Bank Ownership and Lending: Does Bank Ownership Matter?

Using the Central and Eastern European (CEE) bank-level data covering 2004–12, this article examines the differences in foreign-owned banks’ loan growth and its determinants in comparison with privately-owned domestic banks. The results indicate the greatest differences in the context of bank capital and liquidity. Bank capital remains an important loan growth determinant only for domestic private banks during the non-crisis periods and bank liquidity is of greater importance to domestic private banks during the crisis periods. This highlights local regulatory authorities’ limited ability to harness loan growth and excessive risk-taking during the non-crisis periods and points at the benefits of multinational banking groups’ internal capital markets during the crisis periods.     

Do bank regulation,supervision and monitoring enhance or impede bank efficiency?

The recent global financial crisis has spurred renewed interest in identifying those reforms in bank regulation that would work best to promote bank development, performance and stability. Building upon three recent world-wide surveys on bank regulation (,  and ), we contribute to this assessment by examining whether bank regulation, supervision and monitoring enhance or impede bank operating efficiency. Based on an un-balanced panel analysis of 4050 banks observations in 72 countries over the period 1999–2007, we find that tighter restrictions on bank activities are negatively associated with bank efficiency, while greater capital regulation stringency is marginally and positively associated with bank efficiency. We also find that a strengthening of official supervisory power is positively associated with bank efficiency only in countries with independent supervisory authorities. Moreover, independence coupled with a more experienced supervisory authority tends to enhance bank efficiency. Finally, market-based monitoring of banks in terms of more financial transparency is positively associated with bank efficiency.     

The economic crisis: Did supervision architecture and governance matter?

Since the mid-1990s worldwide efforts were undertaken to improve the effectiveness of financial supervision, through modifications in the architecture and governance. Did these improvements mitigate the 2008–2009 Crisis? This paper brings the first systematic analysis of the role of three main efforts: consolidation in supervision, decreasing central bank involvement and improving supervisory governance. The analysis employs a new and complex database on supervisory architecture and governance for 102 countries and uses two new indicators to evaluate the supervisory regime: the Financial Supervision Herfindahl Hirschman (FSHH) and the Central Bank Supervisor Share (CBSS) Indexes. The empirical tests allow us to disentangle the relative effects of the supervisory regimes on macroeconomic resilience. We conclude that two supervisory features—supervisory consolidation and supervisory governance—were negatively correlated with resilience, while central bank involvement in supervision did not have any significant impact. Our results show that the conditions under which micro-features of the supervisory design produce automatically macro-optimal outcomes are far from identified, and consequently contradict what was the generally accepted view before the crisis.     

Bank efficiency and foreign ownership: Do good institutions matter?

This paper contributes to the literature on foreign ownership and bank efficiency by examining whether the efficiency of foreign banks depends on the institutional quality of the host country and on institutional differences between the home and host country. Using stochastic frontier analysis for a sample of 2095 commercial banks in 105 countries for the years 1998–2003, we find that foreign ownership negatively affects bank efficiency. However, in countries with good governance this negative effect is less pronounced. We also find that higher quality of the institutions in the home country and higher similarity between home and host country institutional quality reduce foreign bank inefficiency.     

Communication and financial supervision: How does disclosure affect market stability?

The impact of authorities’ information disclosure on social welfare and market stability has become a widely debated topic since the contribution of Morris and Shin (2002). Despite several theoretical works, this strand of literature remains void of empirical contributions. By assessing how disclosure of stress test results influences market risk perception, we provide factual evidence on how authorities’ enhanced communication affects financial markets’ stability. Our results provide empirical evidence to support Faria-e-Castro et al.’s (2017) theoretical findings, demonstrating that severe stress tests, if enacted in countries with credible fiscal capacity such as the U.S., can lead agents to revise their risk estimations downwards for all banks, notwithstanding their performance in the exercise.     

Political Uncertainty and Bank Loan Contracts: Does Government Quality Matter?

Journal of Financial Services Research - We investigate the relation between political uncertainty and bank loan spreads using a sample of loan contracts for the G20 firms during the period from...     

Breast cancer risk perceptions and breast cancer worry: what predicts what?

This longitudinal study explored the relationship between perceived breast cancer risk and worry. We measured both absolute and comparative risk perceptions, and also used the Gail algorithm to assess the accuracy of participants' risk perceptions. Three hundred and one women ages 40–75 participated in a two‐part study assessing how format of breast cancer risk presentation affected perceptions of risk. Relative to their Gail scores, women were biased pessimistically about their own absolute breast cancer risk and yet largely accurate about their comparative breast cancer risk. Perceived comparative risk, but not perceived absolute risk or biases in absolute or comparative risk, predicted subsequent worry. Worry predicted subsequent perceived absolute risk and biases in absolute and comparative risk. These results suggest that women's emotional reactions to breast cancer risk are based on accurate (unbiased) perceptions of their comparative risks. In turn, greater worry prompts a re‐evaluation of absolute risk as well as changes in risk biases. Implications for screening are discussed.     

Banking risk and regulation: Does one size fit all?

Using data for more than 200 banks from 21 OECD countries for the period 2002–2008, we examine the impact of bank regulation and supervision on banking risk using quantile regressions. In contrast to most previous research, we find that banking regulation and supervision has an effect on the risks of high-risk banks. However, most measures for bank regulation and supervision do not have a significant effect on low-risk banks. As banking risk and bank regulation and supervision are multi-faceted concepts, our measures for both concepts are constructed using factor analysis.     

Beyond Bank Competition and Profitability: Can Moral Hazard Tell Us More?

The purpose of this paper is to investigate the relation between competition, profitability, and risk. The investigation uses bank-level panel data from 171 Chinese banks during 1993 to 2007. Throughout the whole sample, the empirical results divulge that increased bank concentration in China improves the profitability and the risk of its banks. These results support the structure-conduct-performance and the moral hazard hypotheses. In terms of persistence, both the profit and the risk of the banks rise significantly by showing the enhancement of profit and risk from one period to the next. When different types of banks are considered, joint-stock banks have the highest persistence in profit and risk, and therefore more stable profits. City banks support the moral hazard hypothesis. They have entrenched managers that tend to take on more risk when the bank’s charter value falls in a very competitive (less concentrated) environment. Further, deregulation which in 2003 China allowed foreign banks to formally enter China has a negative impact on the structure of China’s banking sector.     

Bank mergers: What should policymakers do?

These remarks discuss why the “cluster” of financial services and local banking markets are still relevant for antitrust analysis in banking. A key portion of the Federal Reserve’s Order approving the NationsBank–Barnett merger is interpreted, and the extent to which antitrust is a practical constraint on the development of a nationwide banking structure is commented upon.     

Secondary buyouts: Why buy and at what price?

This paper studies the economic logic and pricing of secondary buyouts, a form of leveraged buyout that has become increasingly popular. I investigate three potential explanations for secondary buyouts: efficiency gains, liquidity-based market timing, and collusion. The results are most consistent with the liquidity-based market timing hypothesis. Specifically, firms are more likely to exit through secondary buyouts when: the equity market is “cold”, the debt market condition is favorable, and the sellers face a high demand for liquidity. While this hypothesis shows a constrained optimal strategy for private equity firms, I do not find any strong efficiency gains for the target firms. Further, my analyses on pricing show that secondary buyouts are priced higher than first-time buyouts due to favorable debt market conditions. Overall, the results are consistent with the notion that secondary buyouts serve no purpose aside from alleviating the financial needs of private equity firms.     

The elasticity of taxable income and income-shifting: what is “real” and what is not?

Previous literature shows that income taxation significantly affects the behavior of high-income earners and business owners. However, it is still unclear how much of the response is due to changes in real economic activity, and how much is caused by tax avoidance. In this paper, we distinguish between real responses and income-shifting between tax bases. We show that separating income-shifting responses can largely affect the welfare analysis of income taxation. In our empirical example of Finnish business owners, we find that income-shifting accounts for a majority of the overall elasticity of taxable income, which significantly decreases the marginal excess burden.     

Bank Liquidity Creation and Risk‐Taking: Does Managerial Ability Matter?

This study investigates the impact of managerial ability on banks' liquidity creation and risk‐taking behavior. We find that higher ability managers create more liquidity and take more risk. During times of financial crisis, however, higher ability bank managers reduce liquidity creation as a way to de‐leverage their balance sheets. Our findings inform recent theoretical and empirical studies that investigate determinants of liquidity creation and risk by introducing managerial ability as a prominent antecedent of the banks' intermediation and risk‐transforming service. Moreover, this study has policy‐related implications, since managerial ability can be quantified as a key performance indicator for prudential supervision of banks and could help regulators to target intervention efforts more purposefully during times of crisis.     

Bank risk in uncertain times: Do credit rationing and revenue diversification matter?

We show that bank risk rises, particularly for larger banks and those with greater interest-sensitive liabilities, during times of economic policy uncertainty through two economic channels: “credit rationing” and “revenue diversification.” The credit rationing channel shows that economic policy uncertainty increases aggregate loan spreads, exacerbating both adverse selection and moral hazard problems leading to higher bank risk. The revenue diversification channel suggests that as economic policy uncertainty reduces bank profits from traditional interest-based products, banks diversify into other non-traditional activities, thereby increasing their instability. Overall, our findings highlight the impact of economic policy uncertainty on exacerbating bank risk.     

A Pyrrhic Victory? Bank Bailouts and Sovereign Credit Risk

We model a loop between sovereign and bank credit risk. A distressed financial sector induces government bailouts, whose cost increases sovereign credit risk. Increased sovereign credit risk in turn weakens the financial sector by eroding the value of its government guarantees and bond holdings. Using credit default swap (CDS) rates on European sovereigns and banks, we show that bailouts triggered the rise of sovereign credit risk in 2008. We document that post‐bailout changes in sovereign CDS explain changes in bank CDS even after controlling for aggregate and bank‐level determinants of credit spreads, confirming the sovereign‐bank loop.     

Churches and charity regulation: 1993–2009

This article explores the impact of charity law and regulation on churches in the period 1993–2009 in the jurisdictions of England and Wales, Scotland, and Northern Ireland. In the past, churches have often escaped the full requirements of charity regulation on issues such as registration, reporting, and accountability to regulators. Many of these exemptions have been removed as a result of modernization of charity law throughout the UK, and the implications of these changes are explored both normatively and qualitatively.     

Walking the walk? Bank ESG disclosures and home mortgage lending

Review of Accounting Studies - We show that banks with high environmental, social, and governance (ESG) ratings issue fewer mortgages in poor localities—in number and dollar amount—than...     

Financial systemic risk: Taxation or regulation?

This paper describes financial systemic risk as a pollution issue. Free riding leads to excess risk production. This problem may be solved, at least partially, either by financial regulation or by taxation. From a normative viewpoint, taxation is superior in many respects. However, reality shows that financial regulation is adopted more frequently. This paper makes a positive, politico-economic argument. If the majority chooses regulation, the level is likely to be too harsh. If it chooses taxation, then the level is likely to be too low. Due to regressive effects, a tax on financial transactions receives low support from a majority of low polluting portfolio owners. The same kind of majority may strategically choose regulation in order to burden the minority with a larger share of the cost of reducing systemic risk.