institutional development and bank stability evidence from transition countries g21 p30 p34 p52 abstract this paper takes advantage of the dynamic nature of institutional reforms in transition economies and explores the causal effects of those reforms on bank risk using a difference in difference approach we show that banks financial stability increases substantially after these countries reform their legal insti tutions liberalize banking and restructure corporate governance we also find that the effects of legal and governance reforms on bank risk may critically depend on the progress of banking reforms a further examination of alternative risk measures reveals that the increases in financial stability among banks mainly come from the reduction of asset risk banks tend to have lower roa volatility and fewer nonper forming loans after reforming the institutional environment finally we split our sample into foreign and domestic banks and find that the enhancement of financial stability is more pronounced for domestic banks

a comparative study of efficiency in european banking this paper investigates whether there has been an improvement in and convergence of productive efficiency across european banking markets since the creation of the single internal market using efficiency measures derived from dea estimation the determinants of european bank efficiency are evaluated using the tobit regression model approach the established literature on modelling the determinants of bank efficiency is then extended by recognizing the problem of the inherent dependency of dea efficiency scores when used in regression analysis to overcome the dependency problem a bootstrapping technique is applied overall the results suggest that since the eu s single market programme there has been a small improvement in bank efficiency levels although there is little evidence to suggest that these have converged the results also suggest that inference on the determinants of bank efficiency drawn from non bootstrapped regression analysis may be biased and misleading

banking competition risk and regulation in a dynamic framework commercial banks compete for customers by setting acceptance criteria for granting loans while taking into account regulatory requirements by easing its acceptance criteria a bank faces a trade off between attracting more demand for loans thus making higher per period profits and deterioration in the quality of its loan portfolio thus tolerating a higher risk of failure our main results state that more stringent capital adequacy requirements lead banks to set stricter acceptance criteria and that increased competition in the banking industry leads to riskier bank behaviour it is shown that risk adjusted regulation is effective in an extension of our basic model we show that it may be beneficial for a bank to hold more equity than prescribed by the regulator even though issuing equity is more expensive than attracting deposits

determinants of banks nerlovian economic efficiency a dea bootstrap approach this study aims to evaluate the nerlovian economic efficiency of taiwanese commercial banks and its determinants by assuming the presence of an imperfectly competitive market using a two stage esti

ceo compensation and bank efficiency an application of conditional nonparametric frontiers the paper investigates in a dynamic context the effect of chief executive officer ceo bonus and salary payments on banks technical efficiency levels our methodological framework incorporates the latest developments on the probabilistic approach of efficiency measurement as introduced by b din et al 2012 we apply time dependent conditional efficiency estimates to analyse a sample of 37 us banks for the period from 2003 to 2012 the empirical evidence reveals a non linear relationship between ceo bonus and salary payments and banks efficiency levels more specifically it is reported that salary and bonus payments affect differently banks technological change and technological catch up levels finally the empirical evidence suggests that higher salary and bonus payments are not always aligned with higher technical efficiency levels

the new keynesian phillips curve and lagged inflation a case of spurious correlation the new keynesian phillips curve nkpc specifies a relationship between inflation and a forcing variable and the current period s expectation of future inflation most empirical estimates of the nkpc typically based on generalized method of moments gmm estimation have found a significant role for lagged inflation producing a hybrid nkpc using u s quarterly data this article examines whether the role of lagged inflation in the nkpc might be due to the spurious outcome of specification biases like previous investigators we employ gmm estimation and like those investigators we find a significant effect for lagged inflation we also use time varying coefficient tvc estimation a procedure that produces consistency under a variety of sources of misspecification using two separate measures of expected inflation we find strong support for the view that under tvc estimation the coefficient on expected inflation is near unity and that the role of lagged inflation in the nkpc is spurious

on the determinants of local government performance a two stage nonparametric approach abstract this article analyzes the efficiency of local governments in the comunitat valenciana spain and their main explanatory variables the analysis is performed in two stages firstly efficiency is measured via nonparametric activity analysis techniques specifically we consider both data envelopment analysis dea and free disposable hull fdh techniques the second stage identifies some critical determinants of efficiency focusing on both political and fiscal policy variables in contrast to previous two stage research studies our approach performs the latter attempt via nonparametric smoothing techniques rather than econometric methods such as ols or tobit related techniques results show that efficiency scores especially under the nonconvexity assumption fdh are higher for large municipalities thus there is empirical evidence to suggest that resources may be better allocated by large municipalities however the inefficiency found is not entirely attributable to poor management as second stage analysis reveals both fiscal and political variables to be explicably related to municipality performance moreover the explanatory variables impact on efficiency is robust to the chosen technique either convex dea or nonconvex fdh

deregulation market power and risk behaviour in spanish banks abstract this paper provides empirical evidence on the effects of regulatory changes in the market power of spanish banks it also analyses the response of banks in terms of risk taking behaviour as a result of a reduction in economic profits we find that liberalisation measures have increased competition and eroded banks market power we observe that banks with lower charter values tend to have lower equity assets ratios lower solvency and to experience higher credit risk the last evidence is new in the literature and calls for strengthening regulatory concerns about credit risk management by banks in situations of increased competition

competition in banking and the lending channel evidence from bank level data in asia and latin america abstract this paper examines how banking competition affects the transmission of monetary policy through the bank lending channel we apply a two step estimation procedure using bank level panel data for commercial banks in 10 asian and 10 latin american countries during the period from 1996 to 2006 in the first step we measure the degree of banking competition by applying the methodology proposed by panzar and rosse 1987 in the second step we estimate a loan growth equation where the explanatory variables include the panzar rosse measure of banking competition the estimation results provide consistent evidence that increased competition in the banking sector weakens the transmission of monetary policy through the bank lending channel this is especially true for banks in latin american countries and banks of small size low liquidity and low capitalization we also discuss the policy implications of the main findings of this paper

optimal monetary policy in the euro area in the presence of heterogeneity abstract this paper examines the optimal design of monetary policy in the european monetary union in the presence of structural asymmetries across union member countries it derives analytically an optimal interest rate rule under commitment and studies the dependence of its coefficients on the parameters of the structural model of each economy the central bank s preferences for inflation and output stabilization as shown in its loss function and the relative size of each country based on a two country forward looking general equilibrium model which is estimated for two euro area countries germany and france we show that there are gains to be achieved by the ecb taking into account the heterogeneity of economic structures this finding appears to be robust under alternative weights given by the central bank to the stabilization of the target variables although the implementation of the proposed rule involves difficulties relating to data and estimation constraints as well as risks of accommodating structural divergences it is important that the ecb takes into consideration national characteristics in formulating its monetary policy especially in view of more countries joining the european monetary union in the future however as monetary and financial integration advances the welfare benefits of monetary policy responding to individual countries variables may become less significant

the impact of regulatory reforms on cost structure ownership and competition in indian banking this paper evaluates the impact of financial sector reforms on the cost structure characteristics and on the ownership cost efficiency relationship in indian banking it also examines the impact of reforms on the dynamics of competition in the lending market we find evidence that deregulation improves banks performance and fosters competition in the lending market results suggest technological progress once indian commercial banks have adjusted to the new regulatory environment this however does not translate in efficiency gains there is also evidence of an ownership effect on the level and pattern of efficiency change finally competition keeps building pace even in the re regulation period and technological improvements are not hampered by the tightening of prudential norms

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

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

malmquist indices of productivity growth during the deregulation of norwegian banking 1980 89 productivity growth during the deregulation of the norwegian banking industry is studied within the framework of data envelopment analysis which explicitly allows for multiple outputs introducing malmquist indices for productivity growth total growth can be decomposed into frontier growth and change in each bank s distance to the frontier both the total growth index and its components can be consistently chained over time we find productivity regress at the average bank prior to the deregulation but rapid growth when deregulation took place deregulation also led to less dispersion of productivity levels within the industry

differential impact of korean banking system reforms on bank productivity abstract we study the impact of banking system reforms during a crisis following a period of undisciplined lending regulatory changes aimed at strengthening the banks capital structure and risk management practices do not have a uniform impact on bank productivity but rather favor financially sound or strategically privileged banks we present evidence documenting the differential impact of regulatory reforms on korean commercial bank productivity over the period 1995 2005 average technical efficiency of banks decreased during the financial crisis of 1997 1998 it improved following the subsequent bank restructuring and continued to improve through 2005 the capital adequacy ratio is positively associated with banks technical efficiency the non performing loans ratio is negatively associated with technical efficiency both relationships are accentuated during the crisis but attenuated after the reforms

banks responses to deregulation profits technology and efficiency the deregulation of interest rates in the early 1980s raised bank funding costs and lowered profits in response banks raised fees for deposit services reduced branch operating costs and shifted to higher earning assets rates of return did not regain their prederegulation levels until the early 1990s our goal is to decompose the change in bank profits following deregulation into i intemal bank initiated adjustments to the new regulatory structure and ii external contemporaneous changes in banks business environment this decomposition will depend in part on the assumed competitive structure of the banking industry with perfect competition output and input prices are part of the external environment and banks responses are limited to changes in output and input quantities an alternative approach assumes imperfect competition where banks have some control over output prices deposit fees minimum balance requirements and interest rates on certain loans and output quantities and input prices comprise the external environment the altemative model is supported by the data using this model large banks but not smaller banks are found to have relied primarily on changing output prices and input use to mitigate and reverse the negative effects of deregulation on profits the adjustment to deregulation was essentially complete after four years following this additional changes in bank profitability during the late 1980s were primarily due to changes in banks business environment

the cyclical effects of the basel ii capital requirements abstract capital requirements play a key role in the supervision and regulation of banks the basel committee on banking supervision is in the process of changing the current framework by introducing risk sensitive capital charges some fear that this will unduly increase the volatility of regulatory capital furthermore by limiting the banks ability to lend capital requirements may exacerbate an economic downturn the paper examines the problem of capital induced lending cycles and their pro cyclical effect on the macroeconomy in greater detail it finds that the capital buffer that banks hold on top of the required minimum capital plays a crucial role in mitigating the impact of the volatility of capital requirements

is the efficient market hypothesis day of the week dependent evidence from the banking sector in this article we propose a new hypothesis that the efficient market hypothesis is day of the week dependent we apply the test to firms belonging to the banking sector and listed on the nyse we find significant evidence that the efficient market hypothesis is day of the week dependent overall for only 62 of firms the unit root null hypothesis is rejected on all the five trading days we also discover that when investors do not account for unit root properties in devising trading strategies they obtain spurious profits

determinants of bank cost efficiency in transition economies evidence for latin america central and eastern europe and south east asia in this study we adopt wang s 2002 heteroscedastic stochastic frontier model which allows us to investigate bank cost efficiency and to measure the marginal effects of some variables on both the level and the variability of inefficiency in recent years the financial crisis has significantly affected the banking systems of the transition countries hence the efficiency is of major importance for the stability of the banks regarding the determinants of efficiency we find evidence that banks that follow a more cautious strategy characterized by lower risk appetite and average expectations on profitability have higher cost efficiency we also find that traditional deposit taking and loan making still remain the most efficient activity of the banks additionally the results showed that a higher gross domestic product growth rate implies an increase in the inefficiency level indicating an unsustainable bank management behaviour which in periods of economic growth adopts policies that can generate

exploring the nexus between banking sector reform and performance evidence from newly acceded eu countries abstract the aim of this study is to examine the relationship between banking sector reform and bank performance measured in terms of efficiency total factor productivity growth and net interest margin accounting for the effects through competition and bank risk taking to this end we develop an empirical model of bank performance which is consistently estimated using recent econometric techniques the model is applied to bank panel data from ten newly acceded eu countries the results indicate that both banking sector reform and competition exert a positive impact on bank efficiency while the effect of reform on total factor productivity growth is significant only toward the end of the reform process finally the effect of capital and credit risk on bank performance is in most cases negative while it seems that higher liquid assets reduce the efficiency and productivity of banks

technical progress inefficiency and productivity change in u s banking 1984 1993 studies often find that on average u s commercial banks are quite inefficient and the authors find that banks became more technically inefficient between 1984 and 1993 from a new decomposition of the malmquist productivity index into changes in pure technical and scale efficiency as well as both pure technical changes and changes in scale of technology they find that much of the inefficiency increase can be attributed to the general failure of banks to adopt technological improvements made by a few banks that advanced the efficient frontier small banks experienced especially large decreases in both efficiency and productivity

segmented housing search we study housing markets with multiple segments searched by heterogeneous clienteles in the san francisco bay area search activity and inventory covary negatively across cities but positively across market segments within cities a quantitative search model shows how the endogenous flow of broad searchers to high inventory segments within their search ranges induces a positive relationship between inventory and search activity across segments with a large common clientele the prevalence of broad searchers shapes the response of housing markets to localized supply and demand shocks broad searchers help spread shocks across many segments and reduce their effect on local market activity

the effects of deregulation on the performance of financial institutions the case of spanish savings banks this paper examines the impact of regulatory reform on the performance of spanish savings banks the focus is whether increased competition brought on by deregulation affected performance of banks over time output technical efficiency which is defined in terms of the production possibility frontier is also examined empirical results show declining levels of output technical efficiency along with a significantly high rate of technical progress in spite of declining technical efficiency during this period evidence of an increasing trend in productivity growth is found

deregulation and productivity decline the case of spanish savings banks abstract during the 1980s many regulatory constraints limiting competition in spanish banking were relaxed or removed although deregulation came later to savings banks than to the rest of the banking sector two consequences of partial deregulation of savings banks have been a rapid growth in branching activity much of it geographically dispersed and a burst of merger activity in this paper we investigate productive efficiency and total factor productivity change in spanish savings banks over the 1986 1991 post deregulation period neither branching nor mergers provide an adequate explanation for the magnitude or the nature of the productivity decline we observe over the period

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

banks and liquidity banks perform valuable activities on either side of their balance sheets on the asset side they make loans to difficult illiquid borrowers on the liability side they provide liquidity on demand to depositors but there seems to be a fundamental incompatibility between the two activities the demands for liquidity by depositors may arrive at an inconvenient time and force the fire sale liquidation of illiquid assets furthermore because depositors are served in sequence the prospect of fire sales may precipitate self fulfilling runs that further jeopardize bank activities is this an aberration stemming from historical accident and enshrined by deposit insurance or is there logic hitherto unnoticed for the bank s choice of activities our recent work suggests that the answer to the latter question is yes in order to describe why a bank s fragile capital structure allows it to create liquidity and to explain why bank loans are illiquid we present a simple example based on diamond and rajan 2001a

financial deregulation and total factor productivity change an empirical study of turkish commercial banks abstract in january 1980 a new liberal economic policy was adopted in turkey to promote financial market development and increase the efficiency and productivity of the financial sector by fostering competition among banks as a result of this policy the turkish banking system witnessed a series of legal structural and institutional changes throughout the 1980s to enhance their competitive viability turkish banks responded by streamlining their operations and investing in new technology utilizing a dea type malmquist total factor productivity change index we examine productivity growth efficiency change and technical progress in turkish commercial banks during the deregulation of financial markets in turkey we found that all forms of turkish banks although in different magnitudes have recorded significant productivity gains driven mostly by efficiency increases rather than technical progress efficiency increases however were mostly owing to improved resource management practices rather than improved scales our results also indicate that private banks began to close their performance gap with public banks in the new environment

shareholder value creation in japanese banking this paper advances the study of fiordelisi and molyneux 2010 by examining the shareholder value efficiency and its determinants for a large sample of japanese banks between 1999 and 2011 a new specifically tailored measure of the economic value added approach based on the shadow price of equity is developed in order to account for specific characteristics of the japanese banking system this new shareholder value measure is then used in a dynamic panel data model as a linear function of various bank risk bank specific and macroeconomic variables this study finds that cost efficiency gains credit risk and bank size are the most important factors in explaining the shareholder value creation in japanese banking cost efficiency changes are also found to significantly influence cost of equity capital

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

the determinants of bank interest rate margins an international study abstract this paper studies the determinants of bank net interest margins nims in six selected european countries and the us during the period 1988 1995 for a sample of 614 banks we apply the ho and saunders model ho t saunders a 1981 the determinants of bank interest margins theory and empirical evidence journal of financial and quantitative analyses 16 581 600 to a multicountry setting and decompose bank margins into a regulatory component a market structure component and a risk premium component the regulatory components in the form of interest rate restrictions on deposits reserve requirements and capital to asset ratios have a significant impact on banks nims the empirical results suggest an important policy trade off between assuring bank solvency high capital to asset ratios and lowering the cost of financial services to consumers low nims the more segmented or restricted the banking system both geographically and by activity the larger appears to be the monopoly power of existing banks and the higher their spreads macro interest rate volatility was found to have a significant impact on bank nims this suggests that macro policies consistent with reduced interest rate volatility could have a positive effect in reducing bank margins