerging Market

I exploit the 1998 Russian default as a negative liquidity shock to international banks and analyze its transmission to Peru. I find that after the shock international banks reduce bank‐to‐bank lending to Peruvian banks and Peruvian banks reduce lending to Peruvian firms. The effect is strongest for domestically owned banks that borrow internationally, intermediate for foreign‐owned banks, and weakest for locally funded banks. I control for credit demand by examining firms that borrow from several banks. These results suggest that international banks transmit liquidity shocks across countries and that negative liquidity shocks reduce bank lending in affected countries.