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Microeconometrics of Banking
This title provides a compendium to recent work in empirical banking. It follows the structure in 'The Microeconomics of Banking' by Xavier Freixas and Jean Charles Rochet in arranging the relevant methodologies, applications and results to achieve a coherent synthesis between available theory and supporting empirics.
Banking and Financial Markets
The traditional role of a bank was to transfer funds from savers to investors, engaging in maturity transformation, screening for borrower risk and monitoring for borrower effort in doing so. A typical loan contract was set up along six simple dimensions: the amount, the interest rate, the expected credit risk (determining both the probability of default for the loan and the expected loss given default), the required collateral, the currency, and the lending technology. However, the modern banking industry today has a broad scope, offering a range of sophisticated financial products, a wider geography -- including exposure to countries with various currencies, regulation and monetary policy ...
Effects of Bank Capital Requirements on Lending by Banks and Non-bank Financial Institutions
What is the impact of a sudden and sizeable increase in bank capital requirements on the lending activity by directly affected banks and by non-affected non-bank financial institutions (NBFIs)? To answer this question, we apply a difference-in-differences methodology around the capital exercise by the European Banking Authority (EBA) in 2011 with German credit register data. We find that insurance companies, financial enterprises, and factoring companies - but not leasing companies - and Non-EBA banks expand their corporate lending relative to EBA banks. In particular, NBFIs use the opportunity to expand their credit activities, in riskier and more competitive borrower segments, but NBFIs do not seem to rely on increased bank funding to finance this expansion.
The Economic Impact of Merger Control
There is a long-standing debate about the special nature of banks. Based on a unique dataset of legislative changes in industrial countries, we identify events that strengthen competition policy, analyze their impact on banks and non-financial firms and explain there actions observed with institutional features that distinguish banking from non-financial sectors. Covering nineteen countries for the period 1987 to 2004, we find that banks are special in that a more competition-oriented regime for merger control increases banks'stock prices, whereas it decreases those of non-financial firms. Moreover, bank merger targets become more profitable and larger. A major determinant of the positive ba...
Firms and Their Distressed Banks
We use the near-collapse of the Norwegian banking system during the period 1988-91 to measure the impact of bank distress announcements on the stock prices of firms maintaining a relationship with a distressed bank. We find that although banks experienced large and permanent downward revisions in their equity value during the event period, firms maintaining relationships with these banks faced only small and temporary changes, on average, in stock price. In other words, the aggregate impact of bank distress on listed firms in Norway appears small. Our results stand in contrast to studies that document large welfare declines to similar borrowers after crises hit Japan and other East Asian countries. We hypothesize that because banks in Norway are precluded from maintaining significant ownership control over loan customers, Norwegian firms were freer to choose financing from sources other than their distressed banks. We provide cross-sectional evidence to support this hypothesis.
The Industrial Organization of Banking
This book provides an evaluation of the industrial organization of banking with a focus on the interrelationship among bank behavior, market structure, and regulation. It addresses a wide range of public policy topics, including bank competition and risk, international banking, antitrust issues, and capital regulation. New to this edition, which has been updated throughout, is a broadened consideration of alternative theories of competition among banks, which includes discussions of such issues as the implications of large increases in bank reserve holdings in recent years, effects of nonprice competition through quality rivalry, analysis of mixed market structures involving both large and small banks, and international interactions of banks and policymakers. The intent of the book is to serve as a learning tool and reference for graduate students, academics, bankers, and policymakers seeking to better understand the industrial organization of the banking sector and the effects of banking regulations.
The Economic Impact of Merger Control Legislation
We construct a unique dataset of legislative reforms in merger control legislation that occurred in nineteen industrial countries in the period 1987-2004, and test the economic impact of these changes on firms' stock prices. In line with the standard monopolistic hypothesis, we find that the strengthening of merger control decreases the stock prices of non-financial firms. In contrast, we find that bank stock prices increase. Cross sectional regressions show that the discretion embedded in the supervisory control of bank mergers is a major determinant of the positive bank stock returns. This suggests that merger control is anticipated to provide a 'checks and balances' mechanism that mitigates the value-destroying influence of unmediated supervisory control. We provide a case study further supporting this interpretation.
CDS and Credit
Does hedging motivate CDS trading and does that affect the availability of credit? To answer these questions we couple comprehensive bank-firm level CDS trading data from the Depository Trust and Clearing Corporation with the German credit register containing bilateral bank-firm credit exposures. We find that following the Small Bang in the European CDS market, extant credit relationships with riskier firms increase banks' CDS trading and hedging of these firms. Properly hedged banks holding more CDS contracts of riskier firms supply relatively more credit to these firms. Our results are overall stronger for firm CDSs experiencing larger improvements in liquidity.
