The share of households using mobile banking has increased from 16% to 28% between 2014 and 2019. Using data across all census tracts between 2014 and 2019, we investigate the incidence of mobile banking and its relationship with traditional brick-and-mortar bank branches. First, we document three stylized facts: mobile banking is more common in areas with a higher concentration of individuals employed in information and professional services sectors, areas with higher shares of college graduates, and areas with a higher share of youth between ages 18 and 30. Second, we estimate the elasticity between mobile banking and both the incidence of banking deserts and the number of physical bank locations. Exploiting within-tract variation and controlling for time-varying shocks, we find that residents of banking deserts are 1.3-4.7% more likely to have mobile banking and that an additional physical branch opening, net of closures, is associated with a 0.3-0.7% decline in mobile banking usage. Our results suggest that mobile banking can serve as an important vehicle for financial inclusion by providing an alternate avenue for consumers to access banking services, particularly in rural communities.
{"title":"The Rise of Mobile Banking and the Displacement of Brick-and-Mortar Branches, 2014-2019","authors":"Hugo Dante, C. Makridis","doi":"10.2139/ssrn.3822561","DOIUrl":"https://doi.org/10.2139/ssrn.3822561","url":null,"abstract":"The share of households using mobile banking has increased from 16% to 28% between 2014 and 2019. Using data across all census tracts between 2014 and 2019, we investigate the incidence of mobile banking and its relationship with traditional brick-and-mortar bank branches. First, we document three stylized facts: mobile banking is more common in areas with a higher concentration of individuals employed in information and professional services sectors, areas with higher shares of college graduates, and areas with a higher share of youth between ages 18 and 30. Second, we estimate the elasticity between mobile banking and both the incidence of banking deserts and the number of physical bank locations. Exploiting within-tract variation and controlling for time-varying shocks, we find that residents of banking deserts are 1.3-4.7% more likely to have mobile banking and that an additional physical branch opening, net of closures, is associated with a 0.3-0.7% decline in mobile banking usage. Our results suggest that mobile banking can serve as an important vehicle for financial inclusion by providing an alternate avenue for consumers to access banking services, particularly in rural communities.","PeriodicalId":405783,"journal":{"name":"PSN: Financial Institutions (Topic)","volume":"60 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-04-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123159692","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}
Trades in today’s financial system are inherently subject to settlement uncertainty. This paper explores tokenization as a potential technological solution. A token system, by enabling programmability of assets, can be designed to eradicate settlement uncertainty. We study the allocations achieved in a decentralized market with either the legacy settlement system or a token system. Tokenization can improve efficiency in markets subject to a limited commitment problem. However, it also materially alters the information environment, which in turn aggravates a hold-up problem. This limits potential gains from resolving settlement uncertainty, particularly for markets that depend on intermediaries.
{"title":"Optimal Design of Tokenized Markets","authors":"M. Lee, Antoine Martin, R. Townsend","doi":"10.2139/ssrn.3820973","DOIUrl":"https://doi.org/10.2139/ssrn.3820973","url":null,"abstract":"Trades in today’s financial system are inherently subject to settlement uncertainty. This paper explores tokenization as a potential technological solution. A token system, by enabling programmability of assets, can be designed to eradicate settlement uncertainty. We study the allocations achieved in a decentralized market with either the legacy settlement system or a token system. Tokenization can improve efficiency in markets subject to a limited commitment problem. However, it also materially alters the information environment, which in turn aggravates a hold-up problem. This limits potential gains from resolving settlement uncertainty, particularly for markets that depend on intermediaries.","PeriodicalId":405783,"journal":{"name":"PSN: Financial Institutions (Topic)","volume":"47 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133096617","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}
Dr. Despoina I. Ntaikou, Postdoc c., G. Vousinas, Dimitris Kenourgios
The purpose of this study is twofold: to provide a general overview of the newly established accounting standard - IFRS 9 and highlight its expected impact on the financial condition of the European banking system, placing the focus on the Greek banking sector.
The research methodology implemented is a critical overview of IFRS 9, based on officially published papers by the regulatory authorities as well as recent trusted professional papers and guidance reports, due to the fact that the implementation of IFRS 9 is very recent and banking institutions are gradually adopting it. An analytical description of the new requirements and banks’ readjustments is also provided and the expected impact on the European banking system is analysed, through the lens of the Greek systemic banks, as slightly captured, due to the small period of implementation. The findings showed that the expected alterations due to the implementation of IFRS 9 will cause major effects to the European banking system, at all levels. The authors highlight that banks must proceed to fundamental changes into their existing business models to respond to the IFRS 9 requirements from the view of the effects the latter will have on their financial situation. Regarding the Greek banking system, the study highlights that IFRS 9 implementation is expected to raise the coverage of NPEs (a positive impact), while additional provisions will have a negative regulatory capital effect. This paper offers the first, to the best of the authors’ knowledge, study focusing on the expected impact the implementation of IFRS 9 will have on the Greek banking system. It also provides a general overview of IFRS 9, driven by the relative shortage of relevant research, while offering useful insights which contribute to a deeper understanding of the transition and transmission effect on the banking system’s functionality.
{"title":"The Expected Impact of IFRS 9 on the Greek Banking System’s Financial Performance: Theoretical Considerations and Insights","authors":"Dr. Despoina I. Ntaikou, Postdoc c., G. Vousinas, Dimitris Kenourgios","doi":"10.2139/ssrn.3794677","DOIUrl":"https://doi.org/10.2139/ssrn.3794677","url":null,"abstract":"The purpose of this study is twofold: to provide a general overview of the newly established accounting standard - IFRS 9 and highlight its expected impact on the financial condition of the European banking system, placing the focus on the Greek banking sector. <br><br>The research methodology implemented is a critical overview of IFRS 9, based on officially published papers by the regulatory authorities as well as recent trusted professional papers and guidance reports, due to the fact that the implementation of IFRS 9 is very recent and banking institutions are gradually adopting it. An analytical description of the new requirements and banks’ readjustments is also provided and the expected impact on the European banking system is analysed, through the lens of the Greek systemic banks, as slightly captured, due to the small period of implementation. The findings showed that the expected alterations due to the implementation of IFRS 9 will cause major effects to the European banking system, at all levels. The authors highlight that banks must proceed to fundamental changes into their existing business models to respond to the IFRS 9 requirements from the view of the effects the latter will have on their financial situation. Regarding the Greek banking system, the study highlights that IFRS 9 implementation is expected to raise the coverage of NPEs (a positive impact), while additional provisions will have a negative regulatory capital effect. This paper offers the first, to the best of the authors’ knowledge, study focusing on the expected impact the implementation of IFRS 9 will have on the Greek banking system. It also provides a general overview of IFRS 9, driven by the relative shortage of relevant research, while offering useful insights which contribute to a deeper understanding of the transition and transmission effect on the banking system’s functionality.<br>","PeriodicalId":405783,"journal":{"name":"PSN: Financial Institutions (Topic)","volume":"26 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-02-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133971995","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 the effects of transparency disclosures on the risk culture, corporate culture, and performance of U.S. banks. Using stress test regulation, textual analysis, and a regression discontinuity design, we exploit the regulation's quasi-experimental properties around the bank-size policy thresholds. We find that stress-test banks substantially improve their risk and corporate cultures. Strong risk culture banks further reduce their risk densities, risky loans, and costs of debt while increasing profitability. Surprisingly, these effects do not exist among the subset of banks with strong corporate culture only. When examining banks with both strong risk and corporate cultures, the effects switch signs showing evidence of moral hazard. Our findings highlight the differentiating role of risk culture and the restraining impact organizational culture has in mitigating risk.
{"title":"Adding Stress in Banking: Transparency Disclosures and Corporate Risk Culture","authors":"Raffi E. García, Jyothsna Harithsa, Abena Owusu","doi":"10.2139/ssrn.3791581","DOIUrl":"https://doi.org/10.2139/ssrn.3791581","url":null,"abstract":"We study the effects of transparency disclosures on the risk culture, corporate culture, and performance of U.S. banks. Using stress test regulation, textual analysis, and a regression discontinuity design, we exploit the regulation's quasi-experimental properties around the bank-size policy thresholds. We find that stress-test banks substantially improve their risk and corporate cultures. Strong risk culture banks further reduce their risk densities, risky loans, and costs of debt while increasing profitability. Surprisingly, these effects do not exist among the subset of banks with strong corporate culture only. When examining banks with both strong risk and corporate cultures, the effects switch signs showing evidence of moral hazard. Our findings highlight the differentiating role of risk culture and the restraining impact organizational culture has in mitigating risk.","PeriodicalId":405783,"journal":{"name":"PSN: Financial Institutions (Topic)","volume":"12 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-02-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121058530","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}
Pandemics lead to a sudden decline in the level of economic activities. Lending institutions reduce credit supply to businesses due to fears of rising bad debts during a pandemic. This paper highlights some approach to financial regulation and bank supervision during a pandemic such as the SARS and COVID-19 pandemic. The approach suggested in this paper are intended to be applicable to all types of pandemic since their effect on banks and financial institutions are relatively the same.
{"title":"Financial Regulation and Bank Supervision during a Pandemic","authors":"Peterson K. Ozili","doi":"10.2139/ssrn.3770211","DOIUrl":"https://doi.org/10.2139/ssrn.3770211","url":null,"abstract":"Pandemics lead to a sudden decline in the level of economic activities. Lending institutions reduce credit supply to businesses due to fears of rising bad debts during a pandemic. This paper highlights some approach to financial regulation and bank supervision during a pandemic such as the SARS and COVID-19 pandemic. The approach suggested in this paper are intended to be applicable to all types of pandemic since their effect on banks and financial institutions are relatively the same.","PeriodicalId":405783,"journal":{"name":"PSN: Financial Institutions (Topic)","volume":"91 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125000676","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}
Financial market infrastructures (FMIs) have evolved as core elements of highly intermediated financial markets partly due to the technological limitations of the time when they were first architected. Organizations and firms were unable to share records without having to entrust a single party to manage them; hence this phenomenon of intermediation has led to significant information silos. Simultaneously, it has driven the structure of business models, as well as regulatory supervision and oversight, in ways that furthered intermediation and also created a misalignment of incentives and risk taking between entities now categorized as systemically important financial institutions (SIFIs) and systemically important financial market infrastructures. Over time, this consolidation has led to highly concentrated FMIs and with it, concentrated risks. Some of these risks go beyond the credit risks of just one or two institutions, becoming instead systemic risks that are continuously monitored by regulatory bodies based on coordinated sets of principles and guidelines including the 2012 Principles for Financial Market Infrastructures from CPMI and IOSCO.
Over the past decade, advances in public key cryptography, hash functions, virtualisation, distributed consensus, multiparty computation, and peer-to-peer networking have led to experimentation around record sharing between erstwhile competitive firms. Over the past five years, a series of independent efforts has chaperoned regulatory requirements into a digital, automated state that enables secure information sharing in full compliance with the law, while simultaneously enabling market participants to mutualise infrastructure that would otherwise be run by a single trusted party. With these developments, many of the services that centralised intermediaries currently provide could potentially be replaced by decentralised infrastructures or decentralised financial market infrastructure (dFMI). dFMI also enables a change in business structure, where a re-alignment of incentives can take place such that those firms taking risks can fully bear the consequences of these risks.
{"title":"Decentralized Financial Market Infrastructures","authors":"T. Swanson","doi":"10.2139/ssrn.3530996","DOIUrl":"https://doi.org/10.2139/ssrn.3530996","url":null,"abstract":"Financial market infrastructures (FMIs) have evolved as core elements of highly intermediated financial markets partly due to the technological limitations of the time when they were first architected. Organizations and firms were unable to share records without having to entrust a single party to manage them; hence this phenomenon of intermediation has led to significant information silos. Simultaneously, it has driven the structure of business models, as well as regulatory supervision and oversight, in ways that furthered intermediation and also created a misalignment of incentives and risk taking between entities now categorized as systemically important financial institutions (SIFIs) and systemically important financial market infrastructures. Over time, this consolidation has led to highly concentrated FMIs and with it, concentrated risks. Some of these risks go beyond the credit risks of just one or two institutions, becoming instead systemic risks that are continuously monitored by regulatory bodies based on coordinated sets of principles and guidelines including the 2012 Principles for Financial Market Infrastructures from CPMI and IOSCO.<br><br>Over the past decade, advances in public key cryptography, hash functions, virtualisation, distributed consensus, multiparty computation, and peer-to-peer networking have led to experimentation around record sharing between erstwhile competitive firms. Over the past five years, a series of independent efforts has chaperoned regulatory requirements into a digital, automated state that enables secure information sharing in full compliance with the law, while simultaneously enabling market participants to mutualise infrastructure that would otherwise be run by a single trusted party. With these developments, many of the services that centralised intermediaries currently provide could potentially be replaced by decentralised infrastructures or decentralised financial market infrastructure (dFMI). dFMI also enables a change in business structure, where a re-alignment of incentives can take place such that those firms taking risks can fully bear the consequences of these risks.","PeriodicalId":405783,"journal":{"name":"PSN: Financial Institutions (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-12-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130261519","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 investigate the transmission of financial shocks through the macroeconomy. To that end we develop an endogenous regime-switching structural vector autoregressive model with time-varying transition probabilities. First, we allow for the transition probabilities to be dependent on the state of the economy, and thereby to be time-varying. Second, we facilitate rather general, non-recursive structural identification restrictions. Third, we allow the identification restrictions to differ across regimes. We employ a model with conventional and unconventional monetary policy, where the latter is modelled via the Fed balance sheet. Using bank-level data, we shed light on the role of leverage of banks for the transmission of financial shocks.
{"title":"The Transmission of Financial Shocks and Leverage of Banks: An Endogenous Regime Switching Framework","authors":"K. Hubrich, Daniel F. Waggoner","doi":"10.2139/ssrn.3754617","DOIUrl":"https://doi.org/10.2139/ssrn.3754617","url":null,"abstract":"We investigate the transmission of financial shocks through the macroeconomy. To that end we develop an endogenous regime-switching structural vector autoregressive model with time-varying transition probabilities. First, we allow for the transition probabilities to be dependent on the state of the economy, and thereby to be time-varying. Second, we facilitate rather general, non-recursive structural identification restrictions. Third, we allow the identification restrictions to differ across regimes. We employ a model with conventional and unconventional monetary policy, where the latter is modelled via the Fed balance sheet. Using bank-level data, we shed light on the role of leverage of banks for the transmission of financial shocks.","PeriodicalId":405783,"journal":{"name":"PSN: Financial Institutions (Topic)","volume":"48 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-12-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126865107","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}
Objectives: The present paper aspires to measure the performance, benchmark and rank various public sector banks using statistical as well as mathematical tools. The present study also uses Sensitivity analysis in DEA to know the stability and instability of efficient DMUs.
Design Methodology: Data are assemble from secondary sources for the year 2015-16 and these data are examine by using Multiple Regression analysis, Spearman Rank correlation test, Data Envelopment analysis, DEA Super efficiency and Sensitivity Analysis. In resent paper various inputs and outputs criteria are taken.
Findings: Multiple Regression analysis result shows for same year, also result fluctuates, when changing the output. Result of Spearman’s Rank correlation test shows that there is no correlation between different ranks when taking different set of output.Result of DEA under CRS and VRS model 6 and 10 banks are with efficiency score 1. To get most efficient bank DEA super-efficiency analysis is used, result indicates State Bank of Patiala is appeared as super efficient in both models. Sensitivity result shows in both model (CRS and VRS) after deleting input and output one after another in some cases efficient DMUs maintain its stability and in some case it became unstable.
Implication/Conclusion: The study provides valuable information on performance measurement, benchmarking, and ranking of public sector banks. The study provide information dealing with valuable factors need to be focused and pay attention to enhance the performance. The study concludes that MCDM technique is a more powerful technique to assess the performance while taking multiple inputs and outputs data simultaneously.
{"title":"Measuring, Benchmarking and Ranking the Performance of Indian Public Sector Banks","authors":"Shivani Guru, D. Mahalik","doi":"10.2139/ssrn.3753725","DOIUrl":"https://doi.org/10.2139/ssrn.3753725","url":null,"abstract":"Objectives: The present paper aspires to measure the performance, benchmark and rank various public sector banks using statistical as well as mathematical tools. The present study also uses Sensitivity analysis in DEA to know the stability and instability of efficient DMUs. <br><br>Design Methodology: Data are assemble from secondary sources for the year 2015-16 and these data are examine by using Multiple Regression analysis, Spearman Rank correlation test, Data Envelopment analysis, DEA Super efficiency and Sensitivity Analysis. In resent paper various inputs and outputs criteria are taken. <br><br>Findings: Multiple Regression analysis result shows for same year, also result fluctuates, when changing the output. Result of Spearman’s Rank correlation test shows that there is no correlation between different ranks when taking different set of output.Result of DEA under CRS and VRS model 6 and 10 banks are with efficiency score 1. To get most efficient bank DEA super-efficiency analysis is used, result indicates State Bank of Patiala is appeared as super efficient in both models. Sensitivity result shows in both model (CRS and VRS) after deleting input and output one after another in some cases efficient DMUs maintain its stability and in some case it became unstable. <br><br>Implication/Conclusion: The study provides valuable information on performance measurement, benchmarking, and ranking of public sector banks. The study provide information dealing with valuable factors need to be focused and pay attention to enhance the performance. The study concludes that MCDM technique is a more powerful technique to assess the performance while taking multiple inputs and outputs data simultaneously.","PeriodicalId":405783,"journal":{"name":"PSN: Financial Institutions (Topic)","volume":"9 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-12-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117142208","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 essay deals with the issue of urban circularity understood as a subset of the Circular Economy paradigm, highlighting potential and limits of an emerging new model spreading on a global scale. The critical reasoning starts from a very recent production of institutional documents and the still reduced scientific production around and over this topic to propose an unorthodox interpretation on the relationship between circularity and city. The building industry is considered as a key sector to promote and improve circularity in cities and some experimental case studies are presented as a proof of the relevant potentials. The essay attempts a synthetic revision of the state of the art in Italy.
{"title":"The Circular City and the Building Sector","authors":"Gianfranco Franz","doi":"10.2139/ssrn.3754171","DOIUrl":"https://doi.org/10.2139/ssrn.3754171","url":null,"abstract":"The essay deals with the issue of urban circularity understood as a subset of the Circular Economy paradigm, highlighting potential and limits of an emerging new model spreading on a global scale. The critical reasoning starts from a very recent production of institutional documents and the still reduced scientific production around and over this topic to propose an unorthodox interpretation \u0000on the relationship between circularity and city. The building industry is considered as a key sector to promote and improve circularity in cities and some experimental case studies are presented as a proof of the relevant potentials. The essay attempts a synthetic revision of the state of the art in Italy.","PeriodicalId":405783,"journal":{"name":"PSN: Financial Institutions (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-12-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130989033","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}
How does adverse selection affect the interest rates on bank loans? Using corporate bank loan data, we create a measure of markup using the internal measures of risk banks report to the Federal Reserve. Our risk-adjusted measure of markup does not predict the subsequent performance of loans, while a measure excluding banks’ private risk assessments strongly predicts performance. Consistent with theories of asymmetric information in which lower concentration increases the information rents banks extract, we find that markups are higher in less concentrated regions, among firms that are more subject to asymmetric information and when firms stay with their existing banks. Finally, higher local markups are associated with lower loan volume and higher levels of collateralization. Our findings suggest that adverse selection drives markups, loan volume and lending standards.
{"title":"Bank Loan Markups and Adverse Selection","authors":"M. Beyhaghi, Cesare Fracassi, Gregory Weitzner","doi":"10.2139/ssrn.3733932","DOIUrl":"https://doi.org/10.2139/ssrn.3733932","url":null,"abstract":"How does adverse selection affect the interest rates on bank loans? Using corporate bank loan data, we create a measure of markup using the internal measures of risk banks report to the Federal Reserve. Our risk-adjusted measure of markup does not predict the subsequent performance of loans, while a measure excluding banks’ private risk assessments strongly predicts performance. Consistent with theories of asymmetric information in which lower concentration increases the information rents banks extract, we find that markups are higher in less concentrated regions, among firms that are more subject to asymmetric information and when firms stay with their existing banks. Finally, higher local markups are associated with lower loan volume and higher levels of collateralization. Our findings suggest that adverse selection drives markups, loan volume and lending standards.","PeriodicalId":405783,"journal":{"name":"PSN: Financial Institutions (Topic)","volume":"110 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-11-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132753065","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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