Marta Degl'Innocenti, Franco Fiordelisi, Irwan Trinugroho
Over the last decade, most credit-industries registered a decline in lending volumes, while factoring industries instead registered a substantial growth in terms of turnover. Surprisingly, only a handful of papers so far investigate factoring companies. Do factoring firms display the same stability levels of banks? Is the competition similar in factoring and banking industries? Is the relationship between competition and stability the same in these industries? Focusing on Italy (one of the largest factoring and banking markets in Europe) and using a unique dataset, we show three main results: factoring companies are (on average) more stable than banks; 2) the stability of factoring companies increase when competition declines (competition-fragility view); 3) the competition-fragility view is weaker in the factoring industry than in the banking industry. Our findings indicate that competition in the Italian credit industry was greater in factoring than in banking.
{"title":"Competition and Stability in the Credit Industry: Banking vs. Factoring Industries","authors":"Marta Degl'Innocenti, Franco Fiordelisi, Irwan Trinugroho","doi":"10.2139/ssrn.3163443","DOIUrl":"https://doi.org/10.2139/ssrn.3163443","url":null,"abstract":"Over the last decade, most credit-industries registered a decline in lending volumes, while factoring industries instead registered a substantial growth in terms of turnover. Surprisingly, only a handful of papers so far investigate factoring companies. Do factoring firms display the same stability levels of banks? Is the competition similar in factoring and banking industries? Is the relationship between competition and stability the same in these industries? Focusing on Italy (one of the largest factoring and banking markets in Europe) and using a unique dataset, we show three main results: factoring companies are (on average) more stable than banks; 2) the stability of factoring companies increase when competition declines (competition-fragility view); 3) the competition-fragility view is weaker in the factoring industry than in the banking industry. Our findings indicate that competition in the Italian credit industry was greater in factoring than in banking.","PeriodicalId":11689,"journal":{"name":"ERN: Commercial Banks (Topic)","volume":"33 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-04-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"91547899","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Recovery rate and its inverse, Loss Given Default (LGD), is a key metric in credit risk modelling, whether for regulatory capital, pricing models, stress testing or expected loss provisioning models. The data is however much more scarce than data for probability of default (PD) because the only cases which can be used come from defaulted loans, which represent around 1% of the total loan book of any bank. GCD member banks have been steadily collecting this data since 2004. This report is the first time GCD publishes such extensive analytics on its broad data set. The aim is to present the numerical evidence of recoveries and losses experienced by banks when providing credit facilities to large corporate counterparties. The data set in the report covers Large Corporate (>€50m turnover) borrowers who are recorded as defaulted in bank loan books, using the Basel default definition. The long term average LGD levels in this report can be compared to regulatory minima and standardised levels, allowing an industry wide discussion of prudent forward looking LGDs vs historical evidence. Note that the LGDs in this report are cash flow discounted observations of historical outcomes, not forward looking estimates. In December 2017 the BCBS made their final decision on what they call the “Finalisation of Basel III”. Regulators have allowed for continued internal modelling of PD, LGD and EAD when calculating regulatory capital, albeit with floors based on standardised levels. The need for internal modelling for pricing, Economic Capital and Credit Loss Provisioning (IFRS9 and CECL) models remains strong. The trend continues with more banks pooling data to better understand their credit risk portfolios and benchmark their models. The results in this study offer an overall insight into the data on a global level. The main findings are: Seniority and collateral are confirmed as LGD drivers (27% senior unsecured vs 40% subordinated unsecured at obligor level. The Total Secured LGD is 23%). LGD varies over time, indicating that there is a relationship between the economic conditions and recoveries. Because GCD data comprises privately held loans, the data set differs from most other studies. Hence the outcome can be compared to, but should not be expected to be the same as, studies which focus on publicly recorded bond defaults, single country data or liquidation only data.
{"title":"LGD Report 2018 - Large Corporate Borrowers","authors":"Nina Brumma, Philip Winckle","doi":"10.2139/ssrn.3289128","DOIUrl":"https://doi.org/10.2139/ssrn.3289128","url":null,"abstract":"Recovery rate and its inverse, Loss Given Default (LGD), is a key metric in credit risk modelling, whether for regulatory capital, pricing models, stress testing or expected loss provisioning models. The data is however much more scarce than data for probability of default (PD) because the only cases which can be used come from defaulted loans, which represent around 1% of the total loan book of any bank. GCD member banks have been steadily collecting this data since 2004. \u0000 \u0000This report is the first time GCD publishes such extensive analytics on its broad data set. The aim is to present the numerical evidence of recoveries and losses experienced by banks when providing credit facilities to large corporate counterparties. The data set in the report covers Large Corporate (>€50m turnover) borrowers who are recorded as defaulted in bank loan books, using the Basel default definition. \u0000 \u0000The long term average LGD levels in this report can be compared to regulatory minima and standardised levels, allowing an industry wide discussion of prudent forward looking LGDs vs historical evidence. Note that the LGDs in this report are cash flow discounted observations of historical outcomes, not forward looking estimates. \u0000 \u0000In December 2017 the BCBS made their final decision on what they call the “Finalisation of Basel III”. Regulators have allowed for continued internal modelling of PD, LGD and EAD when calculating regulatory capital, albeit with floors based on standardised levels. The need for internal modelling for pricing, Economic Capital and Credit Loss Provisioning (IFRS9 and CECL) models remains strong. The trend continues with more banks pooling data to better understand their credit risk portfolios and benchmark their models. \u0000 \u0000The results in this study offer an overall insight into the data on a global level. The main findings are: \u0000 \u0000Seniority and collateral are confirmed as LGD drivers (27% senior unsecured vs 40% subordinated unsecured at obligor level. The Total Secured LGD is 23%). \u0000 \u0000LGD varies over time, indicating that there is a relationship between the economic conditions and recoveries. \u0000 \u0000Because GCD data comprises privately held loans, the data set differs from most other studies. Hence the outcome can be compared to, but should not be expected to be the same as, studies which focus on publicly recorded bond defaults, single country data or liquidation only data.","PeriodicalId":11689,"journal":{"name":"ERN: Commercial Banks (Topic)","volume":"26 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-04-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"91379367","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2018-04-09DOI: 10.1016/j.ejor.2018.04.012
E. Tsionas, Emir Malikov, S. Kumbhakar
{"title":"An Internally Consistent Approach to the Estimation of Market Power and Cost Efficiency with an Application to U.S. Banking","authors":"E. Tsionas, Emir Malikov, S. Kumbhakar","doi":"10.1016/j.ejor.2018.04.012","DOIUrl":"https://doi.org/10.1016/j.ejor.2018.04.012","url":null,"abstract":"","PeriodicalId":11689,"journal":{"name":"ERN: Commercial Banks (Topic)","volume":"30 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-04-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"91221085","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Corporate lending market exhibits buoyancy in early 2018. Nominal volumes of new loans issued to corporate borrowers is close to pre-crisis maximum. However, corporate lending remains low against economic activity. The quality of credit portfolios can not be assessed positively yet due to the resolution of major banks.
{"title":"Corporate Lending: Market Exhibits Buoyancy","authors":"M. Khromov","doi":"10.2139/ssrn.3156951","DOIUrl":"https://doi.org/10.2139/ssrn.3156951","url":null,"abstract":"Corporate lending market exhibits buoyancy in early 2018. Nominal volumes of new loans issued to corporate borrowers is close to pre-crisis maximum. However, corporate lending remains low against economic activity. The quality of credit portfolios can not be assessed positively yet due to the resolution of major banks.","PeriodicalId":11689,"journal":{"name":"ERN: Commercial Banks (Topic)","volume":"23 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-04-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81449520","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
One potential consequence of rising top‐income concentration is borrowing by less‐affluent households attempting to maintain relative living standards. This paper evaluates the “keeping up with the Joneses” phenomenon, examining the responsiveness of payment‐to‐income ratios for different debt types across the income distribution to changes in income among affluent households. The analysis provides evidence for the responsiveness of debt to rising top incomes. Middle‐ and upper‐middle‐income households take on more housing‐related debt and have higher payments in places with higher top‐income levels. Among lower‐income households non‐mortgage borrowing and debt payments decline, consistent with restrictions in the supply of credit. (JEL D63, D14)
{"title":"Rising Top Incomes and Increased Borrowing in the Rest of the Distribution","authors":"Jeffrey Thompson","doi":"10.1111/ecin.12520","DOIUrl":"https://doi.org/10.1111/ecin.12520","url":null,"abstract":"One potential consequence of rising top‐income concentration is borrowing by less‐affluent households attempting to maintain relative living standards. This paper evaluates the “keeping up with the Joneses” phenomenon, examining the responsiveness of payment‐to‐income ratios for different debt types across the income distribution to changes in income among affluent households. The analysis provides evidence for the responsiveness of debt to rising top incomes. Middle‐ and upper‐middle‐income households take on more housing‐related debt and have higher payments in places with higher top‐income levels. Among lower‐income households non‐mortgage borrowing and debt payments decline, consistent with restrictions in the supply of credit. (JEL D63, D14)","PeriodicalId":11689,"journal":{"name":"ERN: Commercial Banks (Topic)","volume":"44 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75679461","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper, I employ anonymous New York City yellow taxi records to infer variation in interactions between insiders of the Federal Reserve Bank of New York (New York Fed) and insiders of major commercial banks around Federal Open Market Committee (FOMC) meetings. Taxi rides between the vicinities of the New York Fed's and the major commercial banks' buildings serve as indicators of meetings at those institutions, and coincidental drop-offs of passengers picked up around those institutions serve as indicators of offsite meetings. Cieślak, Morse and Vissing-Jorgensen (2016) posit systematic leakage from the Federal Reserve around FOMC meetings along unofficial channels, and, in line with that hypothesis, I find highly statistically significant evidence of increases in meetings at the New York Fed late at night and in offsite meetings during typical lunch hours.
在本文中，我使用匿名的纽约市黄色出租车记录来推断纽约联邦储备银行(New York Fed)内部人士与主要商业银行内部人士在联邦公开市场委员会(FOMC)会议期间的互动变化。纽约联邦储备银行和主要商业银行大楼附近的出租车行程可以作为在这些机构开会的指标，而在这些机构附近偶然下车的乘客可以作为场外会议的指标。Cieślak, Morse和Vissing-Jorgensen(2016)假设美联储在FOMC会议期间通过非官方渠道系统性泄漏，并且，与该假设一致，我发现具有高度统计学意义的证据表明，纽约联储深夜会议和典型午餐时间的场外会议增加。
{"title":"What Insights Do Taxi Rides Offer into Federal Reserve Leakage?","authors":"D. Finer","doi":"10.2139/ssrn.3163211","DOIUrl":"https://doi.org/10.2139/ssrn.3163211","url":null,"abstract":"In this paper, I employ anonymous New York City yellow taxi records to infer variation in interactions between insiders of the Federal Reserve Bank of New York (New York Fed) and insiders of major commercial banks around Federal Open Market Committee (FOMC) meetings. Taxi rides between the vicinities of the New York Fed's and the major commercial banks' buildings serve as indicators of meetings at those institutions, and coincidental drop-offs of passengers picked up around those institutions serve as indicators of offsite meetings. Cieślak, Morse and Vissing-Jorgensen (2016) posit systematic leakage from the Federal Reserve around FOMC meetings along unofficial channels, and, in line with that hypothesis, I find highly statistically significant evidence of increases in meetings at the New York Fed late at night and in offsite meetings during typical lunch hours.","PeriodicalId":11689,"journal":{"name":"ERN: Commercial Banks (Topic)","volume":"28 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-03-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86383039","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The notion of savings in economics has a variety of mutually incompatible meanings. This paper goes through various interpretations of the term and argues that, for the sake of clarity, it can and should be replaced with more precise terms. In order to show the significance of doing so, the paper then offers an “augmented” loanable funds model. Unlike the standard model, which was developed in the context of unintermediated lending, our mode: 1) does not identify the supply of loanable funds with “savings”, and 2) explicitly connects the banking sector to the supply of money with something more theoretically robust than a simple money multiplier. The resulting construction clarifies the relationship between the markets for money and credit, and is more faithful to the image of banks as creators of credit, while still retaining the pedagogical simplicity of the original loanable funds model.
{"title":"Against Savings: A Suggested Exposition of the Markets for Money and Credit","authors":"Cameron Harwick","doi":"10.2139/ssrn.3021115","DOIUrl":"https://doi.org/10.2139/ssrn.3021115","url":null,"abstract":"The notion of savings in economics has a variety of mutually incompatible meanings. This paper goes through various interpretations of the term and argues that, for the sake of clarity, it can and should be replaced with more precise terms. In order to show the significance of doing so, the paper then offers an “augmented” loanable funds model. \u0000Unlike the standard model, which was developed in the context of unintermediated lending, our mode: \u00001) does not identify the supply of loanable funds with “savings”, and \u00002) explicitly connects the banking sector to the supply of money with something more theoretically robust than a simple money multiplier. \u0000The resulting construction clarifies the relationship between the markets for money and credit, and is more faithful to the image of banks as creators of credit, while still retaining the pedagogical simplicity of the original loanable funds model.","PeriodicalId":11689,"journal":{"name":"ERN: Commercial Banks (Topic)","volume":"34 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-02-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"84401296","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We propose a dynamic structural model of credit risk of multiple loan portfolios. In line with Merton, Vasicek and Pykhtin, we assume that a loan defaults if the assets of the debtor fall below his liabilities, and the subsequent loss is determined by the collateral value. For each loan, the assets, liabilities and the collateral value each depends on a common and an individual factor. By applying our model to two nationwide United States loan portfolios with real estate collateral, we demonstrate its considerable predicting power and show that, similarly to calculations under prudential regulation, it can be used within financial institutions to measure credit risk under various macroeconomic situations and different probability levels. This makes the model usable for quantification of loan loss allowances under IFRS9 or for stress tests of credit risk.
{"title":"Modeling Credit Losses for Multiple Loan Portfolios","authors":"Petr Gapko, M. Šmíd","doi":"10.2139/ssrn.3117107","DOIUrl":"https://doi.org/10.2139/ssrn.3117107","url":null,"abstract":"We propose a dynamic structural model of credit risk of multiple loan portfolios. In line with Merton, Vasicek and Pykhtin, we assume that a loan defaults if the assets of the debtor fall below his liabilities, and the subsequent loss is determined by the collateral value. For each loan, the assets, liabilities and the collateral value each depends on a common and an individual factor. By applying our model to two nationwide United States loan portfolios with real estate collateral, we demonstrate its considerable predicting power and show that, similarly to calculations under prudential regulation, it can be used within financial institutions to measure credit risk under various macroeconomic situations and different probability levels. This makes the model usable for quantification of loan loss allowances under IFRS9 or for stress tests of credit risk.","PeriodicalId":11689,"journal":{"name":"ERN: Commercial Banks (Topic)","volume":"215 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-02-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77008071","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper is the first paper to provide a comprehensive review of the US regulatory treatment of a relatively recent and controversial source of funds, namely brokered deposits. To do this, we consider the extent to which banks rely on brokered deposits, as well as the impact of these funds on bank performance, bank failures, and bank failure costs. We also consider the changes taking place in technologies and how they continue to affect the way banks obtain funds and provide services to their customers. Our conclusion is that, without sufficient evidence to the contrary, such deposits should be treated no differently from all other deposits and other purchased funds.
{"title":"Regulatory Restrictions on US Bank Funding Sources: A Review of the Treatment of Brokered Deposits","authors":"James R. Barth, Wenling Lu, Yanfei Sun","doi":"10.2139/ssrn.3186872","DOIUrl":"https://doi.org/10.2139/ssrn.3186872","url":null,"abstract":"This paper is the first paper to provide a comprehensive review of the US regulatory treatment of a relatively recent and controversial source of funds, namely brokered deposits. To do this, we consider the extent to which banks rely on brokered deposits, as well as the impact of these funds on bank performance, bank failures, and bank failure costs. We also consider the changes taking place in technologies and how they continue to affect the way banks obtain funds and provide services to their customers. Our conclusion is that, without sufficient evidence to the contrary, such deposits should be treated no differently from all other deposits and other purchased funds.","PeriodicalId":11689,"journal":{"name":"ERN: Commercial Banks (Topic)","volume":"29 4 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-01-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82951741","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper documents and analyzes the increasing role of foreign banks in Korea in recent years. Using macroeconomic and banking data for the period of 2000Q1-2016Q2, we present evidence that foreign bank branches in Korea have responded to the changes in monetary policies in their home countries (the US, in particular) in providing foreign currency loans and affecting the direction and magnitude of international capital flows via the banking sector in Korea. As the monetary policy interest rate gap between (1) Korea (BOK base rates) and (2) the U.S. (the fed funds rates) increases in favor of Korea, foreign banks’ foreign currency loans in Korea have increased with a one quarter (3-month) lag time period. Cross-border bank loans and international capital flows via the banking sector in Korea have also shown a similar pattern of lagged responses to monetary policy shocks transmitted from the U.S. to Korea. The paper also derives important policy implications.
{"title":"Foreign Banks, Liquidity and International Capital Flows: Evidence from Korea","authors":"B. Jeon, Hosung Lim, Ji (George) Wu","doi":"10.2139/ssrn.3109271","DOIUrl":"https://doi.org/10.2139/ssrn.3109271","url":null,"abstract":"This paper documents and analyzes the increasing role of foreign banks in Korea in recent years. Using macroeconomic and banking data for the period of 2000Q1-2016Q2, we present evidence that foreign bank branches in Korea have responded to the changes in monetary policies in their home countries (the US, in particular) in providing foreign currency loans and affecting the direction and magnitude of international capital flows via the banking sector in Korea. As the monetary policy interest rate gap between (1) Korea (BOK base rates) and (2) the U.S. (the fed funds rates) increases in favor of Korea, foreign banks’ foreign currency loans in Korea have increased with a one quarter (3-month) lag time period. Cross-border bank loans and international capital flows via the banking sector in Korea have also shown a similar pattern of lagged responses to monetary policy shocks transmitted from the U.S. to Korea. The paper also derives important policy implications.","PeriodicalId":11689,"journal":{"name":"ERN: Commercial Banks (Topic)","volume":"4 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-01-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82272841","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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