finance and growth in a bank based economy is it quantity or quality that matters abstract most finance growth studies approximate the size of financial systems rather than the quality of intermediation to explain economic growth differentials furthermore the neglect of systematic differences in cross country studies could drive the result that finance matters we suggest a measure of bank s intermediation quality using bank specific efficiency estimates and focus on the regions of one economy only germany this quality measure has a significantly positive effect on growth this result is robust to the exclusion of banks operating in multiple regions controlling for the proximity of financial markets when distinguishing different banking sectors active in germany and when excluding the structurally weaker east from the sample

bank regulation and risk taking incentives an international comparison of bank risk abstract this paper uses a panel database of 251 banks in 36 countries to analyze the impact of bank regulation on bank charter value and risk taking after controlling for deposit insurance and for the quality of a country s contracting environment the results indicate that regulatory restrictions increase banks risk taking incentives by reducing their charter value banks in countries with stricter regulation have a lower charter value which increases their incentives to follow risky policies these results corroborate a negative relation between regulatory restrictions and the stability of a banking system deposit insurance has a positive influence on bank charter value mitigating the risk shifting incentives it creates this positive influence disappears when we control for the possible endogeneity of deposit insurance

the drawbacks and opportunities of carbon charges in metropolitan areas a spatial general equilibrium approach in cities there is a variety of economic and spatial forces that may influence to what extent a travel related co2 emission pricing can be an effective instrument to contribute to the achievement of co2 reduction goals therefore we examine the effectiveness and impact of co2 emission charges using a spatial general equilibrium model of an urban economy calibrated according to an average german city our analyses suggest that the imposition of a pigouvian type co2 emission charge on urban passenger travel may be able to reduce emissions by about 1 11 depending on the estimated social damage cost of carbon dioxide such a policy increases urban welfare mainly on account of a reduction of congestion costs however pricing congestion directly not only provides higher urban welfare but also higher emission reductions pricing congestion and co2 emissions simultaneously allows to achieve a wide range of emission reduction goals if however the reduction goal is very ambitious the emission charge must be raised to higher levels then distortions in the urban markets and in spatial travel decisions lower labor supply and thus urban production income of city residents federal tax revenue income of landowners outside the city all together implying losses in welfare

alternative forms of deposit insurance pricing and bank incentive issues abstract this paper derives formulas for a deposit insuring agency s liability and hence a fair value deposit insurance premium and the equilibrium value of bank equity considering a wide variety of factors affecting individual bank risk both fixed rate and variable rate risk sensitive insurance systems are analyzed consideration is made as to whether the deposit insuring agency makes direct payments to depositors or arranges mergers following bank closings the effect of these various policy choices on banks incentive for risk taking is also analyzed

pricing risk adjusted deposit insurance an option based model this paper presents a methodology for arriving at empirical estimates of deposit insurance premiums from market data by using isomorphic relationships betweeen equity and a call option and insurance and a put option the data utilizes the market value of equity to solve for the asset value and its volatility market perceptions of fdic bailout policies are explicitly modeled so as to eliminate the bias in inverted values of assets and their volatility sensitivity analyses are performed to show that rank orderings based on premiums are robust to changes in specification thus facilitating allocation of aggregate premium across banks while economists have long argued in favor of risk adjusted deposit insurance as both more equitable and more efficient than the current system of flatrate premiums various recent developments have further contributed to an increasing dissatisfaction with the current system first both the banking industry and the government seem to be tending to the view that deregulation of the banking industry would be necessary in order to meet more sophisticated future demands on the industry as well as desirable as a policy means of stimulating greater competition among banks moreover a sudden rise in the incidence of bank failures 1 and the vulnerability of the u s banks to the socalled international debt crisis have served to bring to the fore concern about the health of the banking industry in the absence of deposit insurance riskier banks will be able to attract deposits only at higher rates and these higher costs of funding serve as built in market regulated incentives to limit excessive risk taking by banks as introduction of deposit insurance makes deposits equally risk free across banks these incentives disappear and regulation and close supervision of the banking industry must necessarily replace them as deterrents to excessive risk taking thus when insurance is offered at a flat premium regulation is designed to ensure that the risk posed to the insurer both asset and financial risk is appropriately uniform

market power and firm risk a test of the quiet life hypothesis abstract this paper presents an empirical investigation of john r hicks quiet life hypothesis that firms in monopolistic markets will be more risk averse than firms in competitive markets a sample of 6 500 unit banks is used in a multivariate regression analysis to test the relationship between market concentration and overall risk measured by the coefficient of variation as well as certain financial ratios financial data are for the years 1969 1978 test results are consistent with hicks quiet life hypothesis it is also notable that while most structure performance studies in banking have found a quantitatively small effect of structure on performance these results suggest that the effect may be fairly substantial

estimating systemic risk in the international financial system this paper develops three distinct methods to quantify the risk of a systemic failure in the global banking system we examine a sample of 334 banks representing 80 of global bank equity in 28 countries around five global financial crises our results suggest statistically significant but economically small increases in systemic risk although policy responses are endogenous the low estimated probabilities suggest that the distress of central bankers regulators and politicians about the events we study could be overstated and that current policy responses to financial crises could be adequate to handle major macroeconomic events

charter value risk taking and systemic risk in banking before and after the global financial crisis of 2007 2008 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 prio

diversification in banking is noninterest income the answer this paper assesses potential diversification benefits in the u s banking industry from the steady shift toward activities that generate fee income trading revenue and other types of noninterest income in the aggregate declining volatility of net operating revenue reflects reduced volatility of net interest income not diversification benefits from noninterest income which is quite volatile and increasingly correlated with net interest income at the bank level greater reliance on noninterest income particularly trading revenue is associated with lower risk adjusted profits and higher risk this suggests few obvious diversification benefits from the ongoing shift toward noninterest income

do depositors punish banks for bad behavior market discipline deposit insurance and banking crises this paper empirically investigates two issues largely unexplored by the literature on market discipline we evaluate the interaction between market discipline and deposit insurance and the impact of banking crises on market discipline we focus on the experiences of argentina chile and mexico during the 1980s and 1990s we find that depositors discipline banks by withdrawing deposits and by requiring higher interest rates deposit insurance does not appear to diminish the extent of market discipline aggregate shocks affect deposits and interest rates during crises regardless of bank fundamentals and investors responsiveness to bank risk taking increases in the aftermath of crises

carbon tax simulations using a household demand model abstract the main objective of this paper is to analyse consumer response and welfare effects due to changes in energy or environmental policy to achieve this objective we formulate and estimate an econometric model for non durable consumer demand in sweden that utilises micro and macro data in the simulations we consider two revenue neutral scenarios that both imply a doubling of the co2 tax one that returns the revenues in the form of a lower vat and one that subsidise public transport one conclusion from the simulations is that the co2 tax has regional distribution effects in the sense that household living in sparsely populated areas carry a larger share of the tax burden

marginal tax reform externalities and income distribution the paper examines welfare improving and revenue neutral directions marginal policy reforms for an economy with nonidentical individuals and an externality that has a feedback effect on the consumption of taxed goods it considers three types of policy instruments the indirect taxes the uniform poll transfer and public abatement this extends the framework set up by ahmad and stern 1984 bovenberg and de mooij 1994 and schob 1996 the theoretical model is illustrated for a specific externality namely congestion caused by peak car transport

environmental taxation and unemployment some evidence on the double dividend hypothesis in europe abstract the employment double dividend hypothesis suggests that an appropriately designed fiscal reform in which emission charges are used to subsidize employers social security contributions may realize at least two relevant policy goals a better quality of the environment and at the same time an increase in employment levels this paper uses a newly developed econometric general equilibrium model for the european union as well as for each member country and presents simulation results up to the year 2010 of the effects of a european carbon tax the revenues from which are recycled to reduce employers social security contributions the results show that recycling carbon tax revenues may provide an employment double dividend only in the short run

bank size and macroeconomic shock transmission does the credit channel operate through large or small banks in this paper i use u s call report data to construct a larger panel dataset with bank level observations i find that larger banks lending is considerably more sensitive to the strength of their borrowers and their own balance sheets compared to smaller banks and that the sensitivities to borrower balance sheets are larger in magnitude compared to lender balance sheets when i incorporate various macroeconomic shocks identified by an estimated dsge model into the empirical model i similarly find that the transmission of shocks to the real economy operates mostly through large bank lending and borrower balance sheets

on the performance of differently regulated financial institutions some empirical evidence abstract the paper raises two questions about the industrial economics of banking first why are financial market configurations so different across nations we discuss the theoretical arguments by following the sequence regulation structure performance section 2 second do the differences in regulation and structure matter section 3 provides empirical evidence pertaining to that question throughout the paper we refer to two polar cases of financial systems market m and bank b based systems as for banks we distinguish between specialised and universal banks universal banking is a particular institutional representation of b systems a first empirical test relating macroeconomic growth to financial variables suggests that these variables matter we then test with a set of 88 banks the effects of regulatory and structural variables on the level and variability of bank performance we conclude that universal banks achieve a better risk return trade off due to superior monitoring and information collection capacity

a note on the risk adjusted price concentration relationship in banking abstract price concentration studies in banking typically find a significant and negative relationship between consumer deposit rates i e prices and market concentration this implies highly concentrated banking markets are bad for depositors it also provides support for the structure conduct performance hypothesis and rejects the efficient structure hypothesis however these studies have focused almost exclusively on supply side control variables and neglected demand side variables when estimating the reduced form price concentration relationship for example previous studies have not included in their analysis bank specific risk variables as measures of cross sectional derived deposit demand we find that when bank specific risk variables are included in the analysis the magnitude of the relationship between deposit rates and market concentration decreases by over 50 we offer an explanation for these results based on the correlation between a bank s risk profile and the structure of the market in which it operates these results suggest that it may be necessary to reconsider the well established assumption that higher market concentration necessarily leads to anticompetitive deposit pricing behavior by commercial banks this has direct implications for the antitrust evaluations of bank merger and acquisition proposals by regulatory agencies and in a more general sense these results suggest that any structure conduct performance based study that does not explicitly consider the possibility of very different risk profiles of the firms analyzed may indeed miss a very important set of explanatory variables and thus the results from those studies may be spurious

the impact of contingent liability on commercial bank risk taking abstract from 1863 1935 regulators imposed contingent liability on bank shareholders to discourage risk taking using data from 1900 to 1915 i find that banks subject to stricter liability rules have lower equity and asset volatility hold a lower proportion of risky assets and are less likely to increase their investment in risky assets when their net worth declines consistent with the hypothesis that stricter liability discourages commercial bank risk taking these findings provide lessons for current bank regulatory policy and show that the shape of the residual claimant s payoff function has a significant impact on managerial incentives and firm performance

competition and commercial banks risk taking evidence from sub saharan africa region abstractthis study investigates the relationship between competition and the risk taking attitude of banks we test how this relationship manifests in the sub saharan african ssa region s commerci

the duration of employment opportunities in u s manufacturing long duration employment opportunities are a necessary condition for workers to hold lifetime jobs this paper uses longitudinal data on individual u s manufacturing plants from 1963 1982 to estimate the age and completed spell distributions for employment positions the results indicate that of the employment opportunities in progress in the u s manufacturing sector in 1982 30 0 were at least 19 years old and 59 6 would have a completed length of at least 20 years high rates of turnover in employment positions coexist with a large number of long duration employment opportunities because the turnover tends to be concentrated within a subset of the producers copyright 1991 by mit press

the great industry gamble market structure dynamics as a survival contest industry dynamics are studied as an endogenous tournament with infinite horizon and stochastic entry in each period firms investments determine their probability of surviving into the next period this generates a survival contest which fuels market structure dynamics while the evolution of market structure constantly redefines the contest more concentrated markets endogenously generate less profit rivals that are more difficult to outlive and more entry the unique steady state distribution exhibits ongoing turbulence correlated exit and entry rates and shakeouts the model s predictions fit empirical findings in markets where firms trade off profits for smaller risk of failure e g banking

are scale economies in banking elusive or illusive evidence obtained by incorporating capital structure and risk taking into models of bank production abstract this paper explores how to incorporate banks capital structure and risk taking into models of production in doing so the paper bridges the gulf between 1 the banking literature that studies moral hazard effects of bank regulation without considering the underlying microeconomics of production and 2 the literature that uses dual profit and cost functions to study the microeconomics of bank production without explicitly considering how banks production decisions influence their riskiness various production models that differ in how they account for capital structure and in the objectives they impute to bank managers cost minimization versus value maximization are estimated using u s data on highest level bank holding companies modeling the bank s objective as value maximization conveniently incorporates both market priced risk and expected cash flow into managers ranking and choice of production plans estimated scale economies are found to depend critically on how banks capital structure and risk taking are modeled in particular when equity capital in addition to debt is included in the production model and cost is computed from the value maximizing expansion path rather than the cost minimizing path banks are found to have large scale economies that increase with size moreover better diversification is associated with larger scale economies while increased risk taking and inefficient risk taking are associated with smaller scale economies

the panzar rosse revenue test and market power in banking abstract the panzar rosse h statistic is a commonly used measure of market power in banking it is widely believed that h 0 is inconsistent with significant market power this study rigorously disproves that perception instead the possibility of h 0 under conditions of substantial market power turns out robust to the timing of banks actions relative costs choice of strategic variable degree of product differentiation strategy static or dynamic and degree of heterogeneity in banks conduct collusive versus fringe and hence may be common in practice

single equation multiple regression methodology is it an appropriate methodology for the estimation of the structure performance relationship in banking abstract tests of the structure performance paradigm of the industrial organization literature have been carried out almost exclusively using a single equation multiple regression methodology the purpose of this paper is to suggest that where the firms being considered are multiple product in nature and may pursue objectives in addition to maximizing the value of the firm such a methodology may be inappropriate the results presented in this paper suggest that the absence of a consistently strong positive and statistically significant relationship between market concentration and bank profitability may be traced in part to such an inappropriate methodology

monitoring banking sector fragility a multivariate logit approach this article explores how a multivariate logit model of the probability of a banking crisis can be used to monitor banking sector fragility the proposed approach relies on readily available data and the fragility assessment has a clear interpretation based on in sample statistics the model has better in sample performance than currently available alternatives and the monitoring system can be tailored to fit the preferences of decision makers regarding type i and type ii errors the framework can be useful as a preliminary screen to economize on precautionary costs

bank competition financial reform and institutions the importance of being developed abstract in this paper i estimate the degree of market power at the bank level for 84 banking systems worldwide subsequently i analyze the sources of bank competition placing emphasis on the impact of financial reform and the quality of institutions i find that financial liberalization policies reduce the market power of banks in developed countries with advanced institutions in contrast banking competition does not improve at the same pace in countries with weaker institutions and a lower level of institutional development the results hold across a wide array of identification tests and estimation methods the main policy implication to be drawn is that a certain level of institutional development is a precondition for the success of reforms aimed at enhancing the competition and efficiency of banking markets

do government owned banks trade market power for slack the quiet life hypothesis qlh posits that banks with market power have less incentives to maximize revenues and minimize cost especially government owned banks with a public mandate precluding profit maximization might succumb to a quiet life we use a unified approach that simultaneously measures market power and efficiency to test the quiet life hypothesis of german savings banks we find that average local market power declined between 1996 and 2006 cost and profit efficiency remained constant nonparametric correlations are consistent with a quiet life regarding cost efficiency but not regarding profit efficiency the quiet life on the cost side is negatively correlated with bank size quality of loan portfolio and local per capita income the last result indicates that the quiet cost life is therefore potentially due to benevolent excess consumption of local input factors by public savings banks

imperfect competition risk taking and regulation in banking abstract we asses the welfare implications of banking competition under various deposit insurance regimes in a model of imperfect competition with social failure costs and where banks are subject to limited liability we study the links between competition for deposits and risk taking incentives and conclude that the welfare performance of the market and the appropriateness of alternative regulatory measures depend on the degree of rivalry and the deposit insurance regime specifically when competition is intense and the social failure costs high deposit rates are excessive both in a free market and with risk based insurance if insurance premiums are insensitive to risk then the same is true even if there is no social cost of failure we find also that in an uninsured market with nonobservable portfolio risk or with flat premium deposit insurance deposit regulation rate regulation or deposit limits and direct asset restrictions are complementary tools to improve welfare in an uninsured market with observable portfolio risk or with risk based insurance deposit regulation may be a sufficient instrument to improve welfare

managers and efficiency in banking abstract this paper presents evidence on the impact of managers on cost efficiency in banking stochastic frontier analysis is applied to a unique finnish data set manager age and education have strong yet complicated effects on efficiency the impact of age on efficiency depends on education a university degree is useful mainly in the largest banks of the sample educational background seems to be less important for young managers than for mature ones managing director changes are systematically followed by efficiency changes retirement typically causes an efficiency improvement whereas other manager changes can either improve or weaken efficiency however in many cases mature managers outperform their young colleagues

implicit bank debt guarantees costs benefits and risks the expectation by market participants that public authorities might bailout the creditors of banks that are considered too important for financial system stability or another reason to be allowed to fail is commonly referred to as an implicit guarantee public authorities do not have any explicit commitment to intervene they may even honestly state that they not want to do so ex ante but may feel compelled to do so ex post a declared policy aim is to limit the value of implicit guarantees by making banks stronger more easily resolvable in case of distress as well as by imposing extra charges that rise as banks become more systemically important as part of the latter approach globally systemically important banks are identified and subjected to more costly and intrusive regulation there is little evidence that specific approach has been successful so far there is some evidence that the introduction of new resolution frameworks has been helpful while the use of newly available resolution tools and the involvement of bank creditors in the burden sharing associated with bank failure resolution has significantly reduced the value of implicit bank debt guarantees where it occurred in that sense actions speak louder than words

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

what is the impact of bankrupt and restructured loans on japanese bank efficiency the japanese banking system provides a distinctive platform for the examination of the long lasting effect of problem loans on efficiency we measure technical efficiency by modifying a translog enhanced hyperbolic distance function with two undesirable outputs identified as problem loans and problem other earning assets our unique database allows us to distinguish between bankrupt and restructured loans to investigate the underlying causality between these loans and efficiency from the flexible panel vector autoregression specification primary results reveal that bankrupt loans have a positive impact on efficiency related to the moral hazard skimping hypothesis with the causality originating from bankrupt loans in contrast findings for the relationship between restructured loans and efficiency support the bad luck hypothesis

the effects on competitiveness of coordinated versus unilateral fiscal policies reducing ghg emissions in the eu an assessment of a 10 reduction by 2010 using the e3me model abstract international competitiveness effects from coordinated and uncoordinated multilateral policies to reduce co 2 emissions from 11 member states of the eu by 2010 are compared with those from unilateral policies to achieve a 10 cut in each member state alone the paper presents the results from four projections using a large scale integrated regionalised e3 model of the eu estimated on time series cross section data 1968 93 with international trade treated as between each member state and a european transport and distribution network the 10 reduction is achieved by additional excise duties incremented every year 1999 to 2010 according to the carbon contents of fuels with special with special treatment of electricity taxed on outputs not inputs with revenues recycled via reductions in employers social security contributions multilateral coordinated policies require a common tax rate of 156 ecu per tonne carbon 1999 prices which rises to an average of 165 ecu per tonne with a wide range between regions when policies are uncoordinated all the tax shift projections show double dividends for emission reduction and employment gain for all member states unilateral policies do not show much carbon leakage but they show smaller gains for output and employment effects for price competitiveness appear to be small and mixed with serious losses appearing only for the netherlands and for metals and chemicals especially for unilateral action

the cyclical behaviour of european bank capital buffers using an unbalanced panel of accounting data from 1997 to 2004 and controlling for individual bank costs and risk we find capital buffers of the banks in the eu15 have a significant negative co movement with the cycle for banks in the accession countries there is significant positive co movement capital buffers of commercial and savings banks and of large banks exhibit negative co movement those of co operative and smaller banks exhibit positive co movement speeds of adjustment are fairly slow we interpret these results and discuss policy implications noting that negative co movement of capital buffers will exacerbate the pro cyclical impact of basel ii

bank competition and financial stability much ado about nothing the theoretical literature gives conflicting predictions on how bank competition should affect financial stability and dozens of researchers have attempted to evaluate the relationship empirically we collect 598 estimates of the competition stability nexus reported in 31 studies and analyze the literature using meta analysis methods we control for 35 aspects of study design and employ bayesian model averaging to tackle the resulting model uncertainty our findings suggest that the definition of financial stability and bank competition used by researchers influences their results in a systematic way the choice of data estimation methodology and control variables also affects the reported coefficient we find evidence for moderate publication bias taken together the estimates reported in the literature suggest little interplay between competition and stability even when corrected for publication bias and potential misspecifications this abstract was borrowed from another version of this item

application of computable general equilibrium cge to climate change mitigation policy a systematic review abstract with the growing literature related to climate change mitigation measures and policy interventions a systematic review of the application of computable general equilibrium cge model is inevitable therefore this article aims to characterise the relevant studies define a comparative framework to identify the current state of the art and the gaps in applied general equilibrium models firstly the systematic review found a total of 301 research articles from scopus and web of science databases and finally analysed 154 articles based on inclusion and exclusion criteria from 67 refereed journals the review analysis found that application of cge model is very vital in addressing climate change mitigation issues at the national regional and global levels however china attracted the most substantial research interests followed by the usa india and australia among others which are in line with their share of greenhouse gas emissions in the world most of the research themes focus on the carbon tax emission reduction target emission trading renewable energy energy efficiency and carbon capture and storage as primary drivers of low carbon economy nevertheless there is a trend of employing more static cge model compared to the dynamic cge although application of the latter has a limitation of providing right inputs to the macroeconomic policy finally research directions and gaps envision other complementary models such as dynamic stochastic general equilibrium dsge and agent based model abm for proper policy interventions

a new database on the structure and development of the financial sector this article introduces a new database of indicators of financial structure and financial development across countries and over time the database is unique in that it combines a wide variety of indicators that measure the size activity and efficiency of financial intermediaries and markets it improves on previous efforts by presenting data on the public share of commercial banks introducing indicators of the size and activity of nonbank financial institutions and constructing measures of the size of bond and primary equity markets this article introduces a new database the first to provide comprehensive measures of the development structure and performance of the financial sector this database is the first to define and construct indicators of the size and activity of nonbank financial intermediaries such as insurance companies pension funds and non deposit money banks it is also the first to include indicators of the size of primary equity markets and primary and secondary bond markets in constructing the database authors carefully deflate measures and match stock and flow variables

forecasting the fragility of the banking and insurance sectors linkages between banks and insurance companies are important when forecasting the fragility of the banking and insurance sectors we propose a novel empirical framework that allows us to estimate unobserved linkages in panel data sets that contain observed regressors we find that taking unobserved common factors into account reduces the root mean square forecasts error of firm specific forecasts by up to 9 of system forecasts by up to 14 and by up to 39 for systemic forecasts of more distressed firms relative to a model based on observed variables only estimates of the factor loadings suggest that the correlation of financial institutions has been relatively stable over the forecast period

real estate prices and bank stability abstract real estate prices can deviate from their fundamental value due to rigid supply heterogeneity in quality and various market imperfections which have two contrasting effects on bank stability higher prices increase the value of collateral and net wealth of borrowers and thus reduce the likelihood of credit defaults in contrast persistent deviations from fundamentals may foster the adverse selection of increasingly risky creditors by banks seeking to expand their loan portfolios which increases bank distress probabilities we test these hypotheses using unique data on real estate markets and banks in germany house price deviations contribute to bank instability but nominal house price developments do not this finding corroborates the importance of deviations from the fundamental value of real estate rather than just price levels or changes alone when assessing bank stability

competition and risk in south east asian commercial banking this article investigates the effects of competition on bank risk taking behaviour in four south east asian countries indonesia malaysia philippines and vietnam our main finding is that competition does not increase bank risk taking behaviour and the results appear robust to different model specifications estimation approaches and variable construction we also find that concentration is inversely related to bank risk whereas regulatory restrictions positively influence bank risk taking

the valuation of fdic deposit insurance using option pricing estimates when congress set the premium rate for fdic deposit insurance in the banking act of 1935 which authorized a permanent federal insurance system neither experience nor theory could offer much guidance regarding an appropriate fee structure although rates have since been periodically revised the fdic has yet to attempt to set the insurance rate at a ifair level that is a level equal to administrative costs plus the ex ante value of the insurance such a premium is the rate that would be charged by competitive private insurers however7 the garn st germain act of 1982 directed the fdic to consider the feasibility of a risk based premium structure in response the fdic has suggested a trial system in which each insured bank will be placed in one of three risk classes based on credit and interest rate risk relative to capital and a premium rate will be assigned to each group those rates will be determined in part by the loss experience of the entire banking system fdic 1983 another approach to the determination of the appropriate insurance premium has been offered by merton 1977 who suggested using the analogous relationship between deposit guarantees and put options to value fdic insurance in this paper we follow merton s suggestion and calculate bank specific estimates of the proper premium for deposit insurance for the banks in our sample we find that fdic rates greatly exceed estimates of the fair value of the insurance derived from the blackscholes 1972 option pricing model

the roles of corporate governance in bank failures during the recent financial crisis abstract this paper analyzes the roles of corporate governance in bank defaults during the recent financial crisis of 2007 2010 using a data sample of 249 default and 4 021 no default us commercial banks we investigate the impact of bank ownership and management structures on the probability of default the results show that defaults are strongly influenced by a bank s ownership structure high shareholdings of outside directors and chief officers managers with a chief officer position such as the ceo cfo etc imply a substantially lower probability of failure in contrast high shareholdings of lower level management such as vice presidents increase default risk significantly these findings suggest that high stakes in the bank induce outside directors and upper level management to control and reduce risk while greater stakes for lower level management seem to induce it to take high risks which may eventually result in bank default some accounting variables such as capital earnings and non performing loans also help predict bank default however other potential stability indicators such as the management structure of the bank indicators of market competition subprime mortgage risks state economic conditions and regulatory influences do not appear to be decisive factors in predicting bank default

on competition risk and hidden assets in the market for bank credit cards abstract the market for credit cards has been the subject of recent attention and controversy because of high profits earned on credit cards and substantial premiums on the resale of credit card receivables this paper estimates risk return profiles for credit card banks and explores the role of intangible assets in determining resale premiums on credit card receivables in addition the effects on the resale market of securitization and the opportunity cost of acquiring new accounts are analyzed using alternative measures of risk and alternative control groups we find for the years 1989 to 1995 that credit card banks earned significantly higher returns on assets but that these returns were associated with greater risk taking analysis of premia for the years 1993 to 1995 suggest that acquiring banks pay higher premia for mid sized regional accounts than for larger national portfolios perhaps because of richer cross selling opportunities

deregulation and bank financial policy the standard view that banks can value maximize by exploiting non risk rated deposit insurance ignores the potential loss of a valuable bank charter due to insolvency recognition of this effect changes the bank s optimal financial policy and can induce extreme risk averting as well as risk taking behavior however as the value of the bank charter falls the risk taking strategy is more apt to dominate therefore current deregulation of the banking industry by easing entry and devaluing charters holds the potential for increases in the incidence of insolvency unless offsetting policies are instituted

the bank capital decision a time series cross section analysis this paper seeks to explain the dramatic decline in capital to asset ratios in u s commercial banks during the last two decades it is hypothesized that the rise in nominal interest rates during this period might have contributed substantially to the fall in capital ratios time series cross section estimation supports the hypothesis regarding the interest rate bank capital is the sum of equity plus debt subordinated to deposits capital provides a cushion that protects the bank from insolvency when the value of its assets falls a bank can meet its obligations to depositors as long as losses on its asset portfolio do not exceed its capital the ratio of capital to total assets in u s commercial banks has fallen dramatically in the last two decades dropping from 11 7 percent in 1961 to 5 7 percent in 1978 the lowest level since world war ijj1 figure 1 shows the decline in the ratio of capital to noncash assets these figures suggest that the federal deposit insurance corporation fdic and uninsured depositors are being exposed to increased probabilities of losses from bank insolvencies however relatively little empirical research has been devoted to the determinants of the bank capital decision further the existing work see for example peltzman 24 mingo 20 or mayne 17 18 uses only cross sectional data and therefore does not necessarily explain the decline in capital to asset ratios over time previous empirical research has also focused on book values rather than market values of debt and equity although market values provide better estimates of the protection afforded by capital this practice might be partly justified by the attention paid to book values by bank regulators however the increasing use of qualitative factors as well as book ratios in capital regulation indicates that regulators are aware of the deficiencies in book values many of the so called qualitative considerations are precisely the factors that distinguish market from book value 6 pp 78 80 finally difficulties arise over the proper measure of capital the empirical studies cited above treat equity and debt capital symmetrically both equity and assistant professor of finance economics boston university school of management this paper was originally written as part of a doctoral dissertation at m i t helpful suggestions from robert mcdonald richard schmalensee larry summers and edward j kane are gratefully acknowledged l these statistics are based on the market values of capital and assets the methods used to construct the market value series are described in the appendix capital asset ratios based on book values also have fallen over the period in question although not as severely

analysing gasoline demand elasticities a survey this paper is a survey of studies on gasoline demand although there are very many dxerent studies in this eld which sometimes appear to arrive at contradictory results we find that with proper stratification of studies by model and data type much of the contict turns to consensus in this survey we classtfy studies by data type and by ten d erent categories of model and with the exception of estimates on seasonal data which tend to be unstable and of certain inappropriate model formulations we find a fair degree of agreement concerning average short run and even long run income and price elasticities

banking market structure and financial stability evidence from the texas real estate crisis in the 1980s abstract this paper examines the relationship between banking market structure and financial stability using data on thrifts a type of banking institution specializing in residential mortgage lending i test two related hypotheses first competition reduces franchise value second reduced franchise value induces risk taking testing the second hypothesis exploits predictions that when hit by an exogenous shock the slope of risk with respect to franchise value becomes more negative because thrifts adopt bang bang strategies and choose minimal or maximal risk using the texas real estate collapse in the 1980s as a natural experiment i find evidence supporting both hypotheses

a simple approach to better deposit insurance pricing abstract we examine the ability of simple insurance pricing schedules to match premiums with the values derived from a contingent claim model of deposit insurance we use a quadratic loss function to compare a flat rate pricing system to alternative pricing schedules incorporating measures of risk a simple two bracket schedule that distinguishes between high and low capitalization is a substantial improvement a pricing schedule under which the rate paid by low capital banks depends on their degree of undercapitalization is better still in addition the gains from using market value measures of capital rather than book value are great

household transport demand in a cge framework the main objective of this study is to improve the modelling of household demand for transport services in a computable general equilibrium cge model the new extended model is then used for numerical calculations to test how the swedish economy reacts to a carbon target special attention will be given to distributional effects and the connection between labour supply and work journeys in a sparsely populated country like sweden a differentiation between trip purposes and trip length a complementary relationship between work journeys and labour supply and a subdivision of households by density of population and income influence the numerical results our main conclusions from the analysis of a carbon target are that if the carbon tax revenue is recycled by decreasing the employers social contribution fee welfare costs are lower than with lump sum replacements of tax revenue to households the welfare cost may be reduced even further if work journeys are not additionally taxed as compared to the base year however the lower total welfare cost is obtained at the expense of making society more unequal since both labour tax recycling cuts in employers social contributions and exempting tax on work journeys will make low income groups carry a higher burden an increased carbon dioxide tax is also shown to increase welfare differences between sparsely populated areas and city regions in sweden

market power in cee banking sectors and the impact of the global financial crisis the aim of this study is to undertake an up to date assessment of market power in central and eastern european banking markets and explore how the global financial crisis has affected market power and what has been the impact of foreign ownership three main results emerge first while there is some convergence in country level market power during the pre crisis period the onset of the global crisis has put an end to this process second bank level market power appears to vary significantly with respect to ownership characteristics third asset quality and capitalization affect differently the margins in the pre crisis and the crisis periods while in the pre crisis period the impacts are similar for all banks regardless of ownership status in the crisis period non performing loans have a negative effect and capitalization a positive effect only for domestically owned banks

transport tax reform commuting and endogenous values of time abstract we consider a model of urban transport with two trip purposes commuting assumed perfectly complementary to labour supply and noncommuting to analyse the effects of transport tax reform on the value of time and marginal external congestion costs higher commuting taxes plausibly reduce time values but higher noncommuting transport prices will typically raise the value of time the intuition for this latter finding is that the reduction in congestion that follows from the tax increase itself raises net wages per hour of work inclusive of commuting time empirical illustrations with belgian data show a potentially large effect of transport tax reform on time values in quite a few of the tax reforms studied traffic levels are reduced but the increase in time values implies that marginal external congestion costs actually increase

bank competition and financial stability in asia pacific the impact of bank competition on financial stability has been a focus of academic and policy debate over the last two decades and particularly since the 2007 08 global financial crises beck 2008 oecd 2011 under the traditional competition fragility view banks cannot earn monopoly rents in competitive markets and this results in lower profits capital ratios and charter values this makes banks less able to withstand demand or supply side shocks and encourages excessive risk taking marcus 1984 alternatively the competition stability view suggests that competition leads to greater stability a less competitive banking market may lead to more risk taking if the big banks are deemed too important to fail and as such obtain implicit or explicit subsidies via government safety nets mishkin 1999 in addition banks with more market power tend to charge higher loan rates which may induce borrowers to assume greater risk leading to greater default in competitive banking markets loan rates are lower too big to fail issues and safety net subsidies are smaller and this results in a positive link between bank competition and stability boyd and de nicolo 2005 it could also be the case as noted by martinez miera and repullo 2010 that bank competition and stability are linked in a non linear manner and in a similar vein berger et al 2009 argue that competition and concentration may coexist and can simultaneously induce stability or fragility

competitive conditions among the major british banks this paper reports an empirical assessment of competitive conditions among the major british banks during a period of major structural change specifically estimates of the rosse panzar h statistic are reported for a panel of 12 banks for the period 1980 2004 the sample banks correspond closely to the major british banking groups specified by the british banking association the robustness of the results of the rosse panzar methodology is tested by estimating the ratio of lerner indices obtained from interest rate setting equations the results confirm the consensus finding that competition in british banking is most accurately characterised by the theoretical model of monopolistic competition there is evidence that the intensity of competition in the core market for bank lending remained approximately unchanged throughout the 1980s and 1990s however competition appears to have become less intense in the non core off balance sheet business of british banks

the identification of technology regimes in banking implications for the market power fragility nexus neglecting the existence of different technologies in banking can contaminate efficiency market power and other performance measures by simultaneously estimating i technology regimes conditional on exogenous factors ii efficiency conditional on risk management and iii lerner indices of german banks we identify three distinct technology regimes public retail small specialized and universal relationship system estimation at the regional level reveals that greater bank market power increases bank profitability but also fosters corporate defaults corporate defaults in turn lead to higher probabilities of bank distress which supports the market power fragility hypothesis c 2009 elsevier b v all rights reserved

regulations market structure institutions and the cost of financial intermediation this paper examines the impact of bank regulations market structure and national institutions on bank net interest margins and overhead costs using data on over 1400 banks across 72 countries while controlling for bankspecific characteristics the data indicate that tighter regulations on bank entry and bank activities boost the cost of financial intermediation inflation also exerts a robust positive impact on bank margins and overhead costs while concentration is positively associated with net interest margins this relationship breaksdownwhencontrolling for regulatory impediments to competition and inflation furthermore bank regulations become insignificant when controlling for national indicators of economic freedom or property rights protection while these institutional indicators robustly explain cross bank net interest margins and overhead expenditures thus bank regulations cannot be viewed in isolation they reflect broad national approaches to private property and competition

deposit insurance and risk taking behavior in the credit union industry abstract this paper examines the relationship between deposit insurance and risk taking behavior within the credit union industry time series tests employing industry average financial ratios for federal and state credit unions did not support the increased risk taking hypothesis although federal credit union capital declined immediately following the adoption of deposit insurance this was most likely the result of reduced capital requirements not deposit insurance liquidity and loan delinquency ratios had a negative time trend coefficient implying a decline in risk taking behavior during the post insurance period cross sectional test results employing iowa state chartered credit union data indicated that insured credit unions were better capitalized and more liquid than their uninsured counterparts overall there was no evidence that the adoption of deposit insurance increased the risk taking behavior of credit unions

how good is the market at assessing bank fragility a horse race between different indicators abstract we explore for individual banks active in the east asian countries during the years 1996 1998 the performance of three sets of indicators of bank fragility that can be computed from publicly available information accounting data stock market prices and credit ratings we find significantly different patterns among the three groups of indicators in their ability of forecasting financial distress at a specific point in time and over time more specifically in the east asia crisis episode the information based on stock prices or on judgmental assessments of credit rating agencies did not outpace backward looking information contained in balance sheet data stock market based information though has responded more quickly to changing financial conditions than ratings of credit risk agencies overall the evidence supports the policy conclusion that where the information processing is quite costly as in most developing countries it is important to use simultaneously a plurality of indicators to assess bank fragility

more than you think an inclusive estimate of business entries abstract the wells fargo nfib series on business entries and exits collected data throughout 1995 from 36 000 households regarding the business formation activity occurring among adults within those households after adjusting for the 1 37 owners per firm and the 10 of households with more than one entry there were an estimated 4 553 million business entries in the 12 month period involving 6 211 million active owners seventy eight and one half 78 5 percent of those businesses were de novo starts 20 0 purchases and the remainder other forms of entry including missing responses most of the entries were quite small whether started or purchased the number of business entries is significantly larger than prior estimates however the 4 553 million figure when dissected into component parts is consistent with other measures of business entry the primary reason for the larger estimate is that this research was able to capture the significant number of very small entries that either do not appear in other databases or appear only after a substantial delay these new data offer a significantly expanded view of the american business population and its dynamics more specifically they provide quantification of the smaller end of the entry scale thereby introducing new population distributions and raising fundamental research and marketing questions about the unit of analysis what is a business what constitutes a reasonable survey sample to what population do we generalize survey data what are the market segments of the small business population and how do they differ what are the public policy requirements of these segments and how do they coincide and conflict and what do real entry numbers tell us about the operation of the american economy on both a secular and cyclical basis the foregoing are obvious however there are more subtle and perhaps more interesting questions for example the more people try to go into business for themselves the more our collective american experience is influenced by the experience of business ownership small business draws enormous empathy from the american public few americans institutions are as popular this is obviously a complex phenomenon however one explanation for its popularity is that so many americans are exposed to business ownership either personally or through someone they know part of this research not yet published shows that small business ownership pervades every class income category racial grouping etc the penetration of business formation into the american experience therefore is not only deep it is also broad and when its dimensions are so great the remaining issue is not the existence of influence but its degree if there are more starts than previously recognized there must also be more exits and if there are more exits the dynamics of the business entry exit process become even more tumultuous than previously recognized particularly for those interested in either policy or management the question becomes why is exit so common one path of inquiry leads to motivation for entry including career alternatives and income supplementation to what extent do people intend to grow their businesses and to what extent do they intend their businesses to fill financial occupational or time gaps until something better comes along another path of inquiry leads to resources do resource constraints or constraints of other natures impede business development then there is the issue of preparation how well prepared are entrants and what reasonable steps can be taken to improve their assessments of potential opportunities or to effectively implement plans to capitalize on them these are not necessarily new issues but they become more conspicuous and pressing when the large number of exits is appreciated the technique used to capture these data at a reasonable cost is called an omnibus or caravan survey this survey technique is not well known outside the commercial survey industry but it presents considerable opportunity for researchers either with limited budgets or desirous of asking fewer than 10 15 minutes worth of questions from a sample of the adult population its advantage is financial multiple sponsors can ask a limited number of proprietary questions at their own expense but they then share the costs and results of reaching respondents and of asking the demographic questions for example age or sex of respondent the current research posed two screen questions to all 36 000 households interviewed the sponsors paid for those 72 000 questions but only about 2 000 respondents passed one of the screens these respondents were led through several more questions thus the sponsors paid just for the screen questions and those questions administered to the 2 000 an extensive set of demographic data about the respondents was thrown in free

the politics of bank failures evidence from emerging markets this paper studies large private banks in 21 major emerging markets in the 1990s it first demonstrates that bank failures are very common in these countries about 25 percent of these banks failed during the seven year sample period the paper also shows that political concerns play a significant role in delaying government interventions to failing banks failing banks are much less likely to be taken over by the government or to lose their licenses before elections than after this result is robust to controlling for macroeconomic and bank specific factors a new party in power early elections outstanding loans from the imf as well as country specific time independent factors this finding implies that much of the within country clustering in emerging market bank failures is directly due to political concerns

loan growth and riskiness of banks we investigate whether loan growth affects the riskiness of individual banks in 16 major countries using bankscope data from more than 16 000 individual banks during 1997 2007 we test three hypotheses on the relation between abnormal loan growth and asset risk bank profitability and bank solvency we find that loan growth leads to an increase in loan loss provisions during the subsequent three years to a decrease in relative interest income and to lower capital ratios further analyses show that loan growth also has a negative impact on the risk adjusted interest income these results suggest that loan growth represents an important driver of the riskiness of banks

integration and competition in the european financial markets abstract financial integration in europe should affect the competition between markets and intermediaries and generate a convergence of both interest rates and margins among different countries this paper analyzes both the evolution of the convergence in interest rates and the level of competition and its inequalities among the european banking systems for the period 1993 2001 the inequality index used the theil index allows us to break down the inequalities into a country and a specialization effect if the former effect dominates it would mean that national banking markets are segmented due to the existence of obstacles or barriers to integration on the other hand dominance of the latter effect would be related to the different level of competition depending on the type of banking specialization

capital regulation and insured banks choice of individual loan default risks abstract how bankers choose the riskiness of their individual assets is an important question it is well known that fixed premium deposit insurance leads a bank to prefer a high variance asset portfolio but its effect on individual asset choice has not been carefully evaluated this paper demonstrates how bank examination procedures and capital adequacy standards can make the value of a bank s deposit insurance contract concave in individual asset risks insured bankers may therefore have a rational preference ceteris paribus for relatively safe individual loans even while they prefer risky portfolio returns the model s implications for loan securitization and the federal regulators new risk based capital standards are discussed

taxation unemployment and growth dynamic welfare effects of green policies abstract this paper analyzes the effects of environmental tax reforms on a small open economy the labor market is characterized by union wage setting the carbon tax acts as an implicit tariff which gives rise to terms of trade gains the terms of trade effect together with the union wage setting leads to a positive relationship between the capital labor ratio and net foreign wealth in the short run the disinvestments in real and financial capital give temporary room for higher consumption and instantaneous utility the long run effect on instantaneous utility is more uncertain a strong double dividend may exist

the joint estimation of bank level market power and efficiency the aim of this study is to provide a methodology for the joint estimation of efficiency and market power of individual banks the proposed method utilizes the separate implications of the new empirical industrial organization and the stochastic frontier literatures and suggests identification using the local maximum likelihood lml technique through lml estimation of market power of individual banks becomes feasible while a number of restrictive theoretical and empirical assumptions are relaxed the empirical analysis is carried out on the basis of emu bank data market power estimates indicate fairly competitive conduct in general however heterogeneity in market power estimates is substantial across banks the latter result suggests that the practice of some banks deviates from the average fairly competitive behavior a finding that has important policy implications finally efficiency and market power present a negative relationship which is in line with the so called quiet life hypothesis

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

transport taxes with multiple trip purposes a congestible urban transport system is considered in which cars and buses are used for commuting and non commuting trips commuting is a strict complement to taxable labour supply the optimal tax structure for raising a given amount of government revenue is examined for the cases where differentiation of transport tolls between trip purposes is and is not possible an application to belgian urban environments shows that optimal toll differentiation produces significant efficiency improvements without differentiation reforming transport taxes generates substantial gains only when the labour tax can be reduced

too many to fail evidence of regulatory forbearance when the banking sector is weak this paper studies bank failures in 21 emerging market countries in the 1990s by using a competing risk hazard model for bank survival we show that a government is less likely to take over or close a failing bank if the banking system is weak this too many to fail effect is robust to controlling for macroeconomic factors financial crises the too big to fail effect domestic financial development and concerns due to systemic risk and information spillovers the paper also shows that the too many to fail effect is stronger for larger banks and when there is a large government budget deficit

on the sources of heterogeneity in banking efficiency literature one learns two main lessons from studying the great quantity of banking efficiency literature these lessons regard the heterogeneity in results and the absence of a comprehensive review aimed at understanding the reasons for this variability surprisingly although this issue is well known it has not been systematically analyzed before in order to fill this gap we perform a meta regression analysis mra by examining 1 661 efficiency scores retrieved from 120 papers published over the period 2000 2014 the meta regression is estimated by using the random effects multilevel model reml because it controls for within study and between study heterogeneity the analysis yields four main results firstly parametric methods yield lower levels of banking efficiency than nonparametric studies this holds true even after controlling for the approach used in selecting the inputs and outputs of the frontier secondly we show that banking efficiency is highest when using the value added approach followed by estimates from studies based on the intermediation method whereas those based on the hybrid approach are the lowest thirdly efficiency scores also depend on the quality of studies and on the number of observations and variables used in the primary papers as far as the effects of sample size dimension and quality of papers are concerned there are significant differences in sign and magnitude between parametric and nonparametric studies finally cost efficiency is found to be higher than profit and production efficiency interestingly mra results are robust to the potential outliers in efficiency and sample size distributions