bank spread with uncertain deposit level and risk aversion abstract this paper derives a model of the banking firm under uncertainty and risk aversion the selection of the bank s optimal spread between loan and deposit rates is emphasized the model s results provide some implications for bank asset quality capital regulation and deposit insurance for example it is shown that increases in the level of equity capital tend to increase the bank s spread under dara this implies an improvement in bank asset quality on the other hand as the deposit supply function becomes more volatile the bank s spread narrows which implies a decline in the quality of the bank s assets

on the determinants of bank interest margins under credit and interest rate risks abstract this paper explores the determinants of optimal bank interest margins based on a simple firm theoretical model under multiple sources of uncertainty and risk aversion the model demonstrates how cost regulation credit risk and interest rate risk conditions jointly determine the optimal bank interest margin decision we find that the bank interest margin is positively related to the bank s market power to the operating costs to the degree of credit risk and to the degree of interest rate risk an increase in the bank s equity capital has a negative effect on the spread when the bank faces little interest rate risk the effect of rising interbank market rate on the spread is ambiguous and depends on the net position of the bank in the interbank market our findings provide alternative explanations for the empirical evidence concerning bank spread behavior

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

industry growth and capital allocation does having a market or bank based system matter are market based or bank based financial systems better at financing the expansion of industries that depend heavily on external finance facilitating the formation of new establishments and improving the efficiency of capital allocation across industries we find evidence for neither the market based nor the bank based hypothesis while legal system efficiency and overall financial development boost industry growth new establishment formation and efficient capital allocation having a bank based or market based system per se does not seem to matter much

a model of the financial firm with imperfect asset and deposit elasticities abstract the paper develops an intertemporal model to estimate the production technology of financial firms such as banks price taking is testable in each separate market for assets and liabilities and competitive price taking is a nested special case such tests are applied both to outputs and inputs empirical results for a sample of banks in new york and new jersey indicate that price taking applies only in markets for labor and time deposits in markets for loans demand deposits cash and materials the price taking hypothesis is not accepted

distance constraints the limits of foreign lending in poor economies how far does mobility of multinational banks solve problems of financial development using a panel of 80 000 loans over 7 years i show that greater cultural and geographical distance between a foreign bank s headquarters and local branches leads it to further avoid lending to informationally difficult yet fundamentally sound firms requiring relational contracting greater distance also makes them less likely to bilaterally renegotiate and less successful at recovering defaults differences in bank size legal institutions risk preferences or unobserved borrower heterogeneity cannot explain these results these distance constraints can be large enough to permanently exclude certain sectors of the economy from financing by foreign banks

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

the impact of liberalization and foreign investment in colombia s financial sector abstract this study analyzes financial liberalization measures undertaken in 1990 of which an opening to foreign investment was a major component after a brief description of the major changes in legislation on foreign investment we compare performance of foreign owned vs domestic banks first using a descriptive approach then in a more systematic manner using econometric analysis panel data estimations reveal that financial liberalization in general had a beneficial impact on bank behavior in colombia by increasing competition lowering intermediation costs and improving loan quality although the positive contribution of foreign entry may be overstated in recent studies by not controlling for other liberalization factors foreign and domestic entry beginning in 1990 did improve bank behavior by enhancing operative efficiency and competition however the greater competition may have resulted in increased risk and a subsequent deterioration in loan quality particularly among domestic banks

does deposit insurance increase banking system stability an empirical investigation based on evidence of 61 countries in 1980 97 the authors find that explicit deposit insurance tends to be detrimental to bank stability the more so where bank interest rates are deregulated and the institutional environment is weak the adverse impact of deposit insurance on bank stability tends to be stronger the more extensive is the coverage offered to depositors and where the scheme is funded and run by the government rather than the private sector

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

law finance and firm growth we investigate how differences in legal and financial systems affect firms use of external financing to fund growth we show that in countries whose legal systems score high on an efficiency index a greater proportion of firms use long term external financing an active though not necessarily large stock market and a large banking sector are also associated with externally financed firm growth the increased reliance on external financing occurs in part because established firms in countries with well functioning institutions have lower profit rates government subsidies to industry do not increase the proportion of firms relying on external financing the corporate finance literature suggests that market imperfections caused by conflicts of interest and informational asymmetries between corporate insiders and investors constrain firms in their ability to fund investment projects the magnitude of these imperfections depends in part on the effectiveness of the legal and financial systems because these systems differ across countries the literature implies that there should exist systematic cross country differences in firms ability to obtain external capital to finance investment in this paper we examine whether the underdevelopment of legal and financial systems does prevent firms in some countries from investing in potentially profitable growth opportunities in particular we focus on the use of long term debt or external equity to fund growth see our earlier work demirgut kunt and maksimovic 1996a which compares firms financial structures in developed and developing countries and finds the greatest difference to be in the provision of long term credit we estimate a financial planning model to obtain the maximum growth rate that each firm in our thirty country sample could attain without access to long term financing we then compare these predicted growth rates to growth rates realized by firms in countries with differing degrees of development in their legal and financial systems our approach enables us to identify specific characteristics of the legal and financial systems that are associated with long term financing of firm growth thus we provide a micro level test of the hypoth

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

does market oriented institutional change in an emerging economy make business group affiliated multinationals perform better an institution based view viewing market oriented institutional change as a two staged process we propose that the effects of market oriented institutional change on two organizational forms business group affiliated and independent firms are different depending on the stage of institutional change specifically we examine how the two distinct periods of market oriented institutional change that is institutional friction and institutional convergence affect business group affiliated firms and independent firms in their abilities to profit from international diversification using data on 140 korean manufacturing multinational firms from 1993 to 2003 we find that emerging economy firms face an international diversification discount a negative relationship between international diversification and firm performance we also find that business group affiliation affects the international diversification discount differently during the two periods of market oriented institutional change particularly when firm performance is measured by the market to book value mbv the moderating effect of business group affiliation on the relationship between international diversification and mbv is negative during the institutional frictions period but becomes positive during the institutional convergence period in the later stage of institutional change our findings warn against viewing market oriented institutional change as a discrete event highlighting the importance of recognizing the qualitatively distinctive nature of different periods of market oriented institutional change in future research

adjustable robustness for multi attribute project portfolio selection abstract robust portfolio modeling rpm supports multi attribute project portfolio selection with uncertain project scores and decision maker preferences by determining non dominated portfolios for all possible realizations of uncertain parameters decision recommendations produced by rpm may prove too conservative for real life decision problems we develop a methodology to reduce the set of possible realizations by limiting the number of project scores that may simultaneously deviate from their most likely value by adjusting this limit decision makers can choose desired levels of conservatism our approach also allows to capture dependencies among project scores as well as uncertainty in portfolio constraints

r d investment strategy for climate change abstract the economic costs of stabilizing greenhouse gas concentrations over the coming century depend critically on the development of new technologies in the energy sector our research and development r d investment strategy is the control variable for technology availability this paper proposes an analytic framework for determining optimal r d investment allocation and presents some numerical results to demonstrate the implementation of the methodology the value of technological advance in three targeted areas fossil based generation renewables and carbon capture and storage is represented by the increase in expected welfare in the presence of an emissions policy constraint of initially uncertain stringency r d expenditure increases the probability of advance optimal investment is determined by its relationship with success probability which is assumed to exhibit decreasing returns to scale relative to the value of success while the numerical results are speculative the paper offers insights into the nature of an optimal technology strategy for addressing climate change

privatization and bank performance in developing countries abstract we examine the postprivatization performance of 81 banks from 22 developing countries our results suggest that i on average banks chosen for privatization have a lower economic efficiency and a lower solvency than banks kept under government ownership ii in the postprivatization period profitability increases but depending on the type of owner efficiency risk exposure and capitalization may worsen or improve however iii over time privatization yields significant improvements in economic efficiency and credit risk exposure iv we also find that newly privatized banks that are controlled by local industrial groups become more exposed to credit risk and interest rate risk after privatization

dynamic portfolio selection of npd programs using marginal returns selecting program portfolios within a budget constraint is an important challenge in the management of new product development npd optimal portfolios are difficult to define because of the combinatorial complexity of project combinations however at the aggregate level of the strategic allocation of resources across product lines investment in a program is not an all or nothing decision but can beadjusted resulting in a higher or lower program benefit e g higher or lower quality in some cases resources can be adjusted even for individual projects with this insight one can usemarginal analysis to optimally allocate the scarce budget this article develops a dynamic model of resource allocation taking into account multiple interacting factors such as independent or correlated uncertain market payoffs that change over time increasing or decreasing returns from the npd investment carry over of the investment benefit over multiple periods and interactions across market segments we characterize optimal policies in closed form and derive qualitative decision rules for managers

finance and the sources of growth the authors evaluate whether the level of development in the banking sector exerts a causal impact on economic growth and its sources total factor productivity growth physical capital accumulation and private saving they use 1 a pure cross country instrumental variable estimator to extract the exogenous component of banking development and 2 a new panel technique that controls for country specific effects and endogeneity they find that banks do exert a large causal impact on total factor productivity growth which feeds through to overall gdp gross domestic product growth the long run links between banking development and both capital growth and private savings are more tenuous

from the editors endogeneity in international business research this essay builds on the exposition by thomas et al and focuses on analyzing cause and effect in international business research we attempt to explain how endogeneity problems occur and why they are so prevalent in international business research in a non technical fashion we then discuss the importance of explicitly identifying how the chosen research design best approximates a randomized controlled experiment finally we provide some guidelines on achieving this goal and emphasize the practices that seem most relevant to jibs reviewers in evaluating high quality international business research

inflation and reputation in many macroeconomic models with rational expectations optimal policy is time inconsistent and therefore announced policy may not be credible this paper models the government s credibility explicitly using kreps and wilson s analysis time consistent optimal government policy emerges as a sequential equilibrium in a repeated game this policy is at least as good as the inconsistent optimal policy and dominates the consistent policy when reputational effects are ignored thus the analysis resolves the problem of specifying a credible optimal policy in such models the results show why attempts to disinflate may lead to recession even with perfectly flexible prices this abstract was borrowed from another version of this item

related lending and banking development does related lending have positive or negative effects on the development of banking systems we analyze a unique cross country data set covering 74 countries from 1990 to 2007 and find that related lending on average does not have any effect on the growth of credit we do find however that there are conditional relationships related lending tends to retard the growth of banking systems when rule of law is weak whereas it tends to promote the growth of banking systems when rule of law is strong we also find that related lending appears to be associated with looting when banks are owned by non financial firms but that it does not do so when non financial firms are owned by banks our results indicate that whether related lending is positive or pernicious depends critically on the institutional context in which it takes place there is no single best policy regarding related lending these findings are robust to alternative specifications including iv regressions

climate change and optimal energy technology r d policy public policy response to global climate change presents a classic problem of decision making under uncertainty theoretical work has shown that explicitly accounting for uncertainty and learning in climate change can have a large impact on optimal policy especially technology policy however theory also shows that the specific impacts of uncertainty are ambiguous in this paper we provide a framework that combines economics and decision analysis to implement probabilistic data on energy technology research and development r d policy in response to global climate change we find that given a budget constraint the composition of the optimal r d portfolio is highly diversified and robust to risk in climate damages the overall optimal investment into technical change however does depend in a non monotonic way on the risk in climate damages finally we show that in order to properly value r d abatement must be included as a recourse decision

bank privatization in sub saharan africa the case of uganda commercial bank previous empirical analyses have found that bank privatizations are more successful when the government fully relinquishes control when the bank is privatized to a strategic investor and when foreign owned banks are allowed to participate in the bidding the privatization of uganda commercial bank ucb to the south african bank stanbic met all these criteria suggesting that it is a likely candidate for success but other features suggest reasons for caution ucb dominated the ugandan banking sector prior to privatization and the institutional environment in uganda was less favorable than in many of the middle income countries looked at in earlier empirical studies despite these concerns the privatization appears to have been relatively successful the portfolio of the privatized bank which was cleaned prior to sale remains relatively strong and profitability and credit growth are now on par with other ugandan banks though market segmentation remains a concern since stanbic faces little or no direct competition in many remote areas some early results suggest that access to credit has improved for some hard to serve groups

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

is financial globalization beneficial this lecture examines whether financial globalization is beneficial to developing countries by first examining the evidence on financial development and economic growth and concludes that financial development is indeed a key element in promoting economic growth it then asks why if financial development is so beneficial it often does not occur it then goes on to examine whether globalization particularly of the financial kind can help encourage financial and economic development and argues that it can however financial globalization does not always work to encourage economic development because it often leads to devastating financial crises the issue is thus not whether financial globalization is inherently good or bad but whether it can be done right

financial development and pathways of growth state branching and deposit insurance laws in the united states 1900 1940 abstract this paper studies the effect of state level banking regulation on financial development and on components of state level growth in the united states from 1900 to 1940 we use these banking laws to assess the findings of a large recent literature that has argued that financial development contributes to economic growth we contend that the institutional mechanism leading to financial development is important in determining its consequences and that some types of financial development can even retard economic growth for the united states from 1900 to 1940 we argue that the financial expansion induced by expanded bank branching accelerated the mechanization of agriculture and spurred growth in manufacturing in contrast financial expansions induced by state deposit insurance had negative consequences for both the agricultural and manufacturing sectors

a reappraisal of state owned banks we revisit the public banks debate survey the theoretical arguments and test the robustness and expand the existing empirical evidence while we find some support for the view that public banks do not allocate credit optimally we also report indicative evidence that they exert a positive influence on private bank efficiency and may contribute to reduce credit procyclicality ultimately we find that the recent criticism to public banks has generally been based on inconclusive cross country evidence more specific bank level research is still needed to substantiate a case for or against public banks in developing economies

the impact of banking sector reform in a transition economy evidence from kyrgyzstan we examine the impact of financial sector reform on interest rate levels and spreads using kyrgyz bank level data from 1998 to 2005 we find that in addition to macroeconomic stabilization structural reforms to the banking sector significantly contributed to lower interest rates in particular our results suggest that foreign bank entry and regulatory efforts to increase average bank size were important in reducing deposit rates in contrast we find little evidence that banking sector reform or macroeconomic stabilization has impacted interest rate spreads

a model of the commercial loan rate this paper explores the theoretical and empirical determinants of the commercial loan rate charged by commercial banks based on a model of financial intermediary behavior which assumes monopolistic competition in asset and liability markets the model incorporates the constraint that banks must maintain at least a minimum quantity of bonds in asset portfolios equations are estimated on a time series basis to explain the behavior of commercial loan rates over the period 1953 to 1980 the evidence appears consistent with the hypothesis that commercial banks operate in a market characterized by imperfect competition and that they explicitly set loan rates the development of large scale econometric models has focused attention on the operation of the commercial loan market because of the importance of commercial loan activity in the transmission of monetary policy moreover it is commonly accepted that the quantity of commercial loans or changes in these loans has an important influence on the holding of free reserves by commercial banks and this implies that the commercial loan market has an effect on the supply of money 2 nevertheless the determinants of commercial loan rates have drawn relatively little analytical attention previous work on the commercial loan market has generally focused on the question of whether this market is characterized by credit rationing 3 most studies assume that the commercial loan market is generally competitive but at times the commercial loan rate does not clear the market the quantity of loans transacted is constrained by the supply function and commercial banks engage in nonprice rationing of customers a corollary of this rationing hypothesis is that events in the deposit market have an important influence on the quantity of commercial loans 4 the purpose of this paper is to explore the determinants of the commercial

a time series cross section analysis of the determinants of australian trading bank loan deposit interest margins 1962 1981 abstract a theoretical model of the determination of trading bank interest margins based on the hedging theory of interest margin determination is tested on time series cross section data of australian trading banks generally the results are consistent with that theory that is there exists a stable non linear relationship between australian trading bank net loan deposit interest margins and measures of market power degree of absolute risk aversion and to interest rate uncertainty furthermore the shift from business sector to personal sector loan and deposit business is associated with increased bank interest margins

deposit insurance around the world in the past two decades in a series of banking crises around the world banks have become systematically insolvent these crises have occurred in developed and developing economies alike to make such financial system breakdowns less likely and to limit their costs if they occur policymakers feel the need for financial safety nets these include such policies as implicit or explicit deposit insurance a lender of last resort function of the central bank bank insolvency resolution procedures and bank regulation and supervision of these policies explicit deposit insurance has been gaining popularity in recent years since the 1980s the number of countries with explicit deposit insurance schemes almost tripled with most oecd countries and an increasing number of developing economies adopting some form of explicit depositor protection in 1994 deposit insurance became the standard for the newly created single banking market of the european union establishing an explicit deposit insurance scheme became part of the generally accepted best practice advice given to developing economies

bringing institutions into performance persistence research exploring the impact of product financial and labor market institutions this study challenges the implicit assumption of homogeneity in national institutional environments made in past studies of firm performance persistence we propose that home country institutions matter we focus on the impact of formal institutions in the product financial and labor markets arguing that they affect the size of pools of exchange partners and the types of exchanges allowed and condoned ultimately these restrictions affect competitive intensity among firms and firm performance persistence using data for over 10 000 firms from 33 countries over a 10 year time frame we show that antitrust law strength a product market institution designed to prevent collusion among firms is associated with decreases in performance persistence unskilled labor market flexibility a labor market institution that reduces legal constraints imposed on residual claimants managers and owners to take necessary actions to maintain or enhance profitability is associated with increases in performance persistence product liability law effectiveness another product market institution and corporate control market development a financial market institution are positively associated with performance persistence only in the case of mnes the two remaining financial and labor market institutions public equity market development respectively skilled labor market availability have a positive respectively negative impact for domestic firms only

income and substitution effects for mean preserving spreads a sandmo has ascribed the indeterminancy of the comparative static result for a mean preserving spread to the presence of both an income and a substitution effect in this note the compensation method needed to isolate the substitution effect identified by sandmo is made precise the compensation method is derived from a model that is sufficiently general to include many important applications of the theory of uncertainty the method is used to identify the substitution effect in sandmo s model of the competitive firm under output price uncertainty copyright 1989 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

bank size collateral and net purchase behavior in the federal funds market empirical evidence differences between large and small banks net purchase behavior in the uncollaterized federal funds and collateralized repurchase agreements markets are documented the larger a bank s asset size the larger ceteris paribus its federal funds purchases the threshold asset size is in the region of 1 billion to 2 5 billion for any size class banks located in major banking centers are more likely to be net federal funds purchasers than are banks located outside money centers in the collateralized repurchases agreements market there appears to be no size of locational discrimination indeed the smallest banks are the largest net purchasers as a fraction of assets of funds on the repurchases agreements market copyright 1989 by the university of chicago

dynamic r d investment policies this paper examines dynamic r d investment policies and the valuation of r d programs in a contingent claims framework we incorporate the following characteristics of r d programs into our model learning by doing collateral learning between different projects in the program interaction between project cash flows periodic reevaluations of the program different intensities of investment capital rationing constraints and competition we show that a firm may invest in multiple projects even if only one can be implemented after development is complete furthermore the firm may significantly alter its funding policy over time for example it may simultaneously develop multiple projects for a period of time then focus on a lead project and potentially resume funding of a backup project if the lead project fails to deliver on its early promise we show how a firm can forecast expected r d spending through time for an optimally executed r d program while project volatility plays an important role in determining r d program value we find that for high volatility projects the optimal investment policy is not very sensitive to changes in or misestimation of volatility in considering whether to accelerate development of a project a firm should balance the adverse effects of increased costs and the loss of investment flexibility against the positive effects of rapid uncertainty resolution and accelerated cash flows in the presence of a budget constraint that prevents the firm from simultaneously accelerating projects and developing projects in parallel we find that if one project significantly dominates another early in the development stage the option to accelerate the lead project is likely to be more valuable than the option to exchange projects thus the backup project would be shelved in order to commit extra resources to development of the lead project finally competition from other firms leads to more parallel investment in the early development stages of projects less parallel investment in the latter stages of development and lower overall investment

globalization pressures and the state the worldwide spread of central bank independence the authors examine the impact of globalization on state structures in the specific instance of the central bank following the world system world society and neoinstitutional perspectives in sociology they assume that states are in cultural political and economic competition with each other thereby seeking to maintain their position and status frequently by adopting organizational forms or practices that make them isomorphic with their environment the authors predict that countries boost the independence of their central bank from the political power as their exposure to foreign trade investment and multilateral lending increases they also model the cross national dynamic process of diffusion of central bank independence by examining the impact of cohesive and role equivalent trade relationships between countries they find support for their hypotheses with information on 71 countries between 1990 and 2000

political booms financial crises political booms measured by the rise in governments popularity predict financial crises above and beyond better known early warning indicators such as credit booms this predictive power howev

some stronger measures of risk aversion in the small and the large with applications the arrow pratt measures of risk aversion for von neumann morgenstern utility functions have become workhorses for analyzing problems in the microeconomics of uncertainty they have been used to characterize the qualitative properties of demand in insurance and asset markets to examine the properties of risk taking in taxation models and to study the interaction between risk and life cycle savings problems to name just a few applications equally importantly they have generated the linear risk tolerance class of utility functions which has provided canonical examples in such diverse areas as portfolio theory and the theory of teams despite these successes there have been a number of areas for which the results have been weaker than hoped it is natural to use the risk aversion measures to compare the behavior of individuals in risky choice situations for example consider the individual portfolio choice problem in a two asset world with a riskless asset and a risky asset if individual a has a uniformly higher arrow pratt coefficient of risk aversion than individual b then b will always choose a portfolio combination with more wealth invested in the risky asset but suppose that both assets are risky now there is no obvious sense in which the more risk averse individual can be said to hold a less risky portfolio but it seems strange that such a simple alteration should destroy the analytics which support the basic intuition similarly consider the basic insurance problem if one individual a is more risk averse than another b in the arrow pratt sense it follows that a will pay a larger premium to insure against a random loss than will b typically though an individual evaluates partial rather than total insurance that is only some gambles can be insured against and others must be retained in this case even when the gambles which are retained are independent from those which are insured it is no longer true that the individual whose arrow pratt measure of risk aversion is higher will pay a larger insurance premium the situation is no better when we consider comparative statics exercises for a single individual decreasing absolute risk aversion in the sense of arrow and

the impact of the strategic sale of restructured banks evidence from indonesia summary we examine the effect of strategic sale which is the sale of banks to strategic foreign investors on bank performance the government of indonesia implemented such a policy as part of a bank restructuring in the aftermath of the 1998 banking crisis using difference in differences models we find that strategic sale leads to a 12 15 cost reduction these results are robust to the use of other estimators such as difference in differences matching estimators and stochastic frontier analysis to that of other performance measures such as return on assets and net interest margin and to that of different sample types these results suggest that strategic sale could play an important role in restructuring troubled banks in developing countries

political and monetary institutions and public financial policies in the industrial countries institutions and policies vittorio grilli donato masciandaro and guido tabellini why do countries as similar as the industrialized oecd countries go through such different experience in terms of public deficits and debts or in terms of inflation the answer cannot come from macroeconomic policy responses to different disturbances nor from the principles of optimal taxation but rather from politics this article focuses on the role that particular institutions exert in providing constraints and incentives which shape the actions of policymakers the electoral process and political traditions affect the ability of governments to deal with deficits and mounting debts what seems to matter most it is found is the effect of the durability of governments governments with short horizons act myopically and never quite tackle the hard choices such governments typically exist in countries with an electoral system favouring many small political parties central bank independence promotes low inflation with no apparent costs in terms of real economic performance irrespective of the political institutions in fact there is no link between monetary and fiscal discipline these findings carry powerful implications for countries facing high indebtedness or stubborn inflation but also for the construction of the european economic and monetary union

optimal sequential investment decisions under conditions of uncertainty this paper presents a mathematical model of sequential investment behavior under conditions of uncertainty the model addresses the problem of an investor with access to a limited pool of capital who makes sequential decisions on long lasting investments under uncertainty as to the timing or the quality of future opportunities we derive optimal investment strategies for the cases where the return from investment is a convex or concave function we present closed form solutions for commonly adopted return functions and we evaluate how the optimal investment behavior should change when changes occur in the environment or the underlying probability distributions in addition we analyze three modifications of the problem the results presented in this paper extend previous results on investment behavior for long lasting irreversible decisions in addition some results are in accordance with existing ones from portfolio theory and or search theory

does local financial development matter we study the effects of differences in local financial development within an integrated financial market we construct a new indicator of financial development by estimating a regional effect on the probability that ceteris paribus a household is shut off from the credit market by using this indicator we find that financial development enhances the probability an individual starts his own business favors entry of new firms increases competition and promotes growth as predicted by theory these effects are weaker for larger firms which can more easily raise funds outside of the local area these effects are present even when we instrument our indicator with the structure of the local banking markets in 1936 which because of regulatory reasons affected the supply of credit in the following 50 years overall the results suggest local financial development is an important determinant of the economic success of an area even in an environment where there are no frictions to capital movements

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

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

the mix of international banks foreign claims determinants and implications we analyze the cross country determinants and financial stability implications of the mix of international banks foreign claims we distinguish between local claims extended by host country affiliates and cross border claims booked outside the receiving country using data on italian spanish and us banks foreign claims we find that the share of local claims is driven by restrictions on banking sector openness and by local scale economies business opportunities the impact of limits on property rights entry requirements start up and informational costs is less robust finally foreign claim volatility is lower in countries with a larger share of local claims

privatization competition and supercompetition in the mexican commercial banking system abstract much literature before and after the privatization of mexico s commercial banking system in 1991 1992 argued that the system was collusive and noncompetitive and would likely continue to be for years banks would collude to underloan so that at least in comparison with what would happen in a competitive system they could overcharge because a parallel literature on lending after bank privatization suggests that the problem is often not too little but too much we resolved to test for competitive behavior in the mexican banking system using an empirical approach developed by shaffer econom lett 29 1989 321 j money credit bank 25 1993 49 federal reserve bank of philadelphia working paper no 93 28r we find a structural break in the middle of the privatization period that signals the start of an episode of what shaffer calls supercompetitive behavior in such a supercompetition banks run at levels of output where marginal cost exceeds marginal revenue this behavior is consistent with a struggle in which banks take losses now because they think the market share they get in the bargain offers a positive present value of expected future return the behavior can also be consistent with just the sort of banking crises that ensued in mexico

mexico s experiments with bank privatization and liberalization 1991 2003 during the 1990s mexico conducted two experiments with its banking system in the first experiment 1991 96 it privatized the banks this experiment took place with weak institutions to enforce contract rights it also took place without institutions that encourage prudent behavior by bankers the result was reckless behavior by banks and a collapse of the banking system in the second experiment 1997 2003 mexico reformed many of the institutions that promoted bank monitoring and it opened up the industry to foreign investment it was less successful however in reforming the institutions that promote the enforcement of contract rights the result was that bankers behaved prudently but prudent behavior in the context of weak contract rights implies that banks are reluctant to extend credit to firms and households

the determinants of bank interest margins theory and empirical evidence this paper has developed a model of bank margins or spreads in which the bank is viewed as a risk averse dealer it was demonstrated that an interest spread or margin would always exist and that this was the result of transactions uncertainty faced by the bank moreover it was shown that this pure spread depended on four factors the degree of managerial risk aversion the size of transactions undertaken by the bank bank market structure and the variance of interest rates the model implied that liability and asset structures had to be analyzed together since they were directly interrelated through transactions uncertainty it was shown that because of this transactions uncertainty hedging behavior was perfectly rational within an expected utility maximizing framework extending the model from a structure with one kind of loan and deposit to loans and deposits with many maturities should lead to further interesting insights into margin determination especially as portfolio effects may become apparent

mainstreaming microfinance social performance management or mission drift summary what scope is there for the pursuit of explicit development goals in the context of increasing integration of specialized microfinance and commercial banking sectors this question and the idea of mission drift is first analyzed using a model that distinguishes between institutions financial and social performance possibilities preferences and assessment systems the model is used to review findings from action research with an international sample of poverty oriented microfinance institutions that suggest some simple steps for improved social performance management it is then used to illustrate the relationship between social and financial performance more widely across the retail financial services sector and to offer pointers for more policy analysis at this level

political business cycles and macroeconomic credibility a survey there is clear evidence that government popularity and election performance is affected in part by economic performance suggesting that governments may manipulate the economy to political advantage simple models incorporating adaptive expectations which allowed the government to exploit this relationship were developed in the 1970s but fell out of fashion with the advent of new classical economics however modern theories of the political business cycle which are closely related to the macroeconomic policy game literature assume rational expectations and lead to forms of political business cycle driven by the existence of uncertainty of one type or another the international evidence suggests that some aspects of the theories apply although definitive conclusions are as we might expect hard to come by

financial intermediation and economic performance historical evidence from five industrialized countries this paper examines the nature of links between the intensity of financial intermediation and economic performance that operated in the united states the united kingdom canada norway and sweden over the 1870 1929 period after describing the coevolution of the financial and real sectors in these countries vector error correction models vecms establish the quantitative importance of long run relationships among measures of financial intensity and real per capita levels of output and the monetary base granger causality tests then suggest a leading role for the intermediation variables in real sector activity while feedback effects are largely insignificant the results suggest an important role for intermediation in the rapid industrial transformations of all five countries

foreign entry and the mexican banking system 1997 2007 proquest denotes formulae omitted in recent years governments around the world have been opening up their banking systems to foreign competition with the expectation of making them more efficient stable and resilient to shocks academics and policymakers have therefore been exploring the effects of foreign bank entry from both a theoretical and an empirical point of view most studies conclude that foreign entry increases the contestability of markets thereby reducing administrative costs lowering net interest margins nims and driving down bank rates of return nevertheless as clarke and others note much of what we know comes from cross country studies that are heavily weighted toward developed economies 1 this is particularly crucial because the impact of foreign entry may vary with the level of economic development 2the literature to date on foreign bank entry in developing economies does not provide a consensus set of results there is some evidence that foreign entry increases social welfare clarke cull and martinez peria find that enterprises in countries with high levels of foreign bank participation tend to rank interest rates and access to long term loans as lesser constraints on their operations and growth than do enterprises in countries with low levels of foreign bank participation 3 martinez peria and mody analyzing a group of latin american cases in a pooled time series cross sectional framework find that foreign banks charge lower interest rate spreads than domestically owned banks 4 they also find that foreign bank entry is associated with an overall increase in administrative efficiency and a decrease in interest spreads suggesting that foreign entry spurred competition denizer obtains similar results in a study of turkey foreign entry reduced domestic bank overhead expenses as well as bank profitability 5 unite and sullivan find that foreign entry was associated with declines in interest rate spreads overhead expenses and profits in the philippines but the effect was confined to domestic banks that had been tied to business groups 6 kasekende and sebudde report that foreign banks in uganda have better internal control mechanisms than domestic banks in terms of judging the quality of borrowers 7not all the evidence points in the same direction however havrylchyk finds that foreign banks in poland are more efficient than domestic banks but then shows that the efficiency gains are all located in so called greenfield banks domestic banks that are acquired by foreign banks do not become more efficient 8 cardim de carvalho finds no differences between foreign and domestic banks in brazil in terms of credit allocation or technical efficiency 9 indeed technical progress in online banking and automation in brazil has been introduced more aggressively by domestically owned banks claessens demirguc kunt and huizinga find that foreign banks operating in developing economies have higher overhead expenses charge higher interest margins and earn higher rates of return than domestic banks 10foreign banks may also be less willing to extend credit on the basis of softknowledge about firms than domestically owned banks studies of argentina and pakistan suggest that foreign entry may therefore give larger firms even greater advantages by exacerbating problems of differential access to capital 11 the finding that foreign banks eschew soft knowledge lending is supported by multicountry studies that use panel data techniques detragiache tressel and gupta report that foreign entry in a panel of poor economies is associated with a net reduction in total lending to the private sector foreign banks appear to have skimmed offthe best credit risks leaving domestic banks with a pool of weaker borrowers from which to select 12 a related body of research suggests that foreign banks represent a trade offfor a developing country galindo micco and powell develop a model and present evidence indicating that foreign banks may be less susceptible to funding shocks than domestic banks because they can tap capital from their home institutions but at the same time foreign banks are more reactive to shocks that affect expected returns

bank privatization and performance empirical evidence from nigeria the authors assess the effect of privatization on performance in a panel of nigerian banks for the period 1990 2001 they find evidence of performance improvement in nine banks that were privatized which is remarkable given the inhospitable environment for true financial intermediation their results also suggest negative effects of the continuing minority government ownership on the performance of many nigerian banks the authors results complement aggregate indications of decreasing financial intermediation over the 1990s banks that focused on investment in government bonds and non lending activities enjoyed a relatively higher performance

deposit insurance and financial development the authors examine the effect of different design features of deposit insurance on long run financial development defined to include the level of financial activity the stability of the banking sector and the quality of resource allocation their empirical analysis is guided by recent theories of banking regulation that employ an agency framework the authors examine the effect of deposit insurance on the size and volatility of the financial sector in a sample of fifty eight countries they find that generous deposit insurance leads to financial instability in lax regulatory environments but in sound regulatory environments deposit insurance does have the desired impact on financial development and growth thus countries introducing a deposit insurance scheme need to ensure that it is accompanied by a sound regulatory framework otherwise the scheme will likely lead to instability and deter financial development in weak regulatory environments policymakers should at least limit deposit insurance coverage

privatization as an agency problem auctions versus private negotiations abstract this paper investigates the design of privatization mechanisms in emerging market economies characterized by political constraints that limit the set of viable privatization options our objective is to explain the striking diversity of mechanisms observed in practice and the frequent use of an apparently sub optimal privatization mechanism private negotiations we develop a simple model in which privatization is to be carried out by a government agent who plays favorites among bidders but is potentially disciplined by losing his private benefits of staying in office if the political environment is such that the privatization agent himself aims at raising the fair value for the company then privatization auctions and private negotiations are equally successful in raising public revenues if however political considerations distort the agent s incentives it may be that a seemingly transparent auction will raise less revenue than opaque private negotiations we also show that information disclosure laws may have negative welfare implications they may help the privatization agent to collude with some of the bidders to the disadvantage of non colluding bidders

project management under risk using the real options approach to evaluate flexibility in r d managerial flexibility has value in the context of uncertain r d projects as management can repeatedly gather information about uncertain project and market characteristics and based on this information change its course of action this value is now well accepted and referred to as real option value we introduce in addition to the familiar real option of abandonment the option of corrective action that management can take during the project the intuition from options pricing theory is that higher uncertainty in project payoffs increases the real option value of managerial decision flexibility however r d managers face uncertainty not only in payoffs but also from many other sources we identify five example types of r d uncertainty in market payoffs project budgets product performance market requirements and project schedules how do they influence the value from managerial flexibility we find that if uncertainty is resolved or costs revenues occurafter all decisions have been made more variability may smear out contingencies and thus reduce the value of flexibility in addition variability may reduce the probability of flexibility ever being exercised which also reduces its value this result runs counter to established option pricing theory intuition and contributes to a better risk management in r d projects our model builds intuition for r d managers as to when it is and when it is not worthwhile to delay commitments for example by postponing a design freeze thus maintaining flexibility in r d projects

do non intermediation services tell us more in the finance growth nexus causality evidence from eight oecd countries abstractthis paper provides new evidence on a traditional finance growth nexus through dividing financial services into financial intermediation and non intermediation services and examining their

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

politics and business cycles in industrial democracies politics alberto alesina influences from political competition on macroeconomic policy are often thought to be a source of economic fluctuations politicians are described as being driven by two not mutually exclusive main motivations they want to be reelected and they harbour political or ideological biases when such theories are confronted with actual cycles in a number of industrial countries the pattern of inflation unemployment output and budget deficits indicates that partisan policy making is a fairly widespread phenomenon with more limited evidence that electoral preoccupations result in major fluctuations the combination of partisanship and electoral cycles may easily result in socially undesirable outcomes in particular the degree of politico institutional stability and the independence of the central bank have a bearing on macroeconomic outcomes these observations raise a number of important questions about the design of political institutions

the impact of financial liberalization on bank efficiency evidence from latin america and asia this article investigates the impact of financial liberalization on bank efficiency using data for a sample of over 4000 bank year observations from ten emerging economies for the period 1991 2000 we use data envelopment analysis dea to calculate bank efficiency at the individual bank level bank efficiency measures are then aggregated at the country level to investigate the relationship between financial liberalization and bank efficiency using a panel least square fixed effects model overall we find strong support for the positive impact of financial liberalization programmes on bank efficiency

the finance growth nexus evidence from bank branch deregulation this paper provides evidence that financial markets can directly affect economic growth by studying the relaxation of bank branch restrictions in the united states we find that the rates of real per capita growth in income and output increase significantly following intrastate branch reform we also argue that the observed changes in growth are the result of changes in the banking system improvements in the quality of bank lending not increased volume of bank lending appear to be responsible for faster growth

stochastic models for strategic resource allocation in nonprofit foreclosed housing acquisitions abstract increased rates of mortgage foreclosures in the u s have had devastating social and economic impacts during and after the 2008 financial crisis as part of the response to this problem nonprofit organizations such as community development corporations cdcs have been trying to mitigate the negative impacts of mortgage foreclosures by acquiring and redeveloping foreclosed properties we consider the strategic resource allocation decisions for these organizations which involve budget allocations to different neighborhoods under cost and return uncertainty based on interactions with a cdc we develop stochastic integer programming based frameworks for this decision problem and assess the practical value of the models by using real world data both policy related and computational analyses are performed and several insights such as the trade offs between different objectives and the efficiency of different solution approaches are presented

understanding the behavior of bank spreads in latin america abstract over the last decade many countries in latin america have eliminated interest rate ceilings reduced reserve requirements and stopped direct credit controls these market oriented reforms have encouraged financial deepening thereby producing considerable economic benefits to the countries nevertheless the persistence of high interest rate spreads has been a disquieting outcome of the reforms this paper explores the determinants of bank spreads in a systematic way for argentina bolivia chile colombia mexico peru and uruguay during the mid 1990s the analysis shows that high operating costs raise spreads as do high levels of non performing loans although the size of these effects differs across the countries in addition reserve requirements in a number of countries still act as a tax on banks that gets translated into a higher spread beyond bank specific variables uncertainty in the macroeconomic environment facing banks appears to increase interest spreads the combination of these microeconomic and macroeconomic factors is a cause for concern in latin america as spreads widen the cost of using the financial system becomes prohibitive to some potential borrowers in addition the results suggest that bank capital requirements may not prevent excessive risk taking by banks when bank spreads are high

corporate governance of banks a survey this paper reviews the empirical literature on the corporate governance of banks we start by highlighting the main differences between banks and nonfinancial firms and focus on three characteristics that make banks special i regulation ii the capital structure of banks and iii the complexity and opacity of their business and structure next we discuss the characteristics of corporate governance in banks and how they differ from the governance of nonfinancial firms we then review the evidence on three governance mechanisms i boards ii ownership structures and iii executive compensation our review suggests that some of the empirical regularities found in the literature on corporate governance of nonfinancial institutions such as the positive negative association between board independence size and performance do not hold for banks also existing work provides no conclusive results regarding the relationship between different governance mechanisms and various measures for banks performance we discuss potential explanations for these mixed results

how banks go abroad branches or subsidiaries the authors examine the factors that influence banks type of organizational form when operating in foreign markets using an original database of the branches and subsidiaries in latin america and eastern europe of the top 100 international banks they find that regulation taxation the degree of desired penetration in the local market and host country economic and political risks matter banks are more likely to operate as branches in countries that have higher corporate taxes and when they face lower regulatory restrictions on bank entry in general and on foreign branches in particular subsidiaries are the preferred organizational form by banks that seek to penetrate the local market establishing large and mostly retail operations finally there is evidence that economic and political risks have opposite effects on the type of organizational form suggesting that legal differences in the degree of parent bank responsibility vis a vis branches and subsidiaries under different risk scenarios play an important role in the kind of operations international banks maintain overseas

what explains the speed of recovery from banking crises abstract while a large body of research has explored the causes and effects of banking crises less is known about what determines recovery from banking crises despite large variations in post crisis performances across countries in order to identify local and global factors that determine the length of recovery i e the time it takes until countries reach their pre crisis level of per capita gdp this exploratory paper employs event history analysis on 138 incidents of banking crises between 1970 and 2012 regarding domestic factors the simultaneous occurrence of currency crises large financial sectors overvalued currencies and large primary deficits are associated with later recovery whereas higher debt to gdp ratios or inflation levels do not exhibit a negative effect on post crisis performances regarding external factors a low growth of world trade as well as indicators of uncertainty in financial markets are correlated with later recovery global interest rate shocks are particularly harmful for the speed of recovery among middle income countries with a strong reliance on external capital the results are similar when using the length of recessions as an alternative indicator of post crisis performances

bank lending to small businesses in latin america does bank origin matter recently foreign bank participation has increased significantly in developing countries fueling concerns that foreign banks might extend credit only to certain sectors leaving customers like small businesses unattended using bank level data for four latin american countries during the mid 1990s we investigate whether bank origin affects the share and growth of lending to small businesses while on average foreign banks seem to lend less to small businesses regression results reveal significant differences between small and large foreign banks in general we find that the latter surpass large domestic banks in their share and growth of lending to small businesses

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

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

relationship banking liquidity and investment in the german industrialization close bank relationships are thought to ameliorate firms liquidity constraints a phenomenon frequently measured by liquidity sensitivity of investment using german firms during the formative years of universal banking 1903 1913 this paper shows that even controlling for selection bias investment is more sensitive to internal liquidity for bank networked firms than unattached firms the firm exhibiting the greatest liquidity sensitivity however faced no apparent liquidity constraint the findings yield two implications they support recent research rejecting a linear relationship between liquidity sensitivity and financing constraints and they suggest that relationship banking provides no consistent lessening of firms liquidity sensitivity

central bank independence and macroeconomic performance some comparative evidence this note uses information on a sample of sixteen oecd countries to assess the relationship between central bank independence and macroeconomic performance as previous work suggests politically controlled central banks are more likely to pursue policies that lead to high and variable inflation however the authors find little evidence that political control of central bank policy has any impact on measures of the level or variability of growth unemployment or the ex ante real interest rate copyright 1993 by ohio state university press

central bank independence a paneldata approach the present paper uses a paneldata estimation technique to combine the time series for individual countries australia canada france germany italy japan the netherlands switzerland the united kingdom and the united states we postulated the response of central banks in these countries to inflation economic growth and current account surplus given the constraints to be the same among the sample countries differences between central bank independence come forward in a different structural pressure to lower or raise money market rates in these countries the empirical results in this study coincide remarkably well with the legal indices of central bank independence

why are interest spreads so high in uganda using international comparisons and a unique bank level dataset on the ugandan banking system over the period 1999 to 2005 we explore the factors behind consistently high interest rate spreads and margins international comparisons show that the small size of ugandan banks persistently high t bill rates and institutional deficiencies explain large proportions of the high ugandan interest rate margins the ugandan bank panel confirms the importance of macroeconomic factors such as high inflation high t bill rates and exchange rate appreciation there is also evidence for the small market place and high costs of doing business explaining persistently high spreads and margins smaller banks and banks targeting the low end of the market incur higher costs and therefore higher margins spreads and margins also vary significantly with the sectoral loan portfolio composition of banks while there is little evidence for foreign bank entry privatization or changes in market structure explaining variation in spreads or margins over time

coordinating supply chains with competition capacity allocation in semiconductor manufacturing abstract this paper motivated by the experiences of a major us based semiconductor manufacturer presents an integrated model of incentive problems arising in forecasting and capacity allocation our model involves multiple product managers and multiple manufacturing managers who forecast the means of their respective demand and capacity distributions a central coordinator is responsible for allocating capacities to product lines when these distributions are unknown to the central coordinator and capacity is scarce the managers misrepresent their forecasts a product manager inflates his forecast to gain a greater allocation of the capacity a manufacturing manager deflates his forecast to cover for the uncertainties in production we propose a game theoretic model and design a mechanism a bonus scheme for all managers and an allocation rule to allocate realized capacity to the product managers that elicits truthful reporting by all managers the results herein show that the structure of the truth eliciting bonus schemes is rather simple with easily calculable parameters we also show that large classes of allocation rules including the current allocation practice of the firm are manipulable a bonus is often required for elicitation of truthful information we synthesize the implications of our results for the practitioners

the determinants of net interest income in the mexican banking system an integrated model abstract this paper analyzes net interest income in the mexican banking system over the period 1993 2005 taking as reference the seminal work by ho and saunders ho t saunders a 1981 the determinants of banks interest margins theory and empirical evidence journal of financial and quantitative analysis xvi 4 581 600 and subsequent extensions by other authors our study models the net interest margin simultaneously including operating costs and diversification and specialization as determinants of the margin the results referring to the mexican case show that its high margins can be explained mainly by average operating costs and by market power although non interest income has increased in recent years its economic impact is low

escape from the usa government debt to gdp ratio country tax competitiveness and us oecd cross border m as statutory tax rates of a country do not reflect a country s true tax competitiveness we propose and show that government debt to gdp ratio govdebt of a country is a better proxy for its tax competitiveness using a comprehensive sample of 1 884 completed cross border acquisition transactions from the u s to other oecd countries we document that the u s target country govdebt difference is significantly and positively related to both deal announcement return and post deal tax saving of the acquirer the govdebt difference is also significantly and positively related to u s target country deal flow the findings remain robust when we control for the potential endogeneity of govdebt difference our findings strongly suggest that tax avoidance is an important driver of u s oecd cross border deal flow and it increases shareholder wealth for u s acquirers

market discipline and deposit insurance cross country evidence presented in this paper suggests that explicit deposit insurance reduces required deposit interest rates while at the same time it lowers market discipline on bank risk taking internationally deposit insurance schemes vary widely in their coverage funding and management this reflects that there are widely differing views on how deposit insurance should optimally be structured to inform this debate we use a newly constructed data set of deposit insurance design features to examine how different design features affect deposit interest rates and market discipline

collectivism and corruption in bank lending this paper examines how national culture and collectivism in particular influences corruption in bank lending we hypothesize that interdependent self construal and particularist norms in collectivist countries lead to a higher level of lending corruption through their influence both on the interactions between bank officers and bank customers and on the dynamics among bank colleagues using a sample covering 3835 firms across 38 countries we find strong evidence that firms domiciled in collectivist countries perceive a higher level of lending corruption than firms domiciled in individualist countries in terms of economic magnitude the effect of collectivism is substantially larger than the effects of other cultural dimensions uncertainty avoidance masculinity and power distance and institutional factors identified in prior studies bank supervision bank competition information sharing and media monitoring we further find that the positive relationship between collectivism and lending corruption is not driven by endogeneity and that it is robust to different measures of bank corruption different measures of collectivism and different estimation methods finally we find that the link between collectivism and lending corruption cannot be explained by the role of the government in the economy political connections biased responses from disgruntled borrowers or relationship lending

does conservatism matter a time series approach to central bank behaviour empirical studies crediting independent and conservative central banks with lowering inflation and inflation volatility have been criticised for their focus on policy outcomes instead of policies and for their unsystematic conflation of independence and conservatism we present results from time series models for the german bundesbank that avoid these shortfalls conservatism matters in the following sense i more conservative bundesbank councils tend to react stronger to changes in inflation and output and ii an increase in conservatism leads to a more activist stabilisation policy this is in line with simple policy models incorporating economic persistence with implementation lags for monetary policy