We study how U.S. banks' exposure to the economic fallout due to governments' response to Covid-19 in foreign countries has affected their credit provision to borrowers in the United States. We combine a rarely accessed dataset on U.S. banks' cross-border exposure to borrowers in foreign countries with the most detailed regulatory ("credit registry") data that is available on their U.S.-based lending. We compare the change in the U.S. lending of banks that are more vs. less exposed to the pandemic abroad, during and after the onset of Covid-19 in 2020. We document strong spillover effects: U.S. banks with higher foreign exposures in badly "Covid-19-hit" regions cut their lending in the United States substantially more. This effect is particularly strong for longer-maturity loans and term loans and is robust to controlling for firms’ pandemic exposure.
{"title":"Domestic Lending and the Pandemic: How Does Banks’ Exposure to COVID-19 Abroad Affect Their Lending in the United States?","authors":"Judit Temesvary, Andrew Wei","doi":"10.2139/ssrn.3886989","DOIUrl":"https://doi.org/10.2139/ssrn.3886989","url":null,"abstract":"We study how U.S. banks' exposure to the economic fallout due to governments' response to Covid-19 in foreign countries has affected their credit provision to borrowers in the United States. We combine a rarely accessed dataset on U.S. banks' cross-border exposure to borrowers in foreign countries with the most detailed regulatory (\"credit registry\") data that is available on their U.S.-based lending. We compare the change in the U.S. lending of banks that are more vs. less exposed to the pandemic abroad, during and after the onset of Covid-19 in 2020. We document strong spillover effects: U.S. banks with higher foreign exposures in badly \"Covid-19-hit\" regions cut their lending in the United States substantially more. This effect is particularly strong for longer-maturity loans and term loans and is robust to controlling for firms’ pandemic exposure.","PeriodicalId":405783,"journal":{"name":"PSN: Financial Institutions (Topic)","volume":"17 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-07-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124077812","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 study bank contributions that ex ante fund government guarantees supported by a fiscal backstop in a general equilibrium setting where banks intermediate between risk-averse households and state-contingent investments. We offer an analytical characterization of optimal bank contributions as a function of household risk-aversion and guarantees. Showing that higher risk-aversion expedites the way bank contributions internalize guarantees' boost of household risk-taking, we establish a non-trivial relationship between optimal bank contributions and household risk-aversion: Higher risk-aversion optimally induces higher contributions when guarantees exceed a threshold; otherwise, higher contributions shall be observed in economies with less risk-averse households.
{"title":"Optimal Bank Contributions and Household Risk-Aversion","authors":"S. Papageorgiou","doi":"10.2139/ssrn.3889332","DOIUrl":"https://doi.org/10.2139/ssrn.3889332","url":null,"abstract":"We study bank contributions that ex ante fund government guarantees supported by a fiscal backstop in a general equilibrium setting where banks intermediate between risk-averse households and state-contingent investments. We offer an analytical characterization of optimal bank contributions as a function of household risk-aversion and guarantees. Showing that higher risk-aversion expedites the way bank contributions internalize guarantees' boost of household risk-taking, we establish a non-trivial relationship between optimal bank contributions and household risk-aversion: Higher risk-aversion optimally induces higher contributions when guarantees exceed a threshold; otherwise, higher contributions shall be observed in economies with less risk-averse households.","PeriodicalId":405783,"journal":{"name":"PSN: Financial Institutions (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-07-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130683621","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}
Using earthquakes as exogenous demand shocks to the credit market, we explore whether fintech lending can complement traditional banks in face of surged credit demand under a continuous difference-in-differences framework. We find that fintech loans increases significantly after earthquakes, especially in the more severely affected regions. However, the acceptance ratio and the loan rate keep stable pre and post earthquakes, so as the borrower characteristics. Notably, the increase in fintech lending is lower in places where traditional banking networks are more intensive and concentrated, and where there is a larger share of local banks. Therefore, fintech lending is especially helpful in increases people’s access to credit in areas where traditional banks are pulling back. Last, we find positive effects of fintech credit in job retention and creation after disasters.
{"title":"A lender in need is a lender indeed: Role of fintech lending after natural disasters","authors":"Shusen Qi, Runliang Li, Hang Sun","doi":"10.2139/ssrn.3888096","DOIUrl":"https://doi.org/10.2139/ssrn.3888096","url":null,"abstract":"Using earthquakes as exogenous demand shocks to the credit market, we explore whether fintech lending can complement traditional banks in face of surged credit demand under a continuous difference-in-differences framework. We find that fintech loans increases significantly after earthquakes, especially in the more severely affected regions. However, the acceptance ratio and the loan rate keep stable pre and post earthquakes, so as the borrower characteristics. Notably, the increase in fintech lending is lower in places where traditional banking networks are more intensive and concentrated, and where there is a larger share of local banks. Therefore, fintech lending is especially helpful in increases people’s access to credit in areas where traditional banks are pulling back. Last, we find positive effects of fintech credit in job retention and creation after disasters.","PeriodicalId":405783,"journal":{"name":"PSN: Financial Institutions (Topic)","volume":"36 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-07-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133518110","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 provide evidence on how banks form network connections and endogenous risk-taking in their non-bank counterparty choices in the OTC derivative markets. We use confidential regulatory data from the Capital Assessment and Stress Testing reports that provide counterparty-level data across a wide range of OTC markets for the most systemically important U.S. banks. We show that banks are more likely to either establish or maintain a relationship, and increase their exposures within an existing relationship, with non-bank counterparties that are already heavily connected and exposed to other banks. Banks in such densely-connected networks are more likely to connect with riskier counterparties for their most material exposures. The effects are strongest in the case of (non-bank) financial counterparties. These findings suggest moral hazard behavior in counterparty choices. Finally, we demonstrate that these exposures are strongly linked to systemic risk. Overall, the results suggest a network formation process that amplifies risk propagation through non-bank linkages in opaque financial markets.
{"title":"Counterparty Choice, Bank Interconnectedness, and Systemic Risk","authors":"A. Ellul, Dasol Kim","doi":"10.2139/ssrn.3886985","DOIUrl":"https://doi.org/10.2139/ssrn.3886985","url":null,"abstract":"We provide evidence on how banks form network connections and endogenous risk-taking in their non-bank counterparty choices in the OTC derivative markets. We use confidential regulatory data from the Capital Assessment and Stress Testing reports that provide counterparty-level data across a wide range of OTC markets for the most systemically important U.S. banks. We show that banks are more likely to either establish or maintain a relationship, and increase their exposures within an existing relationship, with non-bank counterparties that are already heavily connected and exposed to other banks. Banks in such densely-connected networks are more likely to connect with riskier counterparties for their most material exposures. The effects are strongest in the case of (non-bank) financial counterparties. These findings suggest moral hazard behavior in counterparty choices. Finally, we demonstrate that these exposures are strongly linked to systemic risk. Overall, the results suggest a network formation process that amplifies risk propagation through non-bank linkages in opaque financial markets.","PeriodicalId":405783,"journal":{"name":"PSN: Financial Institutions (Topic)","volume":"86 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-07-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132285134","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 study how the structure of the local banking market characterized by bank specialization and bank concentration affects credit and labor market responses to an import shock to local economies. We find that during the surge in U.S. imports from China from 1998 to 2006, small business loans (SBL) decline in counties that face a larger import shock. We show that bank geographical specialization positively affects banks' SBL origination in response to the import shock, while we do not find a significant effect with respect to bank concentration. Consistent with these results, we show that while on average employment and wages decline in counties hit by the import shock, higher bank specialization attenuates these negative labor outcomes, whereas bank concentration does not seem to have such attenuation effects.
{"title":"Banking Market Structure and Trade Shocks","authors":"M. Izadi, Vahid Saadi","doi":"10.2139/ssrn.3886408","DOIUrl":"https://doi.org/10.2139/ssrn.3886408","url":null,"abstract":"We study how the structure of the local banking market characterized by bank specialization and bank concentration affects credit and labor market responses to an import shock to local economies. We find that during the surge in U.S. imports from China from 1998 to 2006, small business loans (SBL) decline in counties that face a larger import shock. We show that bank geographical specialization positively affects banks' SBL origination in response to the import shock, while we do not find a significant effect with respect to bank concentration. Consistent with these results, we show that while on average employment and wages decline in counties hit by the import shock, higher bank specialization attenuates these negative labor outcomes, whereas bank concentration does not seem to have such attenuation effects.<br>","PeriodicalId":405783,"journal":{"name":"PSN: Financial Institutions (Topic)","volume":"29 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-07-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114061346","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 Global Financial Crisis creates liquidity shocks, banks failures and a global economic downturn while led to significant supervisory and regulatory reforms affecting banks efficiency performance. We offer new insights investigating overall inefficiency and by decomposing into transient and persistent components. Using a panel data on 5698 US banks during the period 2010-2016, this study incorporates the measure of both transient and persistent production and cost inefficiency. We find that persistent efficiency seems to be more important for both specifications, as it accounts for 32% (for the production) and 39% (for the cost function) of the inefficiency comparing with the transient part. We argue that most of banks faced increasing returns to scale in production and cost, independently from ownership and size dimension.
{"title":"US banks efficiency after global financial crisis: transient and persistent decomposition","authors":"Giancarlo Ferrara, K. Kounetas","doi":"10.2139/ssrn.3884023","DOIUrl":"https://doi.org/10.2139/ssrn.3884023","url":null,"abstract":"The Global Financial Crisis creates liquidity shocks, banks failures and a global economic downturn while led to significant supervisory and regulatory reforms affecting banks efficiency performance. We offer new insights investigating overall inefficiency and by decomposing into transient and persistent components. Using a panel data on 5698 US banks during the period 2010-2016, this study incorporates the measure of both transient and persistent production and cost inefficiency. We find that persistent efficiency seems to be more important for both specifications, as it accounts for 32% (for the production) and 39% (for the cost function) of the inefficiency comparing with the transient part. We argue that most of banks faced increasing returns to scale in production and cost, independently from ownership and size dimension.","PeriodicalId":405783,"journal":{"name":"PSN: Financial Institutions (Topic)","volume":"29 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-07-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115550686","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 : 2021-06-13DOI: 10.15549/JEECAR.V8I2.635
Arbana Sahiti, A. Sahiti
Commercial banks' credit risk management is a function that focuses on events that may affect the achievement of objectives. Improper management will result in negative consequences or results. Therefore, banks usually pay more attention to events with a higher probability and impact of a direct loss of revenue and capital than events that may result in positive effects. This research adopts secondary data and seeks to analyze credit risk management of commercial banks in Kosovo through a developed DEA (Data Envelopment Analysis) model. The study covers seven commercial banks in Kosovo for the period 2008-2016 and uses Tobit regression to determine credit risk efficiency. The estimation results show a statistically significant positive relationship between bank efficiency, capital adequacy, and loans. Moreover, the study found that banks' efficiency factors, including profitability, deposits, costs, banks size, GDP growth, and inflation, are not statistically significant.
{"title":"The Commercial Banks’ Credit Risk Efficiency: Empirical Evidence from Kosovo","authors":"Arbana Sahiti, A. Sahiti","doi":"10.15549/JEECAR.V8I2.635","DOIUrl":"https://doi.org/10.15549/JEECAR.V8I2.635","url":null,"abstract":"Commercial banks' credit risk management is a function that focuses on events that may affect the achievement of objectives. Improper management will result in negative consequences or results. Therefore, banks usually pay more attention to events with a higher probability and impact of a direct loss of revenue and capital than events that may result in positive effects. This research adopts secondary data and seeks to analyze credit risk management of commercial banks in Kosovo through a developed DEA (Data Envelopment Analysis) model. The study covers seven commercial banks in Kosovo for the period 2008-2016 and uses Tobit regression to determine credit risk efficiency. The estimation results show a statistically significant positive relationship between bank efficiency, capital adequacy, and loans. Moreover, the study found that banks' efficiency factors, including profitability, deposits, costs, banks size, GDP growth, and inflation, are not statistically significant.","PeriodicalId":405783,"journal":{"name":"PSN: Financial Institutions (Topic)","volume":"114 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-06-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123660149","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 consider a spatial model of bank competition to study how the diffusion of information technology affects competition in the lending market, stability of the banking sector, and social welfare. We find that the effects of an improvement in information technology depend on whether or not it weakens the influence of bank–borrower distance on monitoring/screening costs. If so, then bank competition intensifies, which reduces bank stability and brings about an ambiguous welfare effect. Otherwise, competition intensity does not vary, banks are more stable, and welfare improves. If banks have local monopolies, then technological progress always improves social welfare.
{"title":"Information Technology and Bank Competition","authors":"X. Vives, Zhiqiang Ye","doi":"10.2139/ssrn.3863988","DOIUrl":"https://doi.org/10.2139/ssrn.3863988","url":null,"abstract":"We consider a spatial model of bank competition to study how the diffusion of information technology affects competition in the lending market, stability of the banking sector, and social welfare. We find that the effects of an improvement in information technology depend on whether or not it weakens the influence of bank–borrower distance on monitoring/screening costs. If so, then bank competition intensifies, which reduces bank stability and brings about an ambiguous welfare effect. Otherwise, competition intensity does not vary, banks are more stable, and welfare improves. If banks have local monopolies, then technological progress always improves social welfare.","PeriodicalId":405783,"journal":{"name":"PSN: Financial Institutions (Topic)","volume":"222 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-06-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116858445","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 tests how closely the three leading market-based systemic risk measures (SRM) agree with the list of global systemically important banks (G-SIB) from the Financial Stability Board (FSB) and how closely they match the categorization of G-SIBs into the five systemic risk buckets used by the FSB to assign capital surcharges to G-SIBs. In addition, we investigate the concordance among these SRMs and with the FSB's designation methodology for G-SIBs. Finally, we test how these SRMs incorporate the information from high volatile events between 2015 to 2018. Our results show that alternative measures produce different estimates of systemic risk, systemically important banks and categories, with the SRISK ranking having the highest concordance with the FSB's classification of G-SIBs. In contrast, the three measures all promptly react to high volatile events.
{"title":"Does Market's Assessment of Systemically Important Banks Differ from Regulators' Rankings?","authors":"Davide Vioto, R. Tunaru, Esa Jokivuolle","doi":"10.2139/ssrn.3839633","DOIUrl":"https://doi.org/10.2139/ssrn.3839633","url":null,"abstract":"This paper tests how closely the three leading market-based systemic risk measures (SRM) agree with the list of global systemically important banks (G-SIB) from the Financial Stability Board (FSB) and how closely they match the categorization of G-SIBs into the five systemic risk buckets used by the FSB to assign capital surcharges to G-SIBs. In addition, we investigate the concordance among these SRMs and with the FSB's designation methodology for G-SIBs. Finally, we test how these SRMs incorporate the information from high volatile events between 2015 to 2018. Our results show that alternative measures produce different estimates of systemic risk, systemically important banks and categories, with the SRISK ranking having the highest concordance with the FSB's classification of G-SIBs. In contrast, the three measures all promptly react to high volatile events.","PeriodicalId":405783,"journal":{"name":"PSN: Financial Institutions (Topic)","volume":"25 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-05-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131539952","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 shows that higher information technology (IT) adoption by banks led to a larger increase in corporate lending in the months following the COVID-19 outbreak in Italy. Examining banks with heterogeneous degrees of IT adoption, we investigate the dynamics of credit and its allocation across firms using a new database with detailed information on bank IT expenditures and propensity to innovate matched with bank-firm level data on credit growth before and during the pandemic. Using a difference-in-differences identification strategy, we find that banks with higher intensity of IT adoption increased their credit more than others during the pandemic. The increase was concentrated in term loans extended to smaller and financially sounder companies; the effect was stronger in the initial phase of tighter restrictions to firm activity and individual mobility, and more significant for undertakings active in the sectors most affected by the shock. We provide evidence that these results are driven by both bank's ability to offer credit entirely on-line and bank's use of digital technologies for creditworthiness assessment. We find that physical proximity between borrowers and lenders remained important for credit provision during the pandemic, but only when combined with high level of IT adoption.
{"title":"The Role of Banks' Technology Adoption in Credit Markets during the Pandemic","authors":"Nicola Branzoli, Edoardo Rainone, I. Supino","doi":"10.2139/ssrn.3878254","DOIUrl":"https://doi.org/10.2139/ssrn.3878254","url":null,"abstract":"This paper shows that higher information technology (IT) adoption by banks led to a larger increase in corporate lending in the months following the COVID-19 outbreak in Italy. Examining banks with heterogeneous degrees of IT adoption, we investigate the dynamics of credit and its allocation across firms using a new database with detailed information on bank IT expenditures and propensity to innovate matched with bank-firm level data on credit growth before and during the pandemic. Using a difference-in-differences identification strategy, we find that banks with higher intensity of IT adoption increased their credit more than others during the pandemic. The increase was concentrated in term loans extended to smaller and financially sounder companies; the effect was stronger in the initial phase of tighter restrictions to firm activity and individual mobility, and more significant for undertakings active in the sectors most affected by the shock. We provide evidence that these results are driven by both bank's ability to offer credit entirely on-line and bank's use of digital technologies for creditworthiness assessment. We find that physical proximity between borrowers and lenders remained important for credit provision during the pandemic, but only when combined with high level of IT adoption.","PeriodicalId":405783,"journal":{"name":"PSN: Financial Institutions (Topic)","volume":"63 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-04-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125689747","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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