did tarp distort competition among sound unsupported banks i introduction did the financial support of distressed u s banks by the capital purchase program cpp affect loan and funding rates as measures of price competition the cpp the largest single element of the troubled asset relief program tarp dispersed around 204 9 billion to 707 u s banks between q4 08 and q4 09 as of july 31 2014 the treasury recovered 225 9 billion of this cpp support in the form of repayments dividends and interest turning the program into a positive return for taxpayers timothy masad deputy secretary of the treasury in charge accordingly called tarp a success in the final hearing of the congressional oversight panel cop on march 4 2011 see http cop senate gov and liu et al 2013 agreed in their analysis of the substantial financial and return recovery of banks that received cpp funds however on an economic cost benefit basis it is not clear whether taxpayers had a net positive return calomiris and khan 2015 yet in its final assessment the cop 2011 paints a more nuanced picture although the cost of tarp was much lower than anticipated it might also have induced distortions of market mechanisms in the form of increased risk taking and reduced competition the former issue has received considerable attention in recent studies black and hazelwood 2013 dam and koetter 2012 duchin and sosyura 2014 gropp et al 2011 whereas evidence about competitive distortions due to tarp is rare bailout schemes can distort competition in two ways directly by subsidizing rescued banks and indirectly by inducing undesirable market conduct by unsupported banks specifically government bailouts directly distort banking competition because insurance schemes treat banks differently depending on the size of the subsidy beck et al 2010 which upsets any existing level playing field empirical evidence about the direct effect of bailouts on competition is mixed calderon and schaeck 2015 show with a sample of 46 banking crises in 138 countries that government support of troubled banks led to more banking competition and lower interest margins after a crisis the main benefits accrue to borrowers in already financially well provided segments in contrast berger and roman 2015b show that tarp supported u s banks exhibited higher lerner margins and market shares compared with unsupported banks in the period after q4 09 driven by banks that repaid early while suppliers of funds require lower risk premiums tarp capital infusions required a dividend yield of 5 in the first 5 years of support increasing to 9 thereafter in addition tarp infusions were tied to executive compensation caps bayazitova and shivdasani 2012 berger and roman 2015b conclude that the safety net benefits of tarp outweighed the cost disadvantages even if bailouts are allocated on perfectly equal terms to all banks the provided insurance creates socially undesirable additional risk taking keeley 1990 consistent with this view the congressional oversight panel 2011 voiced concerns that tarp equity provisions provided supported banks with a competitive advantage that could lead to consolidation and further concentration to the detriment of small or local community banks in particular in turn these subsidized survivors with their increased market power could invoke additional welfare losses by charging higher interest rates to borrowers that represent poor credit risks theoretically hakenes and schnabel 2010 emphasize the importance of indirect effects of government bailouts on unsupported peers too the increased protection of banks that anticipate bailouts reduces the margins and charter values of competing unsupported banks prospective bailouts also induce depositors to require lower default premiums such that the reduced funding costs imply more lending by protected banks which translates into increased competitive pressure on unsupported incumbents

foreign bank entry credit allocation and lending rates in emerging markets empirical evidence from poland abstract earlier studies have documented that foreign banks charge lower lending rates and interest spreads than domestic banks we hypothesize that this may stem from the superior efficiency of foreign entrants that they decide to pass onto borrowers performance hypothesis but could also reflect a different loan allocation with respect to borrower transparency loan maturity and currency portfolio composition hypothesis we are able to differentiate between the above hypotheses thanks to a novel dataset containing detailed bank specific information for the polish banking industry our findings demonstrate that banks differ significantly in terms of portfolio composition and we attest to the portfolio composition hypothesis by showing that having controlled for portfolio composition there are no differences in lending rates between banks

nonmonetary effects of the financial crisis in propagation of the great depression this paper examines the effects of the financial crisis of the 1930s onthe path of aggregate output during that period our approach is complementary to that of friedman and schwartz who emphasized the monetary impact of the bank failures we focus on non monetary primarily credit related aspects of the financial sector output link and consider the problems of debtors as well as those of the banking system we argue that the financial disruptions of 1930 33 reduced the efficiency of the credit allocation process and that the resulting higher cost and reduced availability of credit acted to depress aggregate demand evidence suggests that effects of this type can help explain the unusual length and depth of the great depression this abstract was borrowed from another version of this item

consequences of bank distress during the great depression the consequences of bank distress for the economy during the depression remain an area of unresolved controversy since john m keynes 1931 and irving fisher 1933 macroeconomists have argued that bank distress magnified the extent of the economic decline during the depression as the intermediaries controlling money and credit banks were in a special position to transmit their distress to other sectors but the mechanism through which banking distress mattered for the economy has been hotly contested milton friedman and anna j schwartz 1963 saw the contraction in the money multiplier driven in their view by panicked depositors withdrawals of deposits as the primary mechanism through which banking distress affected the real economy they described the mechanism transmitting banking distress to the real sector as operating at the national level through changes in the aggregate supply of money and interest rates bank distress reduced the money supply available to the public either through the closure of banks and the consequent freezing of bank deposits or the withdrawals of deposits by depositors that feared bank failure ben s bernanke 1983 building on fisher 1933 emphasized the transmission of monetary shocks via their effects on the balance sheets of borrowers and on the supply of credit by banks borrowers balance sheets were worsened by debt deflation as the result of fixed dollar debt obligations borrowers net worth and cash flow declined with the rising value of debt service costs relative to income borrowers with positive net present value projects but weak balance sheets had less internally generated retained earnings to invest and could not qualify for credit furthermore bernanke argued that the contraction of the money supply produced contraction of nominal income and prices relative to fixed debt service which weakened borrowers balance sheets and in turn weakened banks not only did firms financial distress reduce the number of qualified borrowers the contraction in banks net worth forced a reduction in the supply of bank loans to qualified borrowers many firms and individuals relied on banks for credit and as those banks suffered losses of capital due to asset value declines and contractions in deposits as depositors reacted to bank weakness by withdrawing their funds even borrowers with viable projects and strong balance sheets experienced a decrease in the effective supply of loanable funds bernanke termed the combined weakening of borrowers balance sheets and the contraction in bank credit supply a rise in the cost of credit intermediation the scarcity of perfect substitutes for the positive net present value investments of firms with weak balance sheets and for the credit supplied by existing banks implies that the weakening of firms and banks balance sheets the disappearance of banks and the contraction in surviving banks lending made it more difficult for the economy to channel funds to their best use thus what began as a contraction in aggregate demand became a contraction in aggregate supply which magnified adverse economic shocks and prolonged and deepened the depression the financial distress of firms and banks and the decline in bank lending were not only symptoms of the depression but means for magnifying the shocks that caused the depression bernanke s statistical evidence in support of this story is derived from time series analysis at the national level in calomiris graduate school of business 601 uris hall columbia university 3022 broadway new york ny 10027 and national bureau of economic research e mail cc374 columbia edu mason department of finance drexel university 3141 chestnut street philadelphia pa 19104 e mail joe mason drexel edu we thank valerie ramey david wheelock charles himmelberg steve zeldes gary gorton two referees and seminar participants at columbia university wharton northwestern university and the 2001 economic history association meetings for helpful comments on an earlier draft we gratefully acknowledge support from the national science foundation the university of illinois and the federal reserve bank of st louis

shaming the corporation the social production of targets and the anti sweatshop movement as social movements co evolve with changes in states and markets it is crucial to examine how they make particular kinds of actors into focal points for the expression of grievances and the demand for rights but researchers often bracket the question of why some kinds of organizations are more likely than others to become targets of social movement pressure we theorize the social production of targets by social movements rejecting a simple reflection model to focus on configurations of power and vulnerability that shape repertoires of contention empirically we extend structural accounts of global commodity chains and cultural accounts of markets to analyze the production of targets in the case of the anti sweatshop movement of the 1990s using a longitudinal firm level dataset and unique data on anti sweatshop activism we identify factors that attracted social movement pressure to particular companies firms power and positions strongly shaped their likelihood of becoming targets of anti swea

economists capitalists and the making of globalization north american free trade in comparative historical perspective why did globalization happen current explanations point to a variety of conditions under which states have made the free market policy changes driving international economic integration since the 1980s such accounts disagree however about the key actors involved this article provides a reconciliation showing how two different combinations of actors and two different political economic pathways have led to globalization in recent decades in developed countries mobilization by business has been central elsewhere technocrats both constrained and empowered by international finance have pursued globalization more independently of business in both contexts economists technical authority has helped legitimate liberalization despite the limited diffusion of their ideas the article validates and elaborates this model using a comparative historical study of how the united states canada and mexico proposed negotiated and ratified agreements for free trade in north america

flight to quality in banking and economic activity abstract recent explanations of the transmission mechanism of monetary policy have emphasized that riskier lower net worth borrowers are more dependent on bank lending than larger less risky borrowers evidence from the federal reserve s survey on terms of bank lending indicates that the proportion of relatively high quality new loans safe moves countercyclically and granger causes gdp and inventory investment in the aftermath of a tightening of monetary policy the safe variable increases and in turn policy tends to relax once safe has risen

financial factors in the great depression eginning with irving fisher 1933 and john maynard keynes 1931 b 1963 macroeconomists have argued that financial markets were important sources and propagators of decline during the great depression turning points during the depression often coincided with or were preceded by dramatic events in financial markets stock market collapse waves of bankruptcy and bank failure and contractions in the money stock but the mechanism through which financial factors contributed to the depression has been a source of controversy as has been the relative importance of financial factors in explaining the origins and persistence of the depression this essay reviews the literature on the role of financial factors in the depression and draws some lessons that have more general relevance for the study of the depression and for macroeconomics i argue that much of the recent progress that has been made in understanding some of the most important and puzzling aspects of financial real links in the depression followed a paradigm shift in economics a central neglected theoretical piece of the story for financial factors was the allocative effects of imperfections in capital markets which can imply links between disruptions in financial markets and subsequent economic activity also the increasing emphasis on learning and path dependence in economics has helped to explain why financial shocks during the 1930s were so severe and why policy makers failed to prevent the depression

financial development financial fragility and growth the authors study the apparent contradiction between two strands of the literature on the effects of financial intermediation on economic activity on the one hand the empirical growth literature finds a positive effect of financial depth as measured by for instance private domestic credit and liquid liabilities for example levine loayza and beck 2000 on the other hand the banking and currency crisis literature finds that monetary aggregates such as domestic credit are among the best predictors of crises and their related economic downturns for example kaminski and reinhart 1999 the authors account for these contrasting effects based on the distinction between the short and long run impacts of financial intermediation working with a panel of cross country and time series observations they estimate an encompassing model of short and long run effects using the pooled mean group estimator developed by pesaran shin and smith 1999 their conclusion from this analysis is that a positive long run relationship between financial intermediation and output growth coexists with a mostly negative short run relationship the authors further develop an explanation for these contrasting effects by relating them to recent theoretical models by linking the estimated short run effects to measures of financial fragility namely banking crises and financial volatility and by jointly analyzing the effects of financial depth and fragility in classic panel growth regressions

banking spreads in latin america i introduction financial intermediation in latin america is low by international standards financial systems in latin america are still largely bank based but after a short period of strong credit growth sparked by financial liberalization in the early 1990s bank lending has not yet recovered from the collapse following the banking crises of the mid 1990s as shown by singh et al 2005 as a result from figure 1 it is clear that bank lending as a percentage of gross domestic product gdp is low compared to industrialized countries and other emerging markets this lack of financial intermediation is seen as an important obstacle to growth there is a considerable body of evidence indicating that financial intermediation is not only correlated with growth but also a causal factor in explaining economic performance see e g levine 2004 the low levels of lending in latin america appear related to the prevalence of high intermediation costs in the region intermediation spreads in latin america are high compared to those in other banking markets this is true when measuring spreads as either ex ante bank spreads the difference between weighted averages of lending rates and bank funding costs figure 2 or ex post net interest margins defined as the bank s total interest income minus total interest expense divided by the sum of interest bearing assets figure 3 the high levels of spreads are not a recent phenomenon and unlikely to be a result of the ongoing process of bank consolidation as in other regions in the 1990s latin america saw a trend toward bank consolidation and concentration to a large extent as depicted in inter american development bank 2004 consolidation was driven by financial crises and subsequent regulatory tightening while this resulted in a marked reduction in the number of banks in most countries it does not seem to have yielded a decline in competition intensity partly because it was accompanied by a lowering of barriers of entry to foreign banks which is shown in gelos and roldos 2004 and inter american development bank 2004 in fact banking spreads have fallen somewhat over the past decade although the pace of the reduction has been slow figure 4 1 this paper takes a closer look at the determinants of bank interest margins in latin america using bank and country level data from 85 countries including 14 latin american economies we assess the role of bankand country specific factors in determining banking spreads using microdata from more than 2 200 banks taking an international perspective allows us to delineate the key dimensions in which latin america differs from other regions the paper differs from existing studies in further dimensions apart from the latin american specific focus in a cross country approach among other aspects we make use of new or expanded data sets including comprehensive information on reserve requirements and foreign ownership and investigate the relationship between competition and bank spreads using behavioral measures of bank competition suggested by the new industrial organization literature figure 1 omitted figure 2 omitted the results suggest that latin america has higher interest rate levels less efficient banks and larger reserve requirements than other regions and that these factors have a significant impact on spreads however latin american countries do not differ markedly from their peers in other aspects that are found important in determining the cost of financial intermediation such as inflation bank profit taxation average bank size or average equity as a percentage of total bank assets ii the determinants of spreads literature review the extensive literature on bank behavior suggests that at the country level the following factors are likely to influence the cost of credit creditor rights and the quality of the legal framework higher recovery rates and shorter times to repossess collateral in countries with better legal environments are expected to reduce bank spreads

the evolution of a financial crisis collapse of the asset backed commercial paper market this paper documents runs on asset backed commercial paper abcp programs in 2007 we find that one third of programs experienced a run within weeks of the onset of the abcp crisis and that runs as well as yields and maturities for new issues were related to program level and macro financial risks these findings are consistent with the asymmetric information framework used to explain banking panics have implications for commercial paper investors degree of risk intolerance and inform empirical predictions of recent papers on dynamic coordination failures

monitoring the monitor an incentive structure for a financial intermediary this paper studies financial intermediation i e delegated monitoring in a costly state verification model there are a finite number of agents thus the intermediary cannot fully diversify its portfolio and is subject to default risk the role of the intermediary is to satisfy simultaneously the different portfolio preferences of borrowers and lenders two questions arise when a delegated monitor is subject to non trivial default risk a what arrangement solves the problem of monitoring the monitor b what intermediary portfolio accomplishes optimal asset transformation between borrowers and lenders unlike previous delegated monitoring studies the law of large numbers is not sufficient to obtain our results instead we appeal to a stronger results the large deviation principle which establishes that convergence in the law of large numbers is exponential

banks as multioutput oligopolies an empirical evaluation of the retail and corporate banking markets the distinction between retail and corporate banking markets is of much importance in real life banking organizations the two markets differ with respect to concentration the importance of informational asymmetries and the extent of customer mobility within a standard conjectural variation model estimated on cost efficient banks as well as on the full sample of banks the authors empirically characterize the strategic behavior in each of these markets and also focus on cross market interactions to see whether initial moves in one market affect the equilibrium in the other market they compare their findings to the predictions that would follow from merely considering concentration ratios such as the herfindahl index

foreign entry and bank competition abstract foreign entry and bank competition are modeled as the interaction between asymmetrically informed principals the entrant uses collateral as a screening device to contest the incumbent s informational advantage both better information ex ante and stronger legal protection ex post are shown to facilitate the entry of low cost outside competitors into credit markets the entrant s success in gaining borrowers of higher quality by offering cheaper loans increases with its efficiency cost advantage this paper accounts for evidence suggesting that foreign banks tend to lend more to large firms thereby neglecting small and medium enterprises the results also explain why this observed bias is stronger in emerging markets

banks and loan sales marketing nonmarketable assets theories of financial intermediation predict that bank loans should not be marketable because of moral hazard problems banks will not conduct credit risk analysis or monitor borrowers if they are not at risk for failing to perform these services throughout most of history bank loans have not in fact been marketable yet by the end of the 1980 s the amount of commercial and industrial loan sales outstanding had grown to over 250 billion from trivial amounts at the beginning of the decade to explain the opening of this loan sales market we present a model of incentive compatible loan sales that allows for implicit contractual features between loan sellers and loan buyers we then test for the presence of these features using a sample of over 800 recent loan sales

bank competition and firm creation we investigate the effects of competition in the financial sector on the creation of firms in the nonfinancial sector explicitly allowing for heterogeneous effects across borrowers characterized by different degrees of asymmetric information we find evidence of a bell shaped relationship between bank competition and firm creation in addition consistently with theories arguing that competition may reduce the availability of credit to informationally opaque firms we find that bank competition results less favorable to the emergence of new firms in industrial sectors where informational asymmetries are more important

nonlinearities and robustness in growth regressions much economic growth research has been devoted to determining the explanatory variables that explain cross country variation in growth rates a frequently cited problem with this literature is that the number of potential growth regressors is vast potentially exceeding the number of countries available for study thus researchers are faced with the task of arbitrarily specifying which explanatory variables to include in their growth regressions raising concerns about how confident we can be in their results these concerns were magnified by the influential paper of ross levine and david renelt 1992 in which they employ a variation of edward e leamer s 1983 extreme bounds analysis to test the robustness of conventional growth regression coefficients to changes in the set of conditioning variables they conclude that the results of this literature are extremely fragile with the only robust determinants of growth being physical capital investment initial income and secondary school enrollment in contrast they demonstrate the fragility of a host of fiscal monetary and trade policy variables as well as measures of political and economic stability and economic distortions there have been two main responses to their findings the pessimistic response has been to conclude given the lack of a reliable statistical relationship between conventional macroeconomic indicators and growth that cross country growth regressions cannot tell us anything about growth the more optimistic response has been to argue that the extreme bounds analysis growth education and investment in children

the effectiveness of tarp cpp on the us banking industry a new copula based approach following the 2008 financial crisis regulatory authorities and governments provided distressed banks with equity infusions in order to strengthen national banking systems however the effectiveness of these interventions for financial stability has not been extensively researched in the literature in order to understand the effectiveness of these bailouts for the solvency of banks this paper proposes a new model the longitudinal binary generalised extreme value lobgev model differing from the existing models the lobgev model allows us to analyse the temporal structure of the probability of failure for banks for both those that received a bailout and for those that did not in particular it encompasses both the flexibility of the d vine copula and the accuracy of the generalised extreme value model in estimating the probability of bank failure and of banks receiving approval for capital injection we apply this new model to the us banking system from 2008 to 2013 in order to investigate how and to what extent the troubled asset relief program tarp capital purchase program cpp reduced the probability of the failure of commercial banks we specifically identify a set of macroeconomic and bank specific factors that affect the probability of bank failure for tarp ccp recipients and for those that did not receive capital under tarp ccp our results suggest that tarp cpp provided only short term relief for us commercial banks

credit market competition and capital regulation market discipline for financial institutions can be imposed not only from the liability side as has often been stressed in the literature on the use of subordinated debt but also from the asset side this will be particularly true if good lending opportunities are in short supply so that banks have to compete for projects in such a setting borrowers may demand that banks commit to monitoring by requiring that they use some of their own capital in lending thus creating an asset market based incentive for banks to hold capital borrowers can also provide banks with incentives to monitor by allowing them to reap some of the benefits from the loans which accrue only if the loans are in fact paid off since borrowers do not fully internalize the cost of raising capital to the banks the level of capital demanded by market participants may be above the one chosen by a regulator even when capital is a relatively costly source of funds this implies that capital requirements may not be binding as recent evidence seems to indicate

informational frictions and the credit crunch in this paper i estimate the magnitude of an informational friction limiting credit reallocation to firms during the 2007 to 2009 financial crisis because lenders rely on private information when deciding which relationship to end borrowers looking for a new lender are adversely selected i show how to separately identify private information from information common to all lenders but unobservable to the econometrician by using bank shocks within a discrete choice model of relationships quantitatively these informational frictions appear to be too small to explain the credit crunch in the u s syndicated corporate loan market

organizational environments in flux the impact of regulatory punctuations on organizational domains ceo succession and performance a central debate in organizational theory concerns how organizations evolve there are two diametrically opposing viewpoints adaptation theories predict that change occurs as fluid organizations adjust to meet shifting environmental demands while selection theories predict that change occurs through the differential selection and replacement of inert organizations as environmental demands vary over time our paper bridges these polar opposites by using a punctuated equilibrium framework to examine organizations responses to discontinuous industry level change this framework recognizes that the histories of many industries are occasionally punctuated by dramatic exogenous shocks such as radical technological innovation social and political turmoil major changes in government regulation and economic crashes our central thesis is that such environmental punctuations dramatically reduce pressures and rewards for organizational inertia and thereby alter both organizations propensities for change and their survival chances following change we focus on one form of punctuation major regulatory change and study firms in two industries general hospitals and savings and loan associations for organizations in both industries we examine three important outcomes shifts in organizational domain ceo succession and changes in financial performance our analyses show that punctuational regulatory change prompts shifts in organizational domains and executive leadership additionally post punctuation domain change and post punctuation ceo succession both affect subsequent performance we discuss our results in light of current thinking about the content and process effects of core organizational change which has been developed in the context of stable environments finally we argue for the development of more temporally sensitive theories of organizational action

does information sharing reduce the role of collateral as a screening device this is the authors accepted refereed and final manuscript to the article publisher s version available at http dx doi org 10 1016 j jbankfin 2014 02 010

search frictions and market power in negotiated price markets we provide a framework for empirical analysis of negotiated price markets using mortgage market data and a search and negotiation model we characterize the welfare impact of search frictions and

an assessment of tarp assistance to financial institutions six years after the passage of the 2008 troubled asset relief program commonly known as tarp it remains hard to measure the total social costs and benefits of the assistance to banks provided under tarp programs tarp was not a single approach to assisting weak banks but rather a variety of changing solutions to a set of evolving problems tarp s passage was associated with significant improvements in financial markets and the health of financial intermediaries as well as an increase in the supply of lending by recipients however a full evaluation must also take into account other factors including the risks borne by taxpayers in the course of the bailouts moral hazard costs that could result in more risk taking in the future and social costs related to perceived unfairness our evaluation is organized in five parts 1 what did policymakers do 2 what are the proper objectives of interventions like tarp assistance to financial institutions 3 did tarp succeed in those economic objectives 4 were tarp funds allocated purely on an economic basis or did political favoritism play a role 5 would alternative policies either alongside or instead of tarp and alternative design features of tarp have worked better

enjoying the quiet life under deregulation evidence from adjusted lerner indices for u s banks abstract the quiet life hypothesis posits that firms with market power incur inefficiencies rather than reap monopolistic rents we propose a simple adjustment to lerner indices to account for the possibility of forgone rents to test this hypothesis for a large sample of u s commercial banks we find that adjusted lerner indices are significantly larger than conventional lerner indices and trending upward over time instrumental variable regressions reject the quiet life hypothesis for cost inefficiencies however lerner indices adjusted for profit inefficiencies reveal a quiet life among u s banks

financial system architecture this article builds a theory of financial system architecture we ask what is a financial market what is a bank and what determines the economic role of each starting with basic assumptions about primitives the types of agents and the nature of the informational asymmetries we provide a theory that explains which agents coalesce to form banks and which trade in the capital market it is shown that borrowers of higher observable qualities access the financial market moreover a financial system in its infancy will be bank dominated and increased financial market sophistication diminishes bank lending article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

information sharing and lending market competition with switching costs and poaching abstract we analyze information sharing with repeated banking competition in the presence of switching costs we find that information sharing renders poaching more profitable in future rounds of competition since the poaching activities can be targeted towards more creditworthy borrowers we find that information sharing reduces relationship benefits and therefore relaxes competition for initial market shares information sharing introduces a welfare tradeoff by promoting equilibrium profits at the expense of talented entrepreneurs whenever market power persists in credit market whereas it is a matter of indifference without market power thus information sharing may induce exclusion of creditworthy borrowers from credit markets

information and bank credit allocation abstract private information obtained by lenders leads to borrower capture to the extent that such information cannot be communicated credibly to outsiders we analyze how this capture affects the loan portfolio allocation of informed lenders first we show that banks charge higher interest rates and finance relatively less creditworthy borrowers in market segments with greater information asymmetries second when faced with greater competition from outside lenders banks reallocate credit toward more captured borrowers flight to captivity third if borrower quality and captivity are sufficiently correlated an increase in the competitiveness of uninformed lenders can worsen the informed lender s overall loan portfolio the model explains observed consequences of financial liberalizations

how foreign participation and market concentration impact bank spreads evidence from latin america increasing foreign participation and high concentration levels characterize the recent evolution of banking sectors market structures in developing countries the authors analyze the impact of these factors on latin american bank spreads during the late 1990s their results suggest that foreign banks were able to charge lower spreads relative to domestic banks this was more so for de novo foreign banks than for those that entered through acquisitions the overall level of foreign bank participation seemed to influence spreads indirectly primarily through its effect on administrative costs bank concentration was positively and directly related to both higher spreads and costs

the role of soft information in a dynamic contract setting evidence from the home equity credit market credit underwriting is a dynamic process involving multiple interactions between borrower and lender during this process lenders have the opportunity to obtain hard and soft information from the borrower we analyze more than 108 000 home equity loans and lines of credit applications to study the role of soft and hard information during underwriting our data set allows us to distinguish lender actions that are based strictly on hard information from decisions that involve the collection of soft information our analysis confirms the importance of soft information and suggests that its use can be effective in reducing overall portfolio credit losses ex post

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

the non linear effects of life expectancy on economic growth this paper shows that improvements in life expectancy le had a non linear effect on income per capita over the 1940 1980 period as this effect was conditional on each country s initial level of le whereas higher le had an initial statistically significant negative impact on income per capita in countries with le under 43 years in 1940 the opposite is true in countries with initial le over 53 years

how do changes in monetary policy affect bank lending an analysis of austrian bank data using a panel of austrian bank data we show that the lending decisions of the smallest banks are more sensitive to interest rate changes and that for all banks sensitivity changes over time we propose to estimate the groups of banks that display similar lending reactions by means of a group indicator which after estimation indicates each bank s classification additionally we estimate a state indicator that indicates the periods during which the lending reaction differs from what we normally observe bayesian methods are used for estimation a sensitivity analysis and a forecast evaluation confirm our model choice copyright 2006 john wiley sons ltd

bank market power and lending during the global financial crisis abstract this research examines how the global financial crisis gfc affected banks supply of credit not only in a direct way but also indirectly through changes in bank market power we use a sample of 735 banks from 17 countries during the 2003 2012 period we find that the direct negative impact of the gfc on banks supply of loans is counteracted by an indirect effect through the increased level of bank market power in the years after the onset of the crisis this result is particularly relevant in countries with less stringent restrictions on bank activities and less supervisory power

the role of demandable debt in structuring optimal banking arrangements demandable debt finance by banks warrants explanation because it entails costs of bank suspension liquidation and idle reserve holdings an explanation is developed in which demandable debt provides incentive compatible intermediation where the banker has comparative advantage in allocating investment funds but may act against the interests of uninformed depositors demandable debt attracts funds by giving depositors an option to force liquidation its usefulness in transacting follows from information sharing between monitors and nonmonitors copyright 1991 by american economic association

relationship lending under asymmetric information a case of blocked entry abstract a national bank with a low cost of capital can choose to enter a two period credit market and compete with incumbent banks to supply relationship loans to de novo entrepreneurs under short term contracting the terms on loan contracts are determined by market competition in the current period in this setting we find that the second period competitive pressure the national bank exerts on the incumbent banks turns out to give the incumbent banks a first period advantage when trying to attract new clients as a result the low cost bank may be blocked from entering the market

a non linear sensitivity analysis of cross country growth regressions we extend the sensitivity analysis of cross country growth regressions of levine and renelt 1992 by introducing a semi parametric formulation of their regression function our results differ from theirs in how certain policy variables affect growth rates we find that distortion variables such as the standard deviation of gross domestic credit and inflation and real exchange rate distortions have a robust negative effect on growth jel classification o47 c14 une analyse de sensibilite non lineaire des regressions de croissance pour divers pays les auteurs utilisent une formulation semi parametrique des equations de croissance de levine et renelt 1992 pour divers pays afin de rendre leur analyse de sensibilite plus comprehensive les resultats different de ceux de levine et renelt en ce que certaines variables de politique affectent les taux de croissance on decouvre que certains facteurs comme l ecart type du credit interieur brut et de l inflation et des distorsions des taux de change reels ont un effet negatif important sur la croissance

can cost increases increase competition asymmetric information and equilibrium prices we present an analysis of competition under asymmetric information where prices react asymmetrically to changes in firms marginal costs when one firm has private information about some customers an increase in an uninformed firm s marginal cost leads to a price increase as usual however an increase in the informed firm s marginal cost causes the equilibrium price to fall by improving the distribution of customers served by the uninformed firm the model applies to settings where information asymmetries are important determinants of competition such as credit insurance labor markets or for the sale of goods where repeat business is important

how environmentalists greened trade policy strategic action and the architecture of field overlap this article examines why and how environmental activists despite considerable political weakness and disproportionally few resources won substantive negotiating concessions that far outstripped labor achievements during nafta s negotiation despite a trade policy arena hostile to their demands environmentalists gained official recognition for the legitimacy of their claims obtained a seat at the negotiating table turned a previously technocratic concern into a highly visible populist issue and won an environmental side agreement stronger than its labor counterpart we argue that this unexpected outcome is best explained by environmentalists strategic use of mechanisms available at the intersection of multiple fields while field theory mainly focuses on interactions within a particular field we suggest that the structure of overlap between fields the architecture of field overlap creates unique points of leverage that render particular targets more vulnerable and certain strategies more effective

credit rationing and relationship lending does firm size matter abstract using survey based data we investigate factors influencing credit rationing within a bank based financial system we show that rationing depends on various dimensions of the firm bank relationships and that the effects of relationship lending on rationing are not identical for different firm size groups multiple banking increases the probability of rationing for small and large firms debt concentration with the main bank affects positively smaller firms while the opposite is true for large companies the length of the relationship with the main bank decreases the probability of rationing for both groups but more so for large firms endowed with more bargaining power finally the firm bank spatial proximity measured by the headquarters vicinity does not affect the firm s access to credit

contagion effects of sovereign credit rating revisions on the real economy is it trade or finance we analyse the contagion effects of sovereign credit rating revisions on the real economy with particular emphasis on the intensity of trade and finance channels our findings show that event coun

asset restructuring strategies in bank acquisitions does distance between dealing partners matter abstract one of the most lively debated effects of banking acquisitions is the change in lending and asset allocation of the target bank in favour of transaction based products at the expense of small and informationally opaque borrowers these changes may be the result of two distinct restructuring strategies pursued by the acquirer with respect to the asset portfolio of the acquired bank a cleaning strategy cs in which the acquirer makes a clean sweep of all the negative net present value activities in the portfolio of the acquired bank and a portfolio strategy ps in which the acquiring bank permanently changes the portfolio allocation of the acquired bank in this paper we focus on italian bank acquisitions and test which asset restructuring strategy was predominantly pursued over the period 1997 2003 moreover we distinguish acquisitions according to their geographic diversifying character and to the physical and cultural distances that separate acquiring from acquired banks when we look at the mean value we do not find clear evidence of a primacy either of css or pss when we separate in market from out of market bank acquisitions however results show that the css prevail only in the former type of deals while in the latter the portfolio of acquired banks is subject to pss finally we find that differences in asset restructuring strategies can be explained by differences in corporate culture and the workplace environment of the dealing partners

do banks price discriminate spatially evidence from small business lending in local credit markets abstract in this paper we explore the effects of bank borrower physical proximity on price and non price aspects of small business lending in local credit markets along the price dimension our analysis reveals that interest rates increase with bank borrower distance and decrease with the distance between borrower and other competing banks along the quantity dimension we observe that more distant borrowers are more likely to experience binding credit limits we also show that the quantity effects of bank borrower distance are concentrated among less transparent firms our findings are consistent with pricing based on marginal costs that reflect information based factors and are in contrast to the established paradigm where banks adopt spatial discriminatory pricing rules when lending to small sized enterprises

the credit crisis conjectures about causes and remedies what caused the financial crisis that is sweeping across the world what keeps asset prices and lending depressed what can be done to remedy matters while it is too early to arrive at definite answers to these questions it is certainly time to offer informed conjectures and these are the focus of this paper this abstract was borrowed from another version of this item

the effect of foreign bank presence on firm entry and exit in transition economies abstract this study investigates the impact of foreign bank penetration on firm entry in central and eastern europe acquisition of domestic banks by foreign investors has lowered rates of firm creation decreased the average size of entrants and increased firm exit in industries with greater informational opacity while entry of greenfield foreign banks appears to have spurred firm creation and exit we modify the view in earlier studies that informational opacity equates with firm size defining opacity in terms of technological characteristics for a given industry we find the economic significance of foreign bank entry is larger for opaque industries than industries with large shares of small firms the study provides evidence of increased credit constraints for start ups in central and eastern europe which is consistent with the theoretical proposition that the presence of foreign banks exacerbates informational asymmetries

financial globalization and the governance of domestic financial intermediaries we model a small open economy in which both domestic financial intermediaries and entrepreneurs face incentive constraints as in holmstrom and tirole 1997 to study the general equilibrium impact of various types of capital inflows on the efficiency and governance of domestic banks banks have an advantage in monitoring firms but the latter can collude with banks and offer side payments to reduce the intensity of monitoring opening up to international capital flows makes domestic banks capital scarcer relative to uninformed capital thus increasing the relative cost of monitoring we show that capital account liberalization has ambiguous effects on the governance of the domestic financial system by sometimes increasing firms incentives to collude with banks we characterize the conditions under which governance is more likely to deteriorate after opening up the capital account and discuss the effects on investment productivity and output we also analyze the effects of foreign direct investment in the corporate and banking sectors stylized facts are consistent with the predictions of the model

commercial lending and distance evidence from community reinvestment act data a number of large banking organizations have substantially broadened the distances at which they are willing to extend commercial loans but there is also evidence to suggest that this has occurred primarily at the high side of the distribution of lending distances in this paper we employ a new source of data to examine the relationship between lending decisions and distance between lender and borrower for that part of the distance distribution where arguably most of the competitive interactions among lenders still occur we report three basic findings 1 distance operates as a deterrent to lending even within areas traditionally defined as local markets 2 distance is more of a deterrent for small banks than for larger organizations even within these areas and 3 for those commercial loans made within areas currently treated by regulators as markets distance has not been declining in importance indeed a preponderance of the evidence suggests that it is becoming if anything more of a factor possible explanations and policy implications are discussed

level playing fields in international financial regulation we analyze the desirability of level playing fields in international financial regulation in general level playing fields impose the standards of the weakest regulator upon the best regulated economies however they may be desirable when capital is mobile because they counter a cherry picking effect that lowers the size and efficiency of banks in weaker economies hence while a laissez faire policy favors the better regulated economy level playing fields are good for weaker regulators we show that multinational banking mitigates the cherry picking effect and reduces the damage that a level playing field causes in the better regulated economy

foreign banks and the dual effect of financial liberalization in emerging countries credit market liberalization is often motivated with the financial deepening generated by the entry of foreign financial institutions however there is a risk that liberalization may benefit internationally active export oriented businesses at the expense of domestically oriented ones this paper models a two sector economy in which foreign lenders are more efficient than local lenders at extracting value from internationally tradable collateral assets under some conditions the entry of foreign lenders eases entrepreneurs access to the credit market and raises asset prices and output but in other circumstances it reduces the depth of the credit market and depresses the price of nontradables and output liberalization can have a contractionary impact by inducing a reallocation of credit from the nontradables to the tradables sector

switching costs and relationship profits in bank lending abstract this paper studies how the cost of switching banks affects the profits available from relationship based lending when the relationship produces inside information lower switching cost compounds the adverse selection problem discouraging outsider banks to depress loan rates the adverse selection effect eases off along with higher switching cost leading to more aggressive bidding and thereby reduction in insider profits above a certain threshold however the adverse selection effect vanishes completely and the insider profits turn increasing in the switching cost the model predicts that the availability of relationship credit is non monotonously related to the magnitude of the switching cost

is financial inclusion good for bank stability international evidence abstract financial inclusion has become an important public policy priority following the recent global financial crisis yet we know very little of how it impacts soundness of the providers of financial services using an international sample of 2635 banks in 86 countries over the period 2004 12 we find that higher level of financial inclusion contributes to greater bank stability the positive association is particularly pronounced with those banks that have higher customer deposit funding share and lower marginal costs of providing banking services and also with those that operate in countries with stronger institutional quality the results are robust to instrumental variables analysis controlling for bank fixed effects alternative measures of financial inclusion among several other robustness tests our results highlight that the importance of ensuring inclusive financial system is not only a development goal but also an issue that should be prioritised by banks as such a policy drive is good for their stability

credit quantity and credit quality bank competition and capital accumulation in this paper we show that bank competition has an intrinsically ambiguous impact on capital accumulation we further show that it is also responsible for the emergence of development traps in economies that otherwise would be characterized by unique equilibria these results explain the conflicting evidence emerging from the recent empirical studies of the effects of bank competition on economic growth we obtain them developing a dynamic general equilibrium model of capital accumulation where banks operate in a cournot oligopoly more banks lead to a higher quantity of credit available to entrepreneurs but also to diminished incentives to offer relationship services that improve the likelihood of success of investment projects we also show that conditioning on one key parameter resolves the theoretical ambiguity in economies where intrinsic market uncertainty is high low less more competition leads to higher capital accumulation

securitization and lending competition we study the eects of securitization on interbank lending competition when banks see private signals of local applicants repayment chances if banks cannot securitize the outcome is e cient they lend to their most creditworthy local applicants with securitization banks lend also to remote applicants with strong observables in order to lessen the lemons problem they face in selling their securities this reliance on observables is ine cient raises the mean default risk and may lead to a deceptive rise in credit scores

long lasting bank relationships and growth of firms a puzzling but consistent result in the empirical literature on banking is that firms with close bank ties do not grow faster than bank independent firms in this paper we reconsider the link between relationship lending and firm growth distinguishing firms by size and expansion contraction conditions the idea is that the beneficial effects of relationship lending on information asymmetries can be compensated by other negative capture risk and externality effects which make relational banks reluctant to support long term growth projects of client firms and that the strength of these compensating effects varies with firm size and health status we explore the influence of long lasting bank relationships on employment and asset growth of a large sample of italian firms the main finding is that relationship lending hampers the efforts of small firms to increase their size while it mitigates the negative growth of troubled medium large enterprises

competing lending platforms endogenous reputation and fragility in microcredit markets this paper shows that market fragility and mass default can arise in microcredit markets as a result of the strategic interaction between a microlender using a reputation based mechanism and a traditional lender using physical collateral in our model borrowers solve a dynamic programming problem which induces an endogenous equilibrium distribution of reputational capital because the quality of each lender s pool of borrowers is affected by both lenders interest rates lender reaction curves are non monotonic and discontinuous this can result in knife edge equilibria and mass default on the microlender precipitated by minor parametric perturbations fragility is exacerbated by borrower screening and sovereign risk but ameliorated when microlenders have social welfare goals our results highlight the importance of studying the entire credit market rather than microfinance in isolation

life cycle patterns of interest rate markups in small firm finance we derive empirical implications from a theoretical model of bank borrower relationships the interest rate mark ups of banks are predicted to follow a life cycle pattern over the age of the borrowing firms because of endogenous bank monitoring by competing banks borrowing firms initially face a low mark up and thereafter an increasing mark up as a result of informational lock in until it falls for older firms when the lock in is resolved by applying a large sample of predominantly small unlisted firms and a new measure of asymmetric information we find that firms with significant asymmetric information problems have a more pronounced life cycle pattern of interest rate mark ups additionally we examine the effects of concentrated banking markets on interest rate mark ups the results indicate that the life cycle of mark ups is mainly driven by asymmetric information problems and not by concentration however we find evidence that bank market concentration matters for older firms

how do bank competition regulation and institutions shape the real effect of banking crises international evidence abstract this paper studies the influence of bank competition on the real effect of 36 systemic banking crises in 30 countries over the 1980 2000 period and how this influence varies across countries depending on bank regulation and institutions we find that bank market power is not on average useful for mitigating the negative real effect of a systemic banking crisis market power promotes higher growth during normal times in industries that are more dependent on external finance but induces a bigger reduction in growth during systemic banking crises we also find a country specific effect depending on bank regulation and institutions stringent capital requirements and poor protection of creditor rights increase the benefits of bank market power for mitigating the negative real effect of a systemic banking crisis because bank market power has a positive effect on economic growth during both crisis and non crisis periods in these environments

foreign bank behavior during financial crises one of the persistent policy problems faced by governments contemplating financial liberalizations is the question of whether to allow foreign banks entry into the domestic economy this question has become ever more urgent in recent times due to rapid financial globalization coupled with the credit contractions experienced as a result of the 2007 08 financial crisis this paper examines the question of whether opening the financial sector to foreign participation is a good idea for developing countries using a unique bank level database of foreign ownership in particular the authors examine whether the credit supply of majority foreign owned financial institutions differ systematically conditional on a crisis event in their home economies they show that foreign banks that were exposed to crises in their home countries exhibit changes in lending patterns that are lower by between 13 and 42 percent than their non crisis counterparts

lending by example direct and indirect effects of foreign banks in emerging markets using a novel dataset that allows us to trace the bank relationships of a sample of mostly unlisted firms we explore which borrowers are able to benefit from foreign bank presence in emerging markets our results suggest that the limits to financial integration are less tight than the static picture of firm bank relationships implies even though foreign banks are more likely to engage large and foreign owned firms after an acquisition a bank is 20 less likely to terminate a relationship with a firm if the acquirer is foreign rather than domestic most importantly within a credit market firms appear to have the same access to financial loans and ability to invest whether they borrow from a foreign bank or not while foreign banks benefit all firms by indirectly enhancing credit access

corporate lobbying political connections and the bailout of banks abstract political involvement has long been shown to be a profitable investment for firms that seek favorable regulatory conditions or support in times of economic distress but how important are different types of political involvement for the timing and magnitude of political support to answer this question we take a comprehensive look at the lobbying expenditures and political connections of banks that were recipients of government support under the 2008 troubled asset relief program tarp we find that politically engaged firms were not only more likely to receive tarp funds but they also received a greater amount of tarp support and received the support earlier than firms that were not politically involved

regional financial development and bank competition effects on firms growth fernandez de guevara j and maudos j regional financial development and bank competition effects on firms growth regional studies this paper analyses the effect of regional financial development and bank competition on firms growth using the spanish provinces as a testing ground the results show that firms in industries with a greater dependence on external finance grow faster in more financially developed provinces the results also show that bank monopoly power has an inverted u effect on firms growth suggesting that market power has its highest effect at intermediate values the effect is heterogeneous among firms according to the financial dependence of the industry to which they belong this result is consistent with the literature on relationship banking which argues that bank competition can have a negative effect on the availability of finance for more informationally opaque firms fernandez de guevara j et maudos j le developpement financier regional et la concurrence bancaire l imp

the political economy of the us mortgage default crisis we examine the effects of constituents special interests and ideology on congressional voting on two of the most significant pieces of legislation in us economic history representatives whose constituents experience a sharp increase in mortgage defaults are more likely to support the foreclosure prevention act especially in competitive districts interestingly representatives are more sensitive to defaults of their own party constituents special interests in the form ofhigher campaign contributions from the financial industry increase the likelihood of supporting the emergency economic stabilization act however ideologically conservative representatives are less responsive to both constituent and special interests jel d72 g21 g28

the benefits of lending relationships evidence from small business data this paper empirically examines how ties between a firm and its creditors affect the availability and cost of funds to the firm we analyze data collected in a survey of small firms by the small business administration the primary benefit of building close ties with an institutional creditor is that the availability of financing increases we find smaller effects on the price of credit attempts to widen the circle of relationships by borrowing from multiple lenders increases the price and reduces the availability of credit in sum relationships are valuable and appear to operate more through quantities rather than prices

organizational distance and use of collateral for business loans abstract this paper examines the effect of organizational distance i e distance between the headquarters of the bank that grants a loan and the location of the borrower on the use of collateral for business loans by spanish banks on the basis of the recent lender based theory of collateral inderst r mueller h m 2007 a lender based theory of collateral journal of financial economics 84 826 859 we find that for the average borrower the use of collateral is higher for loans granted by local lenders than by distant ones we also show that the difference in the likelihood of collateral in loans granted by local lenders relative to distant lenders is higher among older and larger firms than respectively younger and smaller firms we also find that banks use lending technologies that are different for near and for distant firms in response to organizational diseconomies

bank recapitalization regulatory intervention and repayment we use prudential supervisory data for all german banks during 1994 2010 to test if regulatory interventions affect the likelihood that bailed out banks repay capital support accounting for the selection bias inherent in nonrandom bank bailouts by insurance schemes and the endogenous administration of regulatory interventions we show that regulators can increase the likelihood of repayment substantially an increase in intervention frequencies by one standard deviation increases the annual probability of capital support repayment by 7 sturdy interventions like restructuring orders are effective whereas weak measures reduce repayment probabilities intervention effects last up to 5 years

lock in effects in relationship lending evidence from dip loans do prior lending relationships result in pass through savings lower interest rates for borrowers or do they lock in higher costs for borrowers theoretical models suggest that when borrowers experience greater information asymmetry higher switching costs and limited access to capital markets they become locked into higher costs from their existing lenders firms in chapter 11 seeking debtor in possession dip financing often fit this profile we investigate the presence of lock in effects using a sample of 348 dip loans we account for endogeneity using the instrument variable iv approach and the heckman selection model and find consistent evidence that prior lending relationship is associated with higher interest costs and the effect is more severe for stronger existing relationships our study provides direct evidence that prior lending relationships do create a lock in effect under certain circumstances such as dip financing

lending competition and credit availability for new firms empirical study with the price cost margin in regional loan markets abstract in this paper i present statistical evidence of the impact of lending competition on credit availability for new firms a discrete time duration analysis with respect to the years from the start up to the first loan approval by a commercial bank or a cooperative bank which is collected from survey data in japan shows that the higher price cost margin pcm of banks which reflects the existence of a quasi rent for a bank improves the credit availability for younger firms additional analysis to detect the regional determinants of the pcm of banks shows that the share of larger banks in each local credit market has a negative and significant impact on the pcm in light of the existing empirical finding that smaller banks are more likely to provide relationship banking these findings provide indirect evidence for the hypothesis that the intensity of relationship banking in each local credit market increases the pcm and this encourages banks to extend a loan to new firms so that they can pre empt the opportunity to establish lending relationships that are expected to yield such quasi rents

bank bailouts and moral hazard evidence from germany we use a structural econometric model to provide empirical evidence that safety nets in the banking industry lead to additional risk taking to identify the moral hazard effect of bailout expectations on bank risk we exploit the fact that regional political factors explain bank bailouts but not bank risk the sample includes all observed capital preservation measures and distressed exits in the german banking industry during 1995 2006 a change of bailout expectations by two standard deviations increases the probability of official distress from 6 6 to 9 4 which is economically significant

bank concentration and financial constraints on firm level investment in europe abstract this study examines the effect of bank concentration on financing constraints of non financial firms in 14 european countries between 1992 and 2005 using firm level data we analyze financial constraints with the euler equation derived from the dynamic investment model we find that with a highly concentrated banking sector firms are less financially constrained this result is robust to consideration of firm opacity firm size and business cycle relaxation of financial constraint while greater for firms in less opaque industries also accrues for firms in more opaque industries greater bank concentration is associated with less tight financial constraint during both expansions and recessions results overall are consistent with an information based hypothesis that more market power increases banks incentives to produce information on potential borrowers findings are robust to consideration of country specific institutional factors

financial development and financial openness nexus the precondition of banking competition abstractwe examine the dynamic relationship between financial development and financial openness using the pooled mean group estimator developed by pesaran et al 1999 our results show that financial openness has a positive effect on financial development in the long run but may have a negative effect in the short run using estimates of country specific short run coefficients we also find that the adverse short run effects of financial openness are associated with a lower degree of banking competition the system gmm estimator also supports these findings suggesting that the financial development and financial openness nexus is contingent on the degree of banking competition a key policy implication is that a higher degree of banking competition is a precondition for financial openness to promote financial development