Charter value,risk-taking and systemic risk in banking before and after the global financial crisis of 2007-2008

ABSTRACT

We investigate how bank charter value affects risk for a sample of OECD banks by using standalone and systemic risk measures before, during, and after the global financial crisis of 2007–2008. Prior to the crisis, bank charter value is positively associated with risk-taking and systemic risk for very large ‘too-big-too-fail’ banks and large U.S. and European banks but such a relationship is inverted during and after the crisis. A deeper investigation shows that such a behaviour before the crisis is mostly relevant for very large banks and large banks with high growth strategies. Banks’ business models also influence this relationship. We find that for banks following a focus strategy, higher charter value amplifies both standalone and systemic risk for large U.S. and European banks. Our findings have important policy implications and cast doubts on the relevance of the uniform more stringent capital requirements introduced by Basel III.     

Performance of Thailand banks after the 1997 East Asian financial crisis

The performance of commercial banks and government-owned specialized banks in Thailand is estimated after the 1997 East Asian financial crisis. Commercial banks exhibit increasing returns to scale, whereas government-owned specialized banks exhibit decreasing returns to scale, implying further increases in bank size and market concentration in the commercial bank sector but not for government specialized banks. Cost inefficiency varies by bank and is a function of the ratio of nonperforming loans (NPLs) to total loans, equity to total assets and liquid assets to total assets, as well as the number of branches. On average, banks with fewer NPLs, that are well capitalized and with adequate liquidity are efficient. Thus, stricter rules to regulate credit risk management and ensure capital and liquidity adequacy would enhance efficiency in the banking sector. Although estimated input substitutability appears to be low, labour and loanable fund are substitutes. However, labour and physical capital as well as physical and loanable funds are complements in commercial banks. All the three inputs of labour, physical capital and loanable funds are substitutes for the government specialized banks.     

Performance and productivity in Islamic and conventional banks: Evidence from the global financial crisis

We assess the performance and productivity of Islamic and conventional banks using financial ratios, a two- and a four-component meta-frontier Malmquist productivity index (MPI). We focus on the relatively homogenous GCC region over the 2006–2012 period that covers the global financial crisis. We find that Islamic banks exhibit worse cost and profit performance but are on a par with regards to revenue performance compared to the conventional ones. The components of the meta-frontier MPI suggest that the technology of conventional banks improves markedly in years leading to the financial crisis and declines thereafter. Islamic banks show a similar but more muted pattern. By contrast, the pronounced within-Islamic bank group variation in technical efficiency and technology suggests that Islamic banks are quite heterogeneous as a group. Overall, the MPI analysis suggests that the two bank types are more aligned following the global financial crisis. Policy makers should be wary of the important variations within the Islamic banking industry when implementing bank regulations.     

Too-Big-To-Fail: Why Megabanks Have Not Become Smaller Since the Global Financial Crisis?

ABSTRACT

More than ten years after the global financial crisis, what has happened to the ‘too-big-to-fail’ (TBTF) banks whose reckless behavior was among its preconditions, but which received public support and guarantees in the midst of that crisis? Insofar as this too-big-to-fail status helped create the crisis and then imposed costs on the rest of society, we would expect these banks to have shrunk. We investigate the evolution of 31 global-TBTF banks and find that their overall size has hardly recorded any substantial change. However, there is no sense of urgency in the flourishing post-crisis literature on TBTF banks about the need to contain their size; the prevalent view therein is that if properly regulated, the risks that arise from a financial system dominated by TBTF banks are manageable. This view rests on the same overly narrow theoretical underpinnings whose flaws were exposed in the crisis. We argue that too-big-to-fail banking is embedded in a set of self-reinforcing policies—consolidation, balance-sheet support through quantitative easing, favorable regulations, bank lobbying, and geo-economic and geo-political considerations—which explain why these banks have not shrunk and why they remain a threat to financial stability, well after the lessons of the crisis should have been learned.     

The Effectiveness of Unconventional Monetary Policy in Japan

Since the global financial crisis of 2007–2008, central bankers around the world have been forced to abandon conventional monetary policy tools in favor of unconventional policies such as quantitative easing, forward guidance, and even lowering the interest rate paid on bank reserves into negative territory. Japan, which faced a crisis in its banking sector and came up against the theoretical zero lower bound on interest rates nearly a decade earlier, was a pioneer in the use of many of these unconventional policy tools. This article analyzes the effectiveness of Japan’s bold experiment with unconventional monetary policy. Using a panel of bi-annual bank data covering the full universe of Japanese commercial banks over a fifteen-year period, this study analyzes the effectiveness of quantitative easing policy on the bank lending channel of monetary policy transmission. Our findings suggest that Japan’s unconventional monetary policy worked: there is a bank lending channel of monetary policy transmission in Japan. These results are robust to the inclusion of time fixed effects and generalized method of moments analysis.     

Bank ownership type and temporal evolution of long‐term bank funding in the period 2005–2017

This study uses a large panel dataset of Western European banks to examine the determinants of bank funding stability. Banks are divided into three categories by bank ownership type; the ownership types in this study are commercial banks, cooperative banks and savings banks. Three sources of stable bank funding are investigated: customer deposits, equity, and long‐term liabilities. Furthermore, the sum of these funding components is used as a proxy variable for a bank's total available stable funding (ASF). A special focus is on the temporal evolution of these funding types. The regression results show that commercial banks’ funding became much more stable in the period 2005–2017. However, that funding remains, on average, less stable than does cooperative and savings banks’ funding. In addition, funding stability has remained at the pre‐crisis level in cooperative and savings banks, despite a steep dip in cooperative banks’ ASF during the sovereign debt crisis. Furthermore, banks substantially decreased financing from long‐term liabilities after the financial crisis, replacing it with customer deposits and equity.     

Current Account Imbalances or Too Much Bank Debt as the Main Driver of Gross Capital Inflows? Spain During the Great Financial Crisis

Abstract:

In contrast to the widespread view which posits that large current account deficits and net international debt were at the epicenter of the crisis in the Euro Zone, with diverging competitiveness playing a central role, this article points to the huge volume of bank credit that banks refinanced in international markets.

With a focus on the Spanish economy, we ground our view in an analysis linking gross—not net—capital flows, bank credit, and gross external debt, which provides more adequate information about a country’s international financing patterns and its external exposure.

The main conclusion of this article is that the principle driver of gross external debt in Spain was bank credit, with accumulated current account deficits accounting for less than 50 percent of gross external debt. Other consequences in keeping with this view are: the measures of economic policy required to sort out current account imbalances—particularly wage devaluation to improve competitiveness—may do more harm than good and they do not prevent the problem of too much bank credit from occurring again, and the residence of debt holders in the Euro Zone crisis is relevant for the understanding of the crisis as the result of a power imbalance     

我国商业银行效率分析——基于超效率DEA和Malmquist指数

效率是银行经营管理的核心,是银行竞争优势的集中体现,尤其在后危机时代,提高银行业的效率也是防范金融风险,实现可持续发展的关键。本文基于超效率DEA方法,运用EMS软件对2004—2009年14家商业银行的效率进行分析,对其均值进行排名;并通过Malmquist指数对银行效率进行分解研究,重点分析金融危机前后的商业银行全要素生产率的变化趋势。结果表明,效率水平总体呈现上升趋势,这与社会经济的发展是相一致的。而四大国有银行的效率不及股份制商业银行,可见,四大国有银行并没有因为资产规模大,而带来更高的收益和绩效;2004—2009年商业银行全要素生产率整体上不断提高,主要得益于技术进步和规模效益,但2009年全要素生产率有所下降,受美国金融危机全面升级所导致的国际国内经济发展衰退的影响,经营风险加大,息差收窄,对银行盈利和效率产生不利影响。     

Bank consolidation before and after the 2008 crisis

This article statistically tests the impact of the financial crisis and of Dodd-Frank on the decade-long trends in banking consolidation in developed countries. The results show that though the trends have been consistent, widespread and powerful, the financial crisis was significant enough to increase the rate of decrease in commercial banks. However, the crisis seems to have moderated the trend towards greater concentration as measured by the Herfindahl Index. The identification of the global nature of these trends and their recent changes is critical in directing future research targeted to resolving the debate over the social good of bank concentration.     

Sovereign risk and deposit dynamics: evidence from Europe

The unprecedented expansion of sovereign balance sheets since the beginning of the global crisis has given a new meaning to the term sovereign risk. Developments in Europe since early 2010 revealed new challenges for the functioning of private banks in an environment of heightened sovereign risk and may have contributed to deleveraging. The article uses an innovative way of measuring the perception of sovereign risk and its impact. Using an extension of a common market discipline framework, it shows that exposure to sovereign risk may have limited the ability of banks in Europe to collect deposits. Potential identification issues between deposits and bank efficiency are controlled by using data envelopment analysis (DEA). The results are robust to inclusion of conventional measures of bank performance and the sector-wide holdings of foreign sovereign debt.     

金融危机、货币政策与信贷供给*——基于公司层面银行信贷数据的经验研究

不同的银行特征会对金融危机和货币政策传导的银行信贷渠道产生异质性影响。本文运用2001-2015年公司层面银行信贷数据实证检验了我国货币政策传导的银行信贷渠道,随后进一步研究金融危机对不同特征银行信贷供给的影响差异。经验研究发现：我国货币政策银行信贷渠道主要通过非国有控股银行传导,并引起不同资产负债表特征银行信贷供给的异质性反应。银行规模越大、流动性越强、资本充足率越高,银行信贷供给对货币政策越不敏感。金融危机期间,银行信贷渠道的传导效率显著降低,高资本充足水平的银行和国有控股银行受金融危机的冲击较小,并且宽松的货币政策对国有控股银行信贷供给调控的效率更高。     

商业银行保增长与有效防范风险论析

全球金融危机对实体经济的影响超出预期，而实体经济的下滑过程也是银行信贷风险的暴露过程。在当前应对金融危机、支持经济健康发展的大形势下，保增长是政府、企业和银行的共同责任，需要各方面共同努力．以降低经济下滑带来的系统性风险。商业银行如何切实承担起自身的社会责任，既促进经济发展又有效控制风险，也成为当前面临的重大挑战。     

Foreign banks,financial crises and macroeconomic fluctuations

Understanding the implications of increased foreign bank presence is especially compelling in periods of financial crisis. In this paper, we explore this issue by examining the relationship between the involvement of foreign banks in the banking systems and the volatility of key macroeconomic variables in normal and crisis periods. Using a sample of 20 Emerging European countries from 1998 to 2013, we find that an increase in the assets of foreign banks in the banking system reduces output and consumption growth volatility in general but does not significantly affect the volatility of investments. However, these banks were found to play a significant role in increasing output, consumption and investment volatility in 2009. Our findings suggest that foreign banks’ harmful impact during the global crisis was only temporary and that they seem to help Emerging European countries stabilize macroeconomic volatility in normal times and after the global crisis.     

Expected default based score for identifying systemically important banks

The issue of identifying systemically important banks has gained prominence since the recent global financial crisis in 2007. However, the extant methods either neglect the adverse impact on the financial system posed by a bank or ignore the various interactions among banks. To resolve this issue, the objective of this study is to put forward an expected default based score (EDBS) that overcomes the drawbacks of the existing methods from the perspective of contagion risk. This indicator measures the systemic importance of a bank by calculating the expected bank defaults triggered by its initial failure. In the empirical study, the expected default based score is applied to identify the systemically important banks in the Chinese banking system. Both the quantitative comparison with other major methods and the qualitative evaluation of the Delphi method validate the reliability of the EDBS method. The empirical results also demonstrate that interconnectedness among banks is an important and complementary driver of systemic importance in addition to asset size.     

Are banks public utilities? Evidence from Europe

The regulatory response to the global financial crisis has been to instal a myriad of new rules in order to improve bank capital and liquidity, as well as to reduce systemic risks through structural reform. All these new rules place a straightjacket around banker’s activities and inhibit their operational freedom. This new environment has made European banks look less like private free-wheeling profit-maximising firms and more like public utilities. The utility services banks provide to society means that they should be overseen even more heavily. This includes greater regulatory oversight of bank pricing, profitability and service provision.     

The political economy of the G20 agenda on financial regulation

The paper empirically examines the implementation record of international financial regulation of the banking sector. The study finds that the size of the banking sector and the presence of global systemically important banks (G-SIBs) are positively associated with a stronger implementation record. These results suggest that cooperative motives of internalising externalities, creating a level playing field and preserving financial stability play a role in explaining the implementation record. We find evidence that this cooperative behaviour may be driven by the self-interest of global players as the positive record is particularly strong in countries where large banking sectors and big banks are both present, and where regulation only applies to large players. Sectoral concentration, bank health and the share of foreign ownership yield more mixed results as regards their impact on implementation.     

How do mega-bank merger policy and regulations contribute to financial stability? Evidence from Australia and Canada

Although the role of financial regulatory failures in the global financial crisis (GFC) has been explored extensively in the post-GFC literature, our knowledge of the role of bank merger and takeover policy and regulation in reinforcing financial stability is limited. Based on an exploratory case study of Australia, which is examined in comparison to Canada, this article argues that competition policy and regulation contributed to financial stability by insulating the largest Australian and Canadian banks from domestic or foreign hostile takeover threats, and by limiting their asset size, and thus their internationalization and interconnections with the global banking community.     

Can good governance lower bank intermediation costs?

ABSTRACT

This paper argues that better governance practices can reduce the costs, risks and uncertainty of financial intermediation. Our sample covers 100 high-, middle- and low-income countries during 1996 to 2015. Using panel regressions accounting for endogeneity and cross-sectional dependance, we find that net interest margins of banks are lower if various governance indicators are better. Governance indicators range from comprehensive indices on the rule of law to more narrow indicators like ethics of private firms. The global financial crisis seems not to have had a strong impact except via credit risk. Finally, we estimate that potential annual savings from lower net interest margins could average almost 0,3 percent of GDP, had the governance indicators been at the top decile. These simulations lend credence to the intuition that better governance practices should reduce costs, risks and uncertainty.     

Did the global financial crisis alter the competitive conditions in the Indian banking industry?

This article addresses a pertinent research question: Did the global financial crisis alter the competitive conditions in the Indian banking industry? In order to find the answer of this research question, we applied a dynamic version of the non-structural Panzar-Rosse model on a unique unbalanced panel dataset of Indian banks spanning over the period from 1998/99 to 2015/16. The robust estimates of H-statistic computed on the basis of the generalized method of moments estimates of the elasticities of input prices show that (i) Indian banks earned their interest and total revenue under monopolistic competition throughout the whole of the sample period and (ii) the global financial crisis altered the competitive conditions in the banking industry, and market moved closer to perfect competition following the financial crisis, especially when interest-bearing activities were in focus.     

以金融生态环境建设来加强商业银行危机管理

生态环境恶化可能导致物种的灭绝或生物的变异,金融生态失衡则会加大商业银行发生危机的可能。商业银行与政府、企业等市场要素构成一个互相依赖的金融生态链。不断优化金融生态环境,是商业银行加强危机管理的重要内容,而化解商业银行危机也是改善金融生态的重要措施。既要对遭到破坏的生态环境进行修复,治理污染,更要通过新生力量的培育保持生态的平衡。这既需要商业银行自身的努力,更是一项带有全社会社会责任的系统工程。