dynamic banking a reconsideration financially intermediated and stock market consumption investment allocations with and without governmental interventions are compared in a welfare sense in overlapping generation economies with and without shocks to agents intertemporal preferences we first show that in economies with preference shocks governmental interventions subject to the same information requirements as those imposed on financial intermediaries lead to stock market allocations that are not inferior to those attained under financial intermediation second we argue that the necessary interventions are qualitatively no different from those required to implement stationary optimal allocations in olg models without shocks to agents intertemporal consumption preferences

financial intermediation with risk aversion the paper extends diamond s 1984 analysis of financial intermediation to allow for risk aversion of the intermediary it shows that as in the case of risk neutrality the agency costs of external funds provided to an intermediary are relatively small if the intermediary is financing many entrepreneurs with stochastically independent returns even though the intermediary is adding rather than subdividing risks the underlying large numbers argument is not invalidated by the presence of risk aversion with risk aversion of entrepreneurs as well as the intermediary financial intermediation provides insurance as well as finance in contrast to earlier results on optimal intermediation policies under risk neutrality the paper shows that when an intermediary is financing many entrepreneurs with stochastically independent returns optimal intermediation policies must shift return risks away from risk averse entrepreneurs and impose them on the intermediary or on final investors

one security many markets determining the contributions to price discovery when homogeneous or closely linked securities trade in multiple markets it is often of interest to determine where price discovery the incorporation of new information occurs this article suggests an econometric approach based on an implicit unobservable efficient price common to all markets the information share associated with a particular market is defined as the proportional contribution of that market s innovations to the innovation in the common efficient price applied to quotes for the thirty dow stocks the technique suggests that the preponderance of the price discovery takes place at the new york stock exchange nyse a median 92 7 percent information share although most of the classic paradigms in market microstructure concern a security that trades in a single centralized market such situations are becoming increasingly rare in practice fragmentation the dispersal of trading in a security to multiple sites has emerged as a dominant institutional trend this process is of concern to financial economists and regulators because price information and price discovery the impounding of new information into the security price arguably the most important products of a security market have many attributes of public goods as the process of fragmentation accelerates it may be important to determine where the price information and price discovery are being produced 1 this paper suggests a practical econometric approach to this problem the technique is illustrated with an application to u s equity markets many stocks listed on the new york stock exchange nyse trade concurrently on the regional exchanges and the national association of securities dealers national market system nasd nms since a share of ibm stock is the same security whether purchased on the midwest or pacific exchange this is a particularly clear instance of multiple markets nevertheless the expres

foreign bank entry deregulation and bank efficiency lessons from the australian experience abstract this study considers the impact of foreign bank entry on banking efficiency in australia during the post deregulation period 1988 2001 using data envelopment analysis malmquist indices and stochastic frontier analysis we find foreign banks more efficient than domestic banks which however did not result in superior profits major australian banks have used size as a barrier to entry to new entrants furthermore bank efficiency has increased post deregulation and the competition resulting from diversity in bank types was important to prompt efficiency improvements finally the recession of the early 1990s resulted in a distinct shift in the process of efficiency changes

information transmission in informationally linked markets evidence from us and chinese commodity futures markets abstract this paper investigates information transmission and price discovery in informationally linked markets within the multivariate generalized autoregressive conditional heteroskedasticity and information share frameworks based on both synchronous and non synchronous trading information from chinese futures spot markets the new york mercantile exchange nymex chicago board of trade cbot and cme globex futures markets for copper and soybeans we show that there is a bidirectional relationship in terms of price and volatility spillovers between us and chinese markets with a stronger effect from us to chinese markets than the other way around additionally the nymex and cbot play a more important role than the cme globex in the flow of information from us to chinese markets moreover we find that chinese copper market adjusts more quickly than the nymex copper market to correct the disparity between both markets however the converse is true in the case of soybeans finally our results highlight the remarkable role of chinese futures markets in the price formation process though nymex and cbot futures markets are the main driving force in price discovery

repudiation and renegotiation the case of sovereign debt a model of sovereign debt is analyzed in this model renegotiation arises in a natural way because information is incomplete the renegotiation game has many equilibria the standard contract theory approach suggests that the parties should agree to choose the efficient equilibrium strategies when the contract is written refinements of the equilibrium notion such as strategic stability suggest that a very inefficient equilibrium may be chosen the tension between these two approaches raises deep questions about the correct way to analyze a large class of contracting problems copyright 1989 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

foreign owned insurer performance in the us property liability markets foreign owned property liability insurers have increased their market share in the us in the recent decades they may have achieved this by being more efficient by undercutting prices to attract away business from their domestic rivals or both we investigate return risk efficiency and determinants of efficiency performance of these insurers relative to their domestic competitors we find that these firms are less profitable and less efficient in terms of cost scale and revenue x efficiencies but more efficient in terms of cost x and revenue scale efficiencies overall the evidence shows that both of the aforementioned factors have contributed to their growth

interest rate and liquidity risk management and the european money supply process abstract the monetary setup of the european central bank ecb centers around short term securities repurchase agreements repos which ensure the flexibility of its money market management however a flexible repo based monetary policy exposes banks to both interest rate risk and liquidity risk this paper investigates the consequences for the money supply process and the conduct of monetary policy we develop a loan supply model with maturity transformation and show how banks respond when future monetary policy is expected to become tighter or more uncertain our results also shed light on the rationale behind the use of different pricing rules in the ecb s repo auctions

bank ownership and performance does politics matter this paper uses a new dataset to reassess the relationship between bank ownership and bank performance providing separate estimations for developing and industrial countries it finds that state owned banks located in developing countries tend to have lower profitability and higher costs than their private counterparts and that the opposite is true for foreign owned banks the paper finds no strong correlation between ownership and performance for banks located in industrial countries next in order to test whether the differential in performance between public and private banks is driven by political considerations the paper checks whether this differential widens during election years it finds strong support for this hypothesis

how smooth is price discovery evidence from cross listed stock trading abstract the adjustment to parity can be nonlinear for a cross listed pair convergence may be quicker when the price deviation is sufficiently profitable we propose a threshold error correction model ecm to gauge the market respective information shares of canadian listings traded on the toronto stock exchange tsx and the new york stock exchange nyse since dynamics may alternatively be gradual we further generalize the threshold framework to a smooth transition ecm the empirical implications are as follows first the tsx and the nyse appear to have integrated over time second parity convergence accelerates upon discounts on the cross listings on the nyse third we find a larger feedback from the nyse if the price gap exceeds the threshold required arbitrage return fourth informed traders tend to cluster on the nyse upon discounts on the cross listings fifth information share and threshold are affected by the relative degree of private information market friction and liquidity measures firm level characteristics and aggregate risks

domestic and international determinants of bank profits foreign banks in australia abstract this paper develops and tests a model that integrates the existing multinational bank literature with the domestic bank profits literature using data for australia this paper demonstrates that an integrated model results in a small increase in explanatory power when compared to models drawn solely from the multinational banking literature the paper finds that profits are a negative function of competitor market share and bank licence status and a positive function of australian size and home gdp growth it is argued that there is incomplete integration between the market segments of domestic and multinational banks due to the first mover advantages of incumbent banks

foreign owned banks in the united states earning market share or buying it foreign owned u s banks have been chronically unprofitable for more than a decade the authors employ a profit efficiency model introduced by allen n berger diana hancock and david b humphrey 1993 modified to be less sensitive to variations in asset size to estimate the relative profit efficiency of 62 foreign owned and 240 u s owned banks between 1985 and 1990 their results indicate that foreign owned banks were significantly less profit efficient than were u s owned banks primarily due to foreign banks reliance on expensive purchased funds for foreign owned banks the results are consistent with a strategy of sacrificing profits in exchange for fast growth and increased market share during the 1980s copyright 1996 by ohio state university press

cost efficiency and financial and geographical characteristics of banking sectors in the mena countries abstractwe utilize the translog stochastic frontier model to estimate the cost efficiency levels for conventional and islamic cooperation council gcc and non gcc banks in the middle east and north african mena countries the estimated cost efficiency averages around 77 for those mena banks but with slight changes in this score for the individual countries the results also show that the banks in the gcc countries are the most efficient in the region and the efficiency scores for the conventional and islamic banks are similar finally the recent financial crisis seems to have a slight impact on the observed efficiency scores of those banks

should bank runs be prevented abstract this paper extends diamond and dybvig s model j political economy 91 1983 401 to a framework in which bank assets are risky there is aggregate uncertainty about the demand for liquidity in the population and some individuals receive a signal about bank asset quality others must then try to deduce from observed withdrawals whether an unfavorable signal was received by this group or whether liquidity needs happen to be high in this environment both information induced and pure panic runs will occur however banks can prevent them by designing the deposit contract appropriately it is shown that in some cases it is optimal for the bank to prevent runs but there are situations where the bank run allocation may be welfare superior

exporting financial institutions management via foreign direct investment mergers and acquisitions we test the relevance of the new trade theory and the traditional theory of comparative advantage for explaining the geographic patterns of international m as of financial institutions between 1985 and 2000 the data provide statistically significant support for both theories we also find evidence that the u s has idiosyncratic comparative advantages at both exporting and importing financial institutions management

does interbank borrowing reduce bank risk in this paper we investigate whether banks that borrow from other banks have lower risk levels we concentrate on a large sample of central and eastern european banks which allows us to explore the impact of interbank lending when exposures are long term and interbank borrowers are small banks the results of the empirical analysis generally confirm the hypothesis that long term interbank exposures result in lower risk of the borrowing banks

tail risk and systemic risk of us and eurozone financial institutions in the wake of the global financial crisis we evaluate multiple market based measures for us and eurozone individual bank tail risk and bank systemic risk we apply statistical extreme value analysis to the tails of bank equity capital losses to estimate the likelihood of individual institutions financial distress as well as individual banks exposure to each other spillover risk and to global shocks extreme systematic risk the estimation procedure presupposes that bank equity returns are heavy tailed and tail dependent as identifying assumption using both us and eurozone banks allows one to make a cross atlantic comparison of tail risks and systemic stability we also assess to what extent magnitudes of tail risk and systemic risk have been altered by the global financial crisis the results suggest that both tail risk and systemic risk in the us are higher than in the eurozone regardless of the considered sample period

financial sustainability and poverty outreach within a network of village banks in cameroon a multi dea approach abstract microfinance institutions face a double bottom line they perform financial tasks by giving microcredits to their customers and support projects aiming at reducing poverty in doing so they have to be financially self sufficient and to target poor people excluded from the traditional financial systems however a trade off may exist between financial sustainability and poverty outreach for these institutions by using a multi dea approach this paper shows that even if a trade off exists for 15 of the mc 2 mutuelles communautaires de croissance in cameroon there is no trade off for 46 of them in order to increase without trade off financial and social performance of inefficient mc 2 a benchmarking approach combing dea and performance indicators has been developed dea is used for identifying best practices and setting benchmarking goals performance indicators are used for characterizing areas needing improvements and following the evolution of mc 2 toward their goals i e for implementing benchmarking complementarity of both approaches provides a tool box for improving financial and social efficiency and reducing the trade off between financial sustainability and poverty outreach of microfinance institutions

the term structure of investment and the banks insurance function abstract the article re examines the proposition first formulated rigorously by bryant a model of reserves bank runs and deposit insurance journal of banking and finance 4 335 344 1980 and diamond and dybvig bank runs deposit insurance and liquidity journal of political economy 91 401 419 1983 that in a production economy with stochastic liquidity shocks to the household sector banks serve to provide optimal intertemporal insurance to consumers the paper argues that in order to understand the moral hazard problems inherent in this insurance problem it is too narrow to consider solely the role of banks as providers of liquidity the paper develops a model with several investment opportunities in which banks have the additional function of asset diversification this pooling of intermediation functions is shown to reduce the moral hazard problem thereby enhancing the stability of depository contracts and increasing the scope of the banks insurance function

a note on foreign bank ownership and monitoring an international comparison abstract this paper empirically analyzes the relation between foreign bank ownership and the three pillars of the new basel capital accord i e capital regulatory oversight supervisory oversight and market discipline using a new database covering 153 countries we find that countries with greater market discipline have a lower presence of foreign banks operating in their economy furthermore our evidence indicates that capital regulatory oversight and supervisory oversight are not significantly related to foreign bank ownership

resolving the deposit dilemma a new dea bank efficiency model abstract one of the weaknesses of current bank efficiency models is a disagreement as to the role of deposits in the bank production process some models view deposits as an input while others view them as an output such disparity of approaches results in inconsistent efficiency estimates in this study we propose an alternative data envelopment analysis dea bank efficiency model that treats deposits as an intermediate product thus emphasizing the dual role of deposits in the bank production process consequently the effect of the amount of deposits on bank efficiency depends on the efficiency at both stages of the bank production process the main advantage of our model is that it does not require a researcher to make a judgment call as to whether having more production approach or less intermediation approach deposits is better for bank efficiency our unified framework has the potential to produce more consistent efficiency estimates

the federal funds market excess reserves and unconventional monetary policy abstract following the bankruptcy of lehman brothers interbank borrowing and lending dropped whereas reserve holdings of depository institutions skyrocketed as the fed injected liquidity into the u s banking sector this paper introduces bank liquidity risk and limited market participation into a real business cycle model with ex ante identical financial intermediaries and shows in an analytically tractable way how interbank trade and excess reserves emerge in general equilibrium investigating the role of the federal funds market and unconventional monetary policy for the propagation of aggregate real and financial shocks i find that federal funds market participation is irrelevant in response to standard supply and demand shocks whereas it matters for uncertainty shocks i e mean preserving spreads in the cross section of liquidity risk liquidity injections by the central bank can absorb the effects of financial shocks on the real economy although excess reserves might increase and federal funds might be crowded out as a side effect

optimal financial crises empirical evidence suggests that banking panics are related to the business cycle and are not simply the result of sunspots panics occur when depositors perceive that the returns on bank assets are going to be unusually low we develop a simple model of this in this setting bank runs can be first best efficient they allow efficient risk sharing between early and late withdrawing depositors and they allow banks to hold efficient portfolios however if costly runs or markets for risky assets are introduced central bank intervention of the right kind can lead to a pareto improvement in welfare from the earliest times banks have been plagued by the problem of bank runs in which many or all of the bank s depositors attempt to withdraw their funds simultaneously because banks issue liquid liabilities in the form of deposit contracts but invest in illiquid assets in the form of loans they are vulnerable to runs that can lead to closure and liquidation a financial crisis or banking panic occurs when depositors at many or all of the banks in a region or a country attempt to withdraw their funds simultaneously prior to the twentieth century banking panics occurred frequently in europe and the united states panics were generally regarded as a bad thing and the development of central banks to eliminate panics and ensure financial stability has been an important feature of the history of financial systems it has been a long and involved process the first cerntral bank the bank of sweden was established more than 300 years ago the bank of england played an especially important role in the development of effective stabilization policies in the eighteenth and nineteenth centuries by the end of the nineteenth century banking panics had been eliminated in europe the last true panic in england was the overend gurney company crisis of 1866

dynamics of volatility transmission between the u s and the chinese agricultural futures markets the u s and china are two of the biggest players in the world agricultural market the literature documents that volatility in the u s agricultural futures market spills over significantly to that of china this article provides further insights into the spillovers from china to the u s as well as the time horizon and dynamics of the bidirectional spillovers through the application of a multivariate extension of the heterogeneous autoregressive model in relation to four commodities soybean wheat corn and sugar the results confirm the existence of significant spillovers from the u s to china for four commodities which are primarily generated by the shorter term volatility components in the u s and provide evidence for the increasing pricing power of the chinese market the findings are robust against various specifications and have important investment and policy implications

the economic effects of foreign bank presence evidence from the philippines abstract this study examines the economic effects of the liberalization of foreign bank entry in the philippines from 1990 to 2006 the findings provide strong evidence on the dominance of competition effects from foreign bank presence which lead to the reduction in the profitability and overhead costs of domestic commercial banks these findings which reveal that both the actual market penetration and mere presence of foreign banks seem to exert competitive pressure to domestic banks imply that foreign banks may serve as an effective competitive force reducing the excess profits earned by domestic banks and compelling domestic banks to update their production technologies and techniques to improve their cost efficiency from a policy perspective the findings on competition effects of foreign banks in the domestic banking system justify the liberalization of foreign bank entry in the philippines the main findings demonstrate that the goal of banking liberalization in transforming domestic banks to be more competitive and efficient works considerably well in the case of the philippines aside from the policy of easing the entry of foreign banks bank specific conditions can have significant impact on the performance of domestic banks therefore a sustained improvement in the efficiency of domestic commercial banks requires not only liberalizing the entry of foreign banks but also on continued strengthening of domestic prudential regulation and supervision on the commercial banking system

the strategic analysis of intermediation the importance and the special character of intermediation were recognized as early as in the eighteenth century and have been stressed by many authors afterwards in spite of this long tradition comparatively little work has been done on the details of the economic theory of intermediation instead it was assumed that intermediation can simply be treated like any other economic activity in contrast i will argue that the theory of intermediation requires a specific game theoretic analysis and moreover that many preconceptions that one might have on the basis of standard microeconomic theory are wrong

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

factors affecting the performance of foreign owned banks in australia a cross sectional study abstract this study extends the existing literature of international banking by constructing a model of foreign intermediaries in australia an unresolved question is establishing those factors that result in banking across borders while a variety of theories attempt to explain international banking empirical tests are sparse mahajan a rangan n zardkoohi a 1996 journal of banking and finance 20 283 306 this study considers if the results to date apply in non us settings foreign bank size was found to be a positive function of bank licence parent size and time in australia and a negative function of australian net interest margins and fees the negative sign on net interest margins and fees is consistent with de young r nolle d 1996 journal of money credit and banking 28 622 636 foreign bank profits were a positive function of australian net interest margins and fees there was limited evidence of defensive expansion this paper concludes that foreign bank size is explained well by the existing theories of international banking but a wider model is appropriate for foreign bank profits

a more complete conceptual framework for sme finance abstract we propose a more complete conceptual framework for analysis of sme credit availability issues in this framework lending technologies are the key conduit through which government policies and national financial structures affect credit availability we emphasize a causal chain from policy to financial structures which affect the feasibility and profitability of different lending technologies these technologies in turn have important effects on sme credit availability financial structures include the presence of different financial institution types and the conditions under which they operate lending technologies include several transactions technologies plus relationship lending we argue that the framework implicit in most of the literature is oversimplified neglects key elements of the chain and often yields misleading conclusions a common oversimplification is the treatment of transactions technologies as a homogeneous group unsuitable for serving informationally opaque smes and a frequent misleading conclusion is that large institutions are disadvantaged in lending to opaque smes

liquidity provision banking and the allocation of interest rate risk abstract the paper studies the efficient allocation of technology induced interest rate risk and the implications of such risk for efficient liquidity provision complete immunization against interest rate risk is shown to be undesirable as it precludes the exploitation of favourable reinvestment opportunities under the assumptions of diamond dybvig 1983 interest induced valuation risks of long term assets should be born by early withdrawers reinvestment opportunity risks of short term assets by late withdrawers efficient liquidity provision thus entails no shifting of interest rate risk in the absence of additional moral hazard second best allocations can be implemented through unregulated competition among banks

capital markets financial intermediaries and liquidity supply abstract we study a dynamic economy endowed with a sequence of overlapping generations of consumers and production processes and where productive assets are illiquid and consumption preferences are subject to uninsurable demand for liquidity we characterize the steady states that can be achieved with alternative financial systems we show that infinitely lived financial intermediaries offering a liability with age dependent restrictions may implement a social optimum with full insurance if instead they offer anonymous unrestricted contracts then only second best consumption allocations with partial insurance obtain we also examine the consumption allocations available when agents can trade shares in competitive stock markets while allowing for trade across generations may or may not improve upon generational autarky we show that this competitive equilibrium is not a social optimum and is dominated by a system of infinitely lived unrestricted intermediaries

determinants of bank market structure efficiency and political economy variables abstract this paper analyzes the influence of bank efficiency and political economy variables on bank market structure market share and market concentration using a panel data of 2 592 banks from 69 countries over the 1996 2002 period results indicate that the validity of the efficiency structure hypothesis to explain bank market structure varies across countries depending on national political economy variables in particular higher entry requirements more generous deposit insurance and higher extent of government bank ownership reduce the positive influence of bank efficiency on market share and market concentration however tighter restrictions on bank activities better quality of the contracting environment more market monitoring and more market orientation and development of the financial system increase the positive influence of bank efficiency on market share and market concentration jel classification g18 g21 g28 keywords banking structure efficiency regulations supervision institutions

the neglect of correlation in allocation decisions we study the effect of variation in correlation on investment decision in an experimental two asset application comparison of allocations across problems suggests that subjects neglect probabilistic information on the joint distribution of returns and base their allocations on the observed return levels for the two assets when asked to predict future returns subjects try to replicate the historical distribution thereby falling into the probability matching bias predictions drastically vary when correlations become negative while allocations are not significantly affected by changes in sign of correlation the observed allocation patterns contradict the predictions of standard models of choice the inconsistency is attributed to common behavioral bias in financial decision field implications of the results are discussed

interest margins and bank regulation in central america and the caribbean abstract this paper examines empirically the determinants of bank interest margins in central america and the caribbean over the period 1998 2014 a particular focus is set on the impact of differences in the regulatory environment and market structure across countries in explaining the interest margins of individual banks our results suggest that bank market power operating costs credit risk and liquid asset holdings increase the margin between loan and deposit rates while increased income diversification and gdp growth are associated with lower loan deposit spreads when considering information on banking regulation we find strong evidence to support our main hypothesis that improvements in market quality and liberalization have a significant effect on interest margins more specifically reductions in entry requirements to banking higher involvement of foreign banks and increased financial statement transparency are associated with significant reductions in interest margins

intraday volatility in the stock index and stock index futures markets we examine the intraday relationship between returns and returns volatility in the stock index and stock index futures markets our results indicate a strong intermarket dependence in the volatility of the cash and futures returns price innovations that originate in either the stock or futures markets can predict the future volatility in the other market we show that this relationship persists even during periods in which the dependence in the returns themselves appears to weaken the findings are robust to controlling for potential market frictions such as asynchronous trading in the stock index our results have implications for understanding the pattern of information flows between the two markets article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

capital requirements and the behaviour of commercial banks abstract i study the consequences of capital regulations on the portfolio choices of commercial banks elaborating on previous work by kareken and wallace 1978 koehn and santomero 1980 and kim and santomero 1988 i obtain the following results if the objective of commercial banks is maximization of the market value of their future profits value maximizing banks capital regulations cannot prevent banks from choosing very specialized and very risky portfolios risk based insurance premia are in fact the relevant instrument for that purpose on the other hand if banks behave as portfolio managers utility maximizing banks capital regulations can be effective but only if the weights used in the computation of the ratio are proportional to the systematic risks of the assets their betas because of limited liability of commercial banks a minimum capital regulation or a closing rule may become necessary as well to prevent failing banks from betting for resurrection

on the welfare equivalence of asset markets and banking in diamond dybvig economies why do people choose bank deposit contracts over a direct participation in asset markets in their seminal paper diamond and dybvig s 1983 answer this question by claiming that bank deposit contracts can implement allocations that are welfare superior to asset markets equilibria the present paper demonstrates that this claim is false whenever the asset market participants are highly rational

financial system design and liquidity provision by banks and markets in a dynamic economy this paper contributes to the literature on financial system design by comparing markets and banks in a dynamic economy investors trade off their liquidity needs against the high returns on illiquid investments both the banking system and the market can provide partial liquidity insurance to investors we consider full market participation as well as limited market participation we demonstrate that the full participation market with intergenerational trading can provide more liquidity than one without insurance is provided through wealth transfer across generations instead of cross subsidization across contemporaneous types as is the case in the finite economy given a full participation market that allows trading across generations only banks with initial capital can provide additional liquidity in a limited participation market with uncertainty about trading types an intergenerational bank with or without initial capital provides additional insurance to investors the need for trade is eliminated finally if there is no uncertainty about trading types then an intergenerational bank with initial capital eliminates the need for trading and improves welfare for all an intergenerational bank without initial capital improves welfare for people who do not trade

the effect of risk based capital requirements on profit efficiency in banking the purpose of this paper is twofold to show how to measure profit efficiency in banking using a newly developed technique and to use that technique to determine the effect of risk based capital requirements on the profit performance of us banks the measure of profit efficiency used captures deviations from profit maximization arising from technical inefficiency caused by a lack of managerial oversight and allocative inefficiency which is caused by managers choosing a nonoptimal mix of inputs and outputs a leverage ratio constraint and a risk weighted capital ratio constraint are explicitly included in the model which allows identification of the effect on profits of those constraints the techniques are applied to random samples of us banks for 1990 1992 and 1994 the results indicate that allocative inefficiency is a larger source of profit loss than technical inefficiency and that the risk based capital standards have a significant effect on bank allocative efficiency

is there a single frontier in a single european banking market abstract this paper attempts to estimate comparable efficiency scores for european banks operating in the single market in the eu using a data set of more than 5000 large commercial banks from all major european banking markets over the period 1993 2004 the application of meta frontiers enables us to assess the existence of a single and integrated european banking market we find evidence in favor of a single european banking market characterized by cost and profit meta frontiers however compared to the meta frontier estimations pooled frontier estimations tend to underestimate efficiency levels and correlate poorly with country specific frontier efficiency ranks

financial intermediation in an overlapping generations model with transaction costs abstract we analyze an overlapping generations economy where agents interact to share liquidity risk we show that a pure exchange economy has excessive trade in equilibrium because agents interact to rebalance their portfolios intergenerational financial intermediaries reduce the number of interactions because agents only transact when they face liquidity needs in the absence of asset risk intermediaries match redemptions with deposits and dividends and never sell assets if the economy is subject to transaction costs the intermediated economy can sustain higher stationary investment and welfare we also find that dead weight transaction costs can increase welfare because it protects banks from interbank arbitrage and dampens the inherent cyclicality of market economies

who bears interest rate risk we study the allocation of interest rate risk within the european banking sector using novel data banks exposure to interest rate risk is small on aggregate but heterogeneous in the cross section contrary to conventional wisdom net worth is increasing in interest rates for approximately half of the institutions in our sample cross sectional variation in banks exposures is driven by cross country differences in loan rate fixation conventions for mortgages banks use derivatives to partially hedge on balance sheet exposures residual exposures imply that changes in interest rates have redistributive effects within the banking sector received october 31 2017 editorial decision august 30 2018 by editor philip strahan authors have furnished an internet appendix which is available on the oxford university press web site next to the link to the final published paper online

the impact of liquidity constraints on bank lending policy this paper examines banks provision of liquidity to depositors and provision of loans the problem identified is that banks may not be able to provide new funds for borrowers who are short of cash because either the return on investments is poor or because depositors withdraw more funds than expected banks subject to liquidity shortages may ration loans to good borrowers this problem is shown to depend upon the nature of the deposit contract and banks inability to issue subordinated deposits state contingent renegotiation of loans and matching of the duration of project returns and investment needs mitigates the problem

spillover effects in the global copper futures markets asymmetric multivariate garch approaches this study investigates changes in return and volatility spillovers between the lme comex and the shfe copper futures markets before and after the global financial crisis and after the introduction

liquidity shortages and banking crises we show in this article that bank failures can be contagious unlike earlier work where contagion stems from depositor panics or contractual links between banks we argue that bank failures can shrink the common pool of liquidity creating or exacerbating aggregate liquidity shortages this could lead to a contagion of failures and a total meltdown of the system given the costs of a meltdown there is a possible role for government intervention unfortunately liquidity and solvency problems interact and can cause each other making it hard to determine the cause of a crisis we propose a robust sequence of intervention banks are often found at the center of systemic financial crises the causes of these crises have long been debated do they stem from depositor panics or do they arise because bank balance sheets are exposed to common factors if it is the latter then is there any sense in which bank failures can be contagious can anything be done to prevent these crises or stop them from propagating once they begin our purpose in this paper is to reexamine whether bank failures can start and propagate systemic crises even if we assume that depositors do not panic that is even if depositors actions are coordinated and they do not run simply because they fear others will run our focus is not because we think that panics are empirically unimportant the jury is still out on that instead we show that contagion can stem from an underlying real general equilibrium problem rather than just from lack of coordination among depositors from a policy perspective attempts to reassure investors through confidence building measures will not work if panic and lack of coordination are not the reasons for a crisis we begin in this paper with a model of a bank that we developed in diamond and rajan 2001 assets in this model are illiquid they cannot be borrowed against or sold for the full value of resources they will generate in their best use because the human capital necessary to generate that full value cannot

technical scale and allocative efficiencies of turkish banking industry this paper investigates input and output efficiency in the turkish banking industry to understand the impact of size international variables ownership control and governance on profit cost allocative technical pure technical and scale efficiency measures employing a non parametric approach along with a parametric approach we estimate the efficiency of turkish banks over the 1988 1996 period this period allows us to account for the changes in the macro economy and regulatory treatment of the turkish banking industry over time our results suggest that the heterogeneous characteristics of banks have significant impact on their efficiency moreover cost and profit efficiencies of the turkish banks have exacerbated over time results also indicate that the dominant source of inefficiency in turkish banking is due to technical inefficiency rather than allocative inefficiency which is mainly attributed to diseconomies in scale to the extent that they chose an inefficient level of production bank management is responsible for scale inefficient operations however increasing demand for banking services in the nineties fueled by the state s increasing demand for funds to finance chronic budget deficits and high growth policies and the oligopolistic nature of the turkish banking market do not justify scale adjustments our policy suggestions are that the government implement financial reform packages that foster competition in the banking market and that the industry devise incentive schemes to improve managerial efficiency

liquidity creation through banks and markets multiple insurance and limited market access abstract the paper studies the intertemporal allocation of funds through demand deposits and anonymous markets first separately and then in an integrated model it reviews some work on the role of market frictions and asset characteristics and suggests that the interplay between these two is crucial in explaining the observed coexistence of demand deposits and anonymous markets

why bank credit policies fluctuate a theory and some evidence in a rational profit maximizing world banks should msdntain a credit policy of lending if and only if borrowers have positive net present value projects why then are changes in credit policy seemingly correlated with changes in the condition of those demanding credit this paper argues that rational bank managers with short horizons will set credit policies that influence and are influenced by other banks and demand side conditions this leads to a theory of low frequency business cycles driven by bank credit policies evidence from the banking crisis in new england in the early 1990s is consistent with the assumptions and predictions of the theory

run proof banking without suspension or deposit insurance abstract in a model of banking with asymmetric information among depositors and multiple sources of aggregate risk i show that a demand deposit arrangement with state contingent deposit payments and a priority of claims provision on final date resources is almost best under this arrangement intermediaries infer the realization of aggregate risk and of a privately observed signal on the outcome of the risky technology from depositors withdrawal choices and panics as well as information based runs are averted neither suspension provisions nor deposit insurance are necessary for an efficient run proof banking system furthermore intermediation provides information production services that a credit market does not necessarily provide

volatility volume co movements evidence from china metal markets abstractthis article investigates the interactional relationship between price volatility and futures trading activity for three heavily traded metal products on the shanghai metal exchange and the shanghai futures exchange using models based on vector autoregression and generalized method of moments we show in particular that futures trading activity has a strong impact on both spot and futures price volatility in copper and aluminium markets futures trading activity leads spot market volatility in copper and aluminium markets which suggests that futures markets have a destabilizing effect in order to disentangle the effect of different traders types on asset price movements we decompose futures trading into speculators and hedgers trading and investigate their contributions to volatility as a robustness check we investigate the impact of endogenous structural breaks on the interactional relationship between price volatility and futures trading

deconstructing the liability of foreignness regulatory enforcement actions against foreign banks it is widely acknowledged that foreign firms are at an institutional disadvantage relative to domestic firms operating in the local market this liability of foreignness typically manifests as inferior performance for foreign firms relative to domestic competitors although myriad studies document the liability of foreignness few demonstrate how individual host country institutions generate specific liabilities in this study we explore the regulatory liabilities that foreign firms face using a sample of 189 foreign banks operating in the united states we find that regulators initiate more enforcement actions on average against foreign banks than they do against domestic banks the effects however vary by regulation type and firm characteristics for example foreign banks are no more likely to receive risk related sanctions but far more likely to receive stakeholder related sanctions foreign banks with higher quality of human capital and more host country experience are less likely to run afoul of all regulations foreign banks with more third country experience are less likely to receive risk related sanctions but more likely to receive stakeholder related sanctions the results highlight the contingent nature of regulatory liabilities the role of information asymmetry versus regulatory bias in enforcement outcomes and the liability reducing effects of resources and capabilities

banking deregulation in europe banking deregulation ernst baltensperger and jean dermine deregulation of financial services is well under way in many european countries this has led to fears that economies are now more vulnerable to macroeconomic shocks the authors focus on one aspect of financial deregulation namely liberalization of the banking system they show that measures such as the abolition of reserve requirements increase macroeconomic variability under some circumstances but reduce it under others no general macroeconomic case can be made for banking regulation or for its liberalization analysis of microeconomic issues is more fruitful asymmetric information and the risks of contagion in a panic can lead to runs against the banking system to the extent that these are socially inefficient public intervention may be justified this presumption is stronger since the risks of bank runs have grown recently with the increased maturity mismatch the finance of illiquid loans by liquid short term deposits to meet this danger the authors recommend regulation of deposit contracts whilst preserving incentives for bank monitoring by private parties specifically they propose an ex post liability of current and former depositors when banks default thereby offsetting the incentive to withdraw funds at the onset of a crisis being quick off the mark would no longer be sufficient and sophisticated depositors would press for greater disclosure and fuller monitoring of bank activities the authors also recommend that remaining controls on deposit interest rates should be scrapped and that supervision of international banking should be cooperatively conducted by host and parent authorities

the efficiency effects of a single market for financial services in europe abstract this paper examines the potential efficiency effects of a single market for financial services in europe the topics covered include universal banking the merger and acquisition process itself cross border ownership and management of financial institutions and the effects of consolidation of financial institutions on the supply of relationship lending services to informationally opaque small businesses the research reviewed here suggests that the creation of a single market for the european financial services industry is not likely to bring about strong efficiency gains and that cross border efficiency barriers may prevent the single market from becoming a reality