capital requirements and bank behaviour empirical evidence for switzerland abstract in recent years regulators have increased their focus on the capital adequacy of banking institutions to enhance the stability of the financial system the purpose of the present paper is to shed some light on whether and how swiss banks react to constraints placed by the regulator on their capital building on previous work by shrieves and dahl cf shrieves r e dahl d 1992 the relationship between risk and capital in commercial banks journal of banking and finance 16 439 457 we use a simultaneous equations model to analyse adjustments in capital and risk at swiss banks when those approach the minimum regulatory capital level our results indicate that regulatory pressure induce banks to increase their capital but does not affect the level of risk

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

stock markets banks and growth panel evidence this paper investigates the impact of stock markets and banks on economic growth using a panel data set for the period 1976 98 and applying recent gmm techniques developed for dynamic panels on balance we find that stock markets and banks positively influence economic growth and these findings are not due to potential biases induced by simultaneity omitted variables or unobserved country specific effects

deregulation liberalization and consolidation of the mexican banking system effects on competition este articulo analiza la evolucion de la competencia en el sistema bancario mexicano en el periodo 1993 2005 periodo de desregulacion liberalizacion y consolidacion del sector para ello se utilizan dos medidas de competencia derivadas de la teoria de la organizacion industrial el indice de lerner y el estadistico h de panzar y rosse la evidencia empirica no permite rechazar la existencia de competencia monopolistica el indice de lerner muestra una disminucion en la rivalidad competitiva en el mercado de los depositos y un incremento en el mercado de los prestamos observandose una estrategia de subsidiacion cruzada entre ambos mercados los resultados obtenidos cuestionan la efectividad de las medidas hasta ahora implementadas dirigidas a incrementar la competencia en la banca mexicana

regulations and productivity growth in banking evidence from transition economies this paper examines the relationship between the regulatory and supervision framework and the productivity of banks in 22 countries over the period 1999 2009 we follow a semiparametric two step approach that combines malmquist index estimates with bootstrap regressions the results indicate that regulations and incentives that promote private monitoring pmon have a positive impact on productivity restrictions on banks activities relating to their involvement in securities insurance real estate and ownership of nonfinancial firms also have a positive impact regulations relating to the first and second pillars of basel ii namely capital requirements capr and official supervisory power spr do not have in general a statistically significant impact on productivity over the study period although they appear to gain in importance following the onset of the financial crisis in 2007 the latter finding indicates that stringent capital and supervisory standards have positive productivity effects when financial pressures peak our results are robust when controlling for various country specific features and alternative estimation approaches

same financial development yet different economic growth why we re study the relationship between financial development and real gdp per capita growth in 48 countries what we find is an interesting evidence that only stock market development has positive effects on growth and that banking development has an unfavorable if not negative effect on growth we examine whether or not these impacts are a product of various financial and economic conditional variables our conditional variables consist of financial liberalization two sets of country development dummies crises in banking and currency dummies the creditor protection index as well as the anti director and corruption indices our results clearly show that the conditional variables of financial liberalization high income level and good shareholder protection mitigate the negative impacts of banking development on growth in contrast the conditional variables of middle income level regional latin american sub saharan african and east asian dummies banking and currency crises good creditor protection and higher corruption strengthen the negative impacts of banking development on growth next the conditional variables of middle income level latin american sub saharan african and east asian dummies strengthen the positive impacts of stock market development on growth whereas the conditional variables of financial liberalization mitigate the positive impacts of stock market development on growth last we find that the relationship between growth and bank development is better described as a weak inverse ushape this inverse u shape becomes stronger when additional stock market variables are squared thus financial development and growth may in fact be in a nonlinear form

markets and institutions in financial intermediation national characteristics as determinants abstract given the importance of financial intermediation and the rise of globalization there is little prior research on how national preferences for financial intermediation markets versus institutions are determined by cultural legal and other national characteristics using panel analysis for data on a recent 8 year period for 30 countries this paper documents that national preferences for market financing increase with political stability societal openness economic inequality and equity market concentration and decreases with regulatory quality and ambiguity aversion we confirm with robustness tests that our result for regulatory quality is independent of differences in national wealth and that our result for political stability is independent of both wealth and political legitimacy these results should be of much interest to managers scholars regulators and policy makers

market structure and the nature of price rigidity evidence from the market for consumer deposits panel data on consumer bank deposit interest rates reveal asymmetric impacts of market concentration on the dynamic adjustment of prices to shocks banks in concentrated markets are slower to raise interest rates on deposits in response to rising market interest rates but are faster to reduce them in response to declining market interest rates thus banks with market power skim off surplus on movements in both directions since deposit interest rates are inversely related to the price charged by banks for deposits the results suggest that downward price rigidity and upward price flexibility are a consequence of market concentration

does the worldwide shift of fdi from manufacturing to services accelerate economic growth a gmm estimation study abstract we examine the effect of manufacturing and service fdi foreign direct investment on their own sector growth the spillover to the other sectors and the overall economy in host countries we identify significant sectoral and inter industry spillover effects with various data classifications and types of fdi flows evidence reveals that growth effect of manufacturing fdi operates by stimulating activity in its own manufacturing sector and is prevalent in latin america caribbean in europe central asia middle to low income countries and economies with large industry share a surge of service fdi is likely to spur growth in service industries but hurt activity in manufacturing industries financial service fdi enhances growth in south east asia and the pacific high income countries and service based economies by stimulating activity in both manufacturing and service sectors however nonfinancial service fdi drains resources and hurts manufacturing industry in the same group of countries we conclude that a shift from manufacturing to service fdi is likely to lead to deindustrialization in certain regions and types of economies if this shift is spearheaded by nonfinancial fdi

structural unemployment spain versus portugal the increase in european unemployment over the last two decades has made clear that the natural rate of unemployment is all but natural and all but constant a considerable body of research has explored the determinants of what is now and more appropriately called the structural rate of unemployment much of this research was summarized in the book by richard layard et al 1991 this year has seen two new and important contributions an in depth empirical study by the organization for economic cooperation and development oecd 1994 and a theoretical exploration by edmund phelps 1994 how much closer are we to understanding the differences in structural rates across countries and their movements over time to answer those questions we decided to take up what may be the biggest empirical challenge facing theories of structural unemployment the dramatic difference in the unemployment experiences of portugal and spain both countries have had a remarkably similar history over the last 20 years yet one spain has the highest unemployment rate in the european union 24 4 percent while the other portugal has save for luxembourg the lowest one 6 8 percent this paper presents our conclusions a short summary is that humility and more research are in order

the macroeconomic sources of systemic risk in the banking sectors of five new eu member states abstract rapid credit growth has been one of the most pervasive developments in recent years in central and eastern europe our estimates support the hypothesis that the growth of credit and the amount of available finance might harm banking performance and deteriorate non performing loans npl dynamics most probably due to the overheating of economies in the five nmss the procyclicality of banking sector performance and high economic activities growth is a signal of an economy overheating and therefore a slowdown in economic activity is likely to accelerate the growth of the npl ratio

risk in banking and capital regulation this paper investigates the role of bank capital regulation in risk control it is known that banks choose portfolios of higher risk because of inefficiently priced deposit insurance bank capital regulation is a way to redress this bias toward risk utilizing the mean variance model the following results are shown a the use of simple capital ratios in regulation is an ineffective means to bound the insolvency risk of banks b as a solution to problems of the capital ratio regulation the theoretically correct risk weights under the risk based capital plan are explicitly derived and c the theoretically correct risk weights are restrictions on asset composition which alters the optimal portfolio choice of banking firms the recent increase in bank failures especially after the 1980 and 1982 deregulatory acts has again ignited a controversy over the risk portfolio of the banking industry given the importance of this sector there has been increased scrutiny of the industry s motives for risk taking and possible regulatory changes to improve its stability these investigations have centered around two rather complementary areas the first of these is the role of deposit insurance and how its current pricing procedure encourages risk taking and justifies current bank regulations the works of buser chen and kane 4 kane 9 and benston et al 2 have made substantive contributions the authors demonstrates the way in which our current fixed rate insurance system rewards risk taking by the firm and insulates it through deposit insurance from the market discipline that needs to exist to ensure proper risk evaluation this realization has led these authors to propose a series of regulatory changes to encourage proper portfolio choice within the industry these include a shift to market value accounting risk based deposit insurance premiums and additional capital regulation the last of these serves as a method of coinsurance whereby higher capital levels require the bank to absorb greater losses in the event of failure and encourage additional prudence in management in essense it is one method of risk reduction that may offset the risk preference imposed on the industry due to the inappropriate insurance pricing because the amount of capital influences the probability of bank insolvency and thus the soundness of the entire banking system the regulators ceteris paribus prefer more capital to

bank reforms foreign ownership and financial stability abstract numerous studies have focused on foreign ownership of banks but instead of linkages to financial stability they typically analyzed other issues and used country level data this article fills the gap in the literature by applying the gmm techniques on dynamic panels using bank level data for asian countries to investigate the impact of foreign ownership on financial stability as well as whether the relation between foreign ownership and stability changes under different conditions of bank reforms in the host country specifically we reach five conclusions first the existence of the home field advantage hypothesis is supported nevertheless when considering the effects of bank reforms the global advantage hypothesis holds second an inverse u shaped relation between foreign ownership and stability is supported third a higher degree of credit control liberalization mitigates the negative effect of foreign ownership on stability fourth liberalization of interest rate control and banking supervision do enhance stability fifth and finally we confirm a significantly negative relation between an explicit deposit and stability

democratization and disintegration in multinational states the breakup of the communist federations one of the challenges presented to democratization theory by the collapse of communist regimes is the need to take into account the impact of ethnonational diversity on the processes of transition this article explores that question in a comparative analysis of the dissolutions of the multinational federations of yugoslavia czechoslovakia and the soviet union it revisits what has been a core although usually unarticulated premise of the democratization literature that the decisions and negotiations that critically shape regime transition occur in a single central political arena a political space common to all actors in contrast to that perspective the strategic political context for transition in multinational states differs both from that in homogeneous states and from that in unitary multinational states in offering multiple arenas of political contestation the implication for democratization in multinational states is that depending on the institutional structure of the state regime change may occur at different rates in different substate political arenas the republics in such a way as to trigger the erosion of central control over the transition where democratization theory has emphasized strategic choice conditioned by the balance of power between regime and opposition actors an accounting of the politics of transition in ethnofederal states must emphasize 1 strategic choices by actors in multiple political arenas and 2 the shifting balance of power between center and republics

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

bank capitalization and cost evidence of scale economies in risk management and signaling we amend the standard cost model to account for the role of financial capital in banking the cost function is conditioned on the level of capital but we model the demand for financial capital so that it can serve as a cushion against insolvency for potentially risk averse managers and as a signal of risk for less informed outsiders scale economies are then computed without assuming that the bank chooses a level of capitalization that minimizes cost we find evidence of substantial scale economies and that bank managers are risk averse and use the level of financial capital to signal the level of risk

cyclical dynamics of industrial production and employment markov chain based estimates and tests abstract the purpose of this paper is to understand differences in cyclical phenomena across a broad range of developed and emerging countries based on the behavior of two key economic times series industrial production and employment the paper characterizes the series in question as a recurring markov chain univariate processes are estimated for each series individually and a composite indicator is constructed by using information on both series based on tests of equality of the estimated markov chains across countries as well as the expected times to switch between different states we find evidence that i the developed and emerging economies are de coupled from each other in terms of their cyclical dynamics and ii the behavior of industrial production and employment growth are de coupled for the emerging economies our results suggest new directions for the analysis of emerging economy cyclical fluctuations

bank income structure and risk an empirical analysis of european banks the purpose of this paper is to investigate the relationship between bank risk and product diversification in the changing structure of the european banking industry based on a broad set of european banks for the period 1996 2002 our study first shows that banks expanding into non interest income activities present higher risk and higher insolvency risk than banks which mainly supply loans however considering size effects and splitting non interest activities into both trading activities and commission and fee activities we show that the positive link with risk is mostly accurate for small banks and essentially driven by commission and fee activities a higher share of trading activities is never associated with higher risk and for small banks it implies in some cases lower asset and default risks

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

the impact of bank capital on profitability and risk in asian banking abstract this article applies the generalized method of moments technique for dynamic panels using bank level data for 42 asian countries over the period 1994 to 2008 to investigate the impacts of bank capital on profitability and risk ignoring influence factors the extant literature presents an ambiguous impact of bank capital on profitability risk however when the effects from the influencing factors are taken into consideration three conclusions are reached first along with the change in the categories of banks investment banks have the lowest and positive capital effect on profitability whereas commercial banks reveal the highest reverse capital effect on risk second banks in low income countries have a higher capital effect on profitability banks in lower middle income countries have the highest reverse capital effect on risk while banks in high income countries have the lowest values third banks in middle eastern countries own the highest and positive capital effect on profitability far east central asian banks have the largest reverse capital effect on risk while the lowest value occurs in middle eastern countries banks finally our results also reveal that persistence of profit is greatly affected by different profitability variables and all risk variables show persistence from one year to the next