Bank Credit Policy Research Articles

An integrated credit rating and loan quality model: application to bank shipping finance

Assessing a borrower’s credit quality is a critical input for efficient bank loan facility allocation, particularly at phases of financial distress. An integrated credit rating model is proposed to borrowers’ credit rating in support of bank financing decisions. Based on a global bank survey, a core set of critical quantitative and qualitative criteria are initially identified and are subsequently weighted and rated, incorporating a dynamic multicriteria optimization approach. The issue of credit rating migration, inducing adjustments in bank financing decisions, is also investigated. The empirical findings can be instrumental to bank credit policy decisions and risk management.

A credit policy study of Chinese banks on small and medium-sized enterprises

In recent years, there is rising attention on the difficult financing problems of small and medium-sized enterprises (SMEs). With constant development and improvement in China’s socialist market economy system, SMEs is becoming a pivotal part of China’s national economy. It can be said that the development of SMEs makes a great contribution to China’s national economy development. However, SMEs are facing financing bottlenecks at the same time. This is not only because of the limited financing capabilities of SMEs themselves but also because of the various commercial bank credit policies. It is necessary to solve credit policy problems between SMEs and banks, not only for SMEs but also for the further development of commercial banks. This paper analyses the problems and the reasons of “credit grudging” behavior of China’s commercial banks and SMEs financing difficulties through a critical analysis. This paper also uses the method of the dynamic game theory to probe into credit problems between SMEs and commercial banks under the condition of information asymmetry. At the end of the paper, conclusions are made and suggestions are proposed for a win-win solution concerning credit policy problems between SMEs and commercial banks.

ANALISIS KREDIT BERMASALAH PADA BANK “X” PERIODE 2007-2010

Banks play an important role in the economy because banks can promote the growth and development especially in the economic field. In carrying out its function as an intermediary institution should optimize the lending bank to its customers. However, loans granted by the bank did not rule out the risk, and therefore an analysis needs to be done so we can figure out how to set up a bank lending. Based on the details of non-performing loans (NPL) in table III.1, III.2, III.3 Where the average - average non-performing loans (NPL) Bank X Bank credit risk level X in the category of low, level of non-performing loans in the Bank X in the year 2007-2010 can be categorized either as it is still below 5%, a decline in NPL Every year the largest occurred in 2008 amounted to 0.90%, while the smallest occurred in 2009 which is 0.81%, According to the analysis the authors that Bank credit policy in the X less selective.

Central Bank Liquidity Provision, Risk-Taking and Economic Efficiency

After the Lehman default, but also during the euro area sovereign debt crisis, central banks have tended to extend the ability of banks to take recourse to central bank credit operations through changes of the collateral framework (e.g. CGFS, 2008 – in consistence with previous narratives, such as Bagehot, 1873). We provide a simple four sector model of the economy in which we illustrate the relevant trade-offs, derive optimal central bank collateral policies, and show why in a financial crisis, in which liquidity shocks become more erratic and the total costs of defaults increase, central banks may want to allow for greater potential recourse of banks to central bank credit. The model also illustrates that the credit riskiness of counter parties and issuers is endogenous to the central bank's credit policies and related risk control framework. Finally, the model allows identifying the circumstances under which the counter intuitive case arises in which a relaxation of the central bank collateral policy may reduce its expected losses.

Bank interest policy in the function of lending loans: With Erste Bank Novi Sad as an example

In this paper, attention is focused on the interest and credit policies of banks, and on the way employees in the banks contribute to the proper implementation of these policies, the way in which National Bank of Serbia, using different interest rates, affects the performance of open market operations, as well as preserving and enhancing stability of functioning of the entire banking system. Recognizable and effective credit policy is an objective of each successful bank. Formulating and achieving that policy is not an easy task. Many sections of the bank contribute to this task, which include Credit Committee and ALCO Committee. Performing their functions, they improve the quality of bank lending, reduce risk, and improve the entire business of the bank.

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Do Bank-Credit Constraints Affect the Cost of Equity?

Theories of bank credit policy predict that banks coordinate to tighten credit policy when borrowers in a sector experience an adverse shock, and this induces credit constraints in all sectors. When multiple banks lend to the sector the market can learn about the systematic component of the shock, even if the market does not observe the shock. Because banks possess inside information, investors interpret contractions in credit supply as a signal about the true state of the economy and include information on credit contractions in their information set when pricing systematic risks. Using a conditional asset pricing model, I find that after augmenting investors' information set with a measure of bank-credit contractions, average total absolute risk premium for small and large firms increase by 13 and 7 percentage points, respectively, and that for the market portfolio increases by more than 10 points. Information about credit contractions is most influential in pricing market and exchange rate risks. Further evidence suggests that most of the impact of credit contractions is not attributable to tight monetary policy. These results are robust to a battery of diagnostic tests, alternative proxies for credit contractions, information sets, and size-based portfolios, and hold over different sub-periods.

The system of business financing in Russia: the gender aspect

The aim of this paper is to determine the role of the gender factor in the process of financing entrepreneurial activity in Russia. Firstly, this paper examines the contemporary system of offering loans to businesses, in particular, the possibilities offered and requirements of the main financial institutions and private investors. Factors in determining the credit policies of banks have also been discovered along with the advantages of using alternative sources of business financing. With regard to the gender component of credit policies, our respondents felt that its presence was not very visible, as it is 'veiled' by such factors as size of the enterprise, amount of the demanded loan and the gender affiliation of bank executives. With regard to borrowers, their gender affiliation is one of the factors which determine borrowing behaviour, along with the motivation for developing a business, inclination towards taking risks, specifics of their educational background and their age.

The determinants of capital structure: The case of long-term debt constraint for Jordanian firms

This paper contributes to the capital structure literature by investigating the determinants of capital structure of Jordanian companies with the constraint of inadequate long-term debt as their source of financing and regional risk. We firstly document that Jordanian companies mostly depend on short-term debt, as a result of the banking credit policy that promotes short-term debt. Our results suggest that the level of gearing in Jordanian firms is positively related to size, tangibility, and earning volatility, and negatively correlated to profitability, the level of growth opportunities, liquidity and stock market activities. The level of gearing measured by short-term debt is, however, negatively correlated to tangibility. The Gulf Crisis between 1990 and 1991 is also found to have a significant but positive impact on Jordanian corporate leverage. We conclude that the capital structure decision with inadequate long-term debt access is influenced more strongly by factors such as Stock‟s Market activity (SMA).

Alternative central bank credit policies for liquidity provision in a model of payments

I explore alternative central bank policies for liquidity provision in a model of payments. I use a mechanism design approach so that agents’ incentives to default are explicit and contingent on the credit policy designed. In the first policy, the central bank invests in costly enforcement and charges an interest rate to recover costs. I show that the second-best solution is not distortionary. In the second policy, the central bank requires collateral. If collateral does not bear an opportunity cost, then the solution is first best. Otherwise, the second best is distortionary because collateral serves as a binding credit constraint.

Alternative Central Bank Credit Policies for Liquidity Provision in a Model of Payments

I explore alternative central bank credit policies in a theoretical model where (i) money is necessary as a means of payment, (ii) there is a shortage of liquidity that a central bank addresses through the extension of credit, (iii) money is necessary to repay debts, and (iv) the incentives to default are explicit and contingent on the credit policy designed. Using a mechanism design approach, I compare a credit policy of charging an interest rate on credit (like the Federal Reserve's policy) with that of requiring the posting of collateral (like the European Central Bank's policy). I find that the pricing policy can implement good allocations while the collateral policy cannot whenever collateral bears an opportunity cost

Alternative Central Bank Credit Policies for Liquidity Provision in a Model of Payments

I explore alternative central bank policies for liquidity provision in a model of payments. I use a mechanism design approach so that agents' incentives to default are explicit and contingent on the credit policy designed. In the first policy, the central bank invests in costly enforcement and charges an interest rate to recover costs. I show that the second best solution is not distortionary. In the second policy, the central bank requires collateral. If collateral does not bear an opportunity cost, then the solution is first best. Otherwise, the second best is distortionary because collateral serves as a binding credit constraint.

Nontourism services in Barbados: 1970–97

This paper initially refers to some of the classifications of services used by various authors, followed by the components that comprise nontourism services in Barbados and their linkages to the other sectors of the Barbados economy. Using regression analysis, variables that may influence nontourism services in the long and short run are then identified. In the long run, the variables that impact nontourism services are relative real incomes, tourist arrivals, merchandise imports, commercial bank credit, relative prices, and government policy. The short run is influenced by relative real incomes, tourist arrivals, and merchandise imports. Since tourist arrivals influence nontourism services in the long and short run, Barbados must still focus on tourism activity to maximize its foreign exchange potential from nontourism services.

Financial Fragility and the Exchange Rate Regime

We study financial fragility, exchange rate crises, and monetary policy in a model of an open economy with Diamond–Dybvig banks. The banking system, the exchange rate regime, and central bank credit policy are seen as parts of a mechanism intended to maximize social welfare; if the mechanism fails, banking crises and speculative attacks on the currency become possible. We compare currency boards, fixed rates, and flexible rates, with and without a lender of last resort. A currency board cannot implement a social optimum; in addition, it allows bank runs to occur. A fixed exchange rate system may implement the social optimum but is more prone to bank runs and exchange rate crises than a currency board. A flexible rate system implements the social optimum and eliminates runs, provided that the exchange rate and credit policies of the central bank are appropriately designed. Journal of Economic Literature Classification Numbers: F3, E5, G2.

Financial Fragility and the Exchange Rate Regime

We study financial fragility, exchange rate crises, and monetary policy in an open economy version of a Diamond-Dybvig model. The banking system, the exchange rate regime, and central bank credit policy are seen as parts of a mechanism intended to maximize social welfare; if the mechanism fails, banking crises and speculative attacks become possible. We compare currency boards, fixed rates, and flexible rates with and without a lender of last resort. A currency board cannot implement a socially optimal allocation; in addition, bank runs are possible under a currency board. A fixed exchange rate system may implement the social optimum but is more prone to bank runs and exchange rate crises than a currency board. A flexible rate system implements the social optimum and eliminates runs, provided the exchange rate and central bank lending policies are appropriately designed.

Ninth Amendment Rights and Wrongs—A Note on Noninterpretism

In 1921, long before Felix Frankfurter became a judge, he said, The simple fact of the matter is that . .. the [Supreme] Court, under the guise of legal form, exercises political control.' However radical this view may have seemed at the time, sixty years later it had become something of a commonplace, thanks largely to the Warren Court. Judges had pushed beyond desegregation to integration via busing; they had undertaken to reapportion legislatures, to provide a detailed abortion code, to supervise police investigations, to outlaw capital punishment in effect and then to reinstate it with limitations, to supervise the supervision of children in their schools, to manage prison and mental institutions, to regulate private employment practices, to oversee any number of welfare programs, to direct credit policies of banks and credit-card companies, to monitor environmental quality, and even to supervise municipal land-use planning-all in the name of interpreting the Constitution!2 That was make-believe. One of the dynamic movements in modern jurisprudence is led by avant-garde liberals whose formative years coincided with the enlightenment that Chief Justice Earl Warren inspired. Bemused by his sense of fairness, these so-called noninterpretists are too sophisticated to accept his simple-minded methodology. What they want is Warrenesque government by judges without Warrenesque make-believe. They want, for example, contraception and abortion privacy without the pretense that it comes from the Constitution. As one of their gifted leaders put it, they reject the Courts resort to bad legislative history and strained reading of the constitutional language to support

Why Bank Credit Policies Fluctuate: A Theory and Some Evidence

In a rational profit-maximizing world, banks should msdntain a credit policy of lending if and only if borrowers have positive net present value projects. Why then are changes in credit policy seemingly correlated with changes in the condition of those demanding credit? This paper argues that rational bank managers with short horizons will set credit policies that influence and are influenced by other banks and demand side conditions. This leads to a theory of low frequency business cycles driven by bank credit policies. Evidence from the banking crisis in New England in the early 1990s is consistent with the assumptions and predictions of the theory.

On causality and the monetary approach to the balance of payments: The European experience

Using Sims causality test it is shown that the negative relationship between the rate of domestic credit creation and the rate of change of foreign exchange reserves is consistent with the direction of causality proposed by the monetary approach to the balance of payments and it is not simply the result of central bank sterilization or private bank credit policy. Evidence of such opposite causality is present in Sweden and the United Kingdom but it is part of a two-way feedback structure still consistent with the monetary approach.

Features of banking organization, monetary and credit policy in the Soviet Union

Features of banking organization, monetary and credit policy in the Soviet Union

French Banking Structure and Credit Policy.

French Banking Structure and Credit Policy.