Bank Decisions Research Articles

Deposit Competition and Mortgage Securitization

AbstractWe study how deposit competition affects a bank's decision to securitize mortgages. Exploiting the state‐specific removal of deposit market caps across the U.S. as a source of competition, we find a 7.1 percentage point increase in the probability that banks securitize mortgage loans. This result is driven by an 11 basis point increase in deposit costs and corresponding reductions in banks' deposit holdings. Our results are strongest among banks that rely more on deposit funding. These findings highlight a hitherto undocumented and unintended regulatory cause that motivates banks to adopt the originate‐to‐distribute model.

Banking Preferences and Perceptions Among College Students: A Study on Influential Factors and Service Satisfaction

This study investigates customer perceptions of their choice of bank among college students, focusing on factors influencing their banking decisions. Through a survey of 150 respondents, the study reveals that most students prefer commercial banks, valuing service quality and security. The majority have not utilized bank loans or relief measures during the COVID-19 pandemic. Dissatisfaction with service or limited options are common reasons for considering a bank switch. While respondents generally rate their banks positively, there are varied opinions on employee behavior, individual attention, and operating hours. The findings indicate that while overall perceptions are favorable, there is room for improvement in specific service aspects. This research provides insights into student banking preferences and highlights areas for banks to enhance their service offerings.

Taxes, Leverage, and Profit Shifting in Banks

The goal of this research is to investigate whether taxation affects the leverage decisions of banks and if the response of leverage to tax increases depends on profit-shifting opportunities available to individual banks. This topic remains controversial since it is often believed that banking regulation is such an essential driver of leverage choices that little room is left for other considerations studied in the corporate finance literature. Using a difference-in-differences setup encompassing the period from 2006 to 2017, we exploit two exogenous income tax rate increases applicable to 225 Brazilian banks, employing novel identification strategies based on the intricacies of local taxation rules and on the distinctions between individual banks and financial conglomerates. We find stark differences in the behavior of banks around the two events, with a substantial increase in leverage following the first tax hike but no leverage response following the second. In addition, we find no evidence of heterogeneous effects based on the amount of profit-shifting opportunities available to individual banks. Regulatory concerns possibly became more relevant for leverage decisions during the period around the second tax hike because it coincided with the implementation of stricter capital requirements associated with the Basel III framework. Taken together, our results suggest that financial institutions balance considerations regarding the tax-shield benefits of debt against regulatory concerns specific to the banking industry when making capital structure choices.

Carbon market design and market sentiment

Concerns about systematic price distortions in the EU Emission Trading System (ETS) have risen in recent years. This paper shows how carbon-market design affects the impact of market sentiment, i.e. systematic deviations of price expectations from fundamentals by at least some market participants, on equilibrium prices. The Market Stability Reserve (MSR) of the EU ETS that adjusts supply based on past allowance banking undermines self-stabilization of the carbon market by discouraging rational intertemporal arbitrage. The MSR increases vulnerability of the EU ETS to market sentiments. Initially, the allowance price responds more to distorted expectations while the MSR (partially) prevents the distortion to spread across periods. Making the MSR more responsive to banking decisions increases the likelihood that distorted expectations turn out to be correct ex post. In contrast, a mechanism that adjust the cap based on the current allowance price does not face a trade off between stabilizing prices in the present and the future.

The Effect of Financial Risks on Financing Decisions of Saudi Commercial Banks - A Field Study on Commercial Banks Operating in Arar City

The Effect of Financial Risks on Financing Decisions of Saudi Commercial Banks - A Field Study on Commercial Banks Operating in Arar City

أثر ضمانات منح القروض على مخاطر القروض البنكية: دراسة تطبيقية على بنك التنمية الاجتماعية

This study focuses on a different approach to understanding the impact of loan guarantees on bank risks. In it, utility theory and the descriptive analytical approach are used appropriately to analyze various data and determine the relationship between guarantees and the level of risk. The findings of the study are important, as they show that guarantees contribute effectively to reducing bank risks and provide additional protection for banks when borrowers default. It also enhances financial stability and improves banking decisions. These conclusions also reinforce the importance of loan guarantees in the banking system. It is good that the study recommends the need to improve safeguards policies and implement innovative risk management strategies. Therefore, this will help in enhancing maximum utilization of collateral and improving the performance of banks. However, the study could benefit from adding some clarifications to the methodological part to clarify how to analyze the data and how to define the relationship between safeguards and risks more specifically. Overall, this study provides important findings about the impact of granting loan guarantees on bank risks and recommends measures to enhance banks' utilization of these guarantees. One of the most important objectives of the study is to be a reference for people seeking future loans, such as family and marriage loans.

Risk Assessment of Banks and Financial Institutions When Interest Rate Hikes

This article delves into the multifaceted risks precipitated by a bank's decision to increase interest rates. It commences with an overarching overview contextualized within The Times, elucidating the significance of the subject matter. Subsequently, it delineates various extant risks, each accompanied by a succinct exposition and an outline of corresponding mitigation strategies. Following this introductory phase, the article conducts a meticulous analysis of these identified risks, methodically dissecting liquidity risk, reputation risk, market risk, and systemic risk. Each risk is meticulously defined, substantiated with historical precedents, and elucidated with comprehensive management methodologies. This paper underscores the myriad risks attendant to a bank's interest rate hike. This synthesis serves to underscore the overarching theme that such policy decisions not only reverberate through the financial ecosystem but also necessitate vigilant risk management protocols to safeguard against potential ramifications. Finally, the article concludes by summarizing the numerous risks posed by a bank's interest rate hike. It emphasizes the need for careful consideration and proactive risk management to mitigate potential consequences.

Environmental Penalties and Financing Punishment: Evidence from Incremental Bank Loans

ABSTRACT This study examines the impact of environmental penalties on corporate incremental bank loans. The results show that both the frequency and degree of environmental penalties significantly reduce corporate incremental bank loans, indicating that corporate environmental penalties lead to “financing punishment” by damaging corporate reputation and increasing risks. This financing punishment can be alleviated by good CSR performance and CSR assurance, indicating that exemplary CSR performance and assurance can provide an “insurance” effect to influence bank loans when a firm has a negative event. We also find that this financing punishment has intra-industry peer effects, suggesting that the environmental penalties incurred by one firm can influence the broader credit decisions of commercial banks within the same industry.

FACTORS AFFECTING THE TOTAL FOREIGN EXCHANGE RESERVE ADEQUACY OF THE CENTRAL BANK: TURKEY AND AZERBAIJAN

International foreign exchange reserves are widely acknowledged as a global medium of exchange that possesses a readily available characteristic. Official public assets, which are foreign assets kept and organized by the monetary authorities of countries, serve as a complement to foreign exchange reserves. Adequate levels of foreign exchange reserves are necessary for nations to meet their payment commitments and sustain the stability of their currency. The primary rationale for the Central Bank's decision to maintain liquid foreign exchange reserves is to establish a safeguard against any speculative assaults or fluctuations in the trade balance. The primary objective of this research was to ascertain the many elements that influence the sufficiency of the aggregate foreign exchange reserves in Azerbaijan and Turkey. The article examined the sufficiency of the gross foreign exchange reserves of the Central Bank of the Republic of Azerbaijan (CBAR) and the Central Bank of the Republic of Turkey (CBRT) based on the ideal reserve ratios recommended by the IMF. Following an extensive examination of theoretical and conceptual literature, this study aims to assess the sufficiency of the Gross Foreign Exchange Reserves held by the CBAR and CBRT. The proposed optimal reserve ratios are utilized to elucidate the reserve adequacy of these countries, while considering the theoretical relationship between the variables. To achieve this objective, a logit regression analysis was conducted using the data spanning from 2012 to 2022. The results indicate that there is a positive and statistically significant relationship between interest rates and the overall adequacy of foreign exchange reserves. Considering the influence of interest rates on economic stability and financial performance, this outcome is anticipated. Furthermore, it was shown that the exchange rate variable exhibited a statistically significant negative impact on the preceding period. The present empirical study offers an overview of the various elements that influence the sufficiency of the aggregate foreign exchange reserves of Azerbaijan and Turkey. The findings of this study offer crucial insights to decision makers regarding the variables that must be considered when overseeing foreign exchange reserves.

The Limits of Enforcement in Global Financial Governance: Blacklisting in FATF as Rational Myth

Abstract How might international institutions matter? To consider this central question of International Relations, we analyze a most-likely case for the importance of materially driven enforcement: the Financial Action Task Force’s (FATF) use of blacklisting in the global regime targeting money laundering and terrorism financing. Scholars and practitioners often argue that fear of financial harm caused by FATF’s lists explains the near-global commitment to FATF’s standards, even if compliance lags. We search for statistical evidence of this impact across four different measures of financial flows and find that listing is not correlated with financial harm. To explain these null results, we examine bank decision-making and find that the lists’ impact is likely diminished by two overlooked factors: the existence of multiple, competing lists and banks’ access to more fine-grained, client-specific information provided by third-party companies. We interpret this contradiction—a commitment to compliance generated in part by a fear of enforcement, despite a lack of evidence for enforcement’s impact—as a “rational myth.” The results challenge a common understanding of a major global governance regime, confirm ideas about the limited ability of states or International Organizations to control governance outcomes, and advance a new research agenda on the impact of bank decision-making on global governance.

Post-COVID inflation and the monetary policy dilemma: an agent-based scenario analysis

AbstractThe economic shocks that followed the COVID-19 pandemic have brought to light the difficulty, both for academics and policy makers, of describing and predicting the dynamics of inflation. This paper offers an alternative modelling approach. We study the 2020–2023 period within the well-studied Mark-0 Agent-Based Model, in which economic agents act and react according to plausible behavioural rules. We include a mechanism through which trust of economic agents in the Central Bank can de-anchor. We investigate the influence of regulatory policies on inflationary dynamics resulting from three exogenous shocks, calibrated on those that followed the COVID-19 pandemic: a production/consumption shock due to COVID-related lockdowns, a supply chain shock, and an energy price shock exacerbated by the Russian invasion of Ukraine. By exploring the impact of these shocks under different assumptions about monetary policy efficacy and transmission channels, we review various explanations for the resurgence of inflation in the USA, including demand-pull, cost-push, and profit-driven factors. Our main results are fourfold: (i) without appropriate fiscal policy, the shocked economy can take years to recover, or even tip over into a deep recession; (ii) the success of monetary policy in curbing inflation is primarily due to expectation anchoring, rather than to the direct economic impact of interest rate hikes; (iii) however, perhaps paradoxically, strong inflation anchoring is detrimental to consumption and unemployment, leading to a narrow window of “optimal” policy responses due to the trade-off between inflation and unemployment; (iv) the two most sensitive model parameters are those describing wage and price indexation. The results of our study have implications for Central Bank decision-making, and offer an easy-to-use tool that may help anticipate the consequences of different monetary and fiscal policies.

Should Bank Provide Insurance for Horticultural Crop Damage? (A Stackelberg Game Approach)

Abstract This study provides insight for a bank to insure farmers with the possibility of having horticultural crops damaged. Specifically, a Stackelberg leadership game is formulated with the bank as the leader and the farmer as the follower. The bank declares its insurance fee first to anticipate the horticulture prices and maximize its profit. Then, the farmer decides the horticulture price sequentially given the insurance fee and the crop condition. The game is solved under the with and without insurance scenarios. The farmer decides its horticulture price with no banking insurance fee in without insurance scenario. The bank decision-making is only included in with insurance scenario. From the analytical comparison result, it is better for the farmer to have insurance from the bank when the probability of damage to a horticultural crop exists. However, the bank should give an insurance fee to the farmer with a high probability of having good horticultural crops and less customer sensitivity to damaged crops.

Flip that coin: Barriers, barrier‐breakers, and full‐adoption of digital payment methods

AbstractThe purpose of this study is twofold: to examine the mediating effect of a number of barrier‐breakers on the relationship between barriers and the intention to fully adopt digital payment methods; and to identify adopters‐resisters' commenting behaviour when facing a full‐adoption scenario. Mixed methods were applied. The PROCESS macro method was used to analyse 388 survey responses and test the mediating effects. The main study reveals that the privacy, security, and access barriers can be reduced by increasing the credibility and usefulness barrier‐breakers, respectively. However, the impersonalisation barrier is found to be unaffected by the social influence barrier‐breaker. Based on 91 collected and analysed comments, the netnographic‐based follow‐up study identifies social media commenting behaviours caused by a major bank's decision to stop handling cash. Among the more frequent such behaviours are boycotting and aggressive comments.

Interaction between decentralized financial services and the traditional banking system: A comparative analysis

This paper investigates the interaction between decentralized financial services and the traditional banking system by building VAR models, conducting Granger causality tests, building impulse response functions, and performing variance analysis. To implement the model, banking indicators of the USA, India, and Great Britain were selected: the volume of commercial and industrial loans, interest rate, consumer price index, total liabilities and capital of banks, aggregate deposits, federal funds rate (for the USA), and repo rate (for India). The study examined central bank data of the specified countries from July 2018 to January 2024 with the TVL indicator, which measures the sum of all assets locked in DeFi protocols. The results of the impulse response function (IRF) for countries demonstrate different interactions between TVL and bank indicators. The US response to TVL shocks demonstrates a stimulative monetary policy, with significant Fed rate reductions and increased commercial lending to boost economic activity. In contrast, India’s monetary stimulus, marked by declining repo rates and growth in banking sector liabilities and deposits, aims to enhance economic resilience. The UK, however, adopts a conservative monetary approach, with sharp bank rate increases and mixed lending and deposit responses, prioritizing financial stability. Analysis across these nations highlights different impacts of financial indicators on TVL. In the US, the evolving relationship between TVL and bank indicators reflects the financial system’s complexity. India’s sensitivity to monetary policy, credit conditions, and inflation significantly influences TVL. In the UK, central bank decisions, particularly the bank rate, play a crucial role in financial market dynamics. AcknowledgmentThe authors appreciate the assistance in the preparation of the article provided by the University of Debrecen Program for Scientific Publication and the János Bolyai Research Scholarship of the Hungarian Academy of Sciences.

Analysis of Influencing Factors of Economic Management Decision of Commercial Banks Based on Big Data Intelligent Decision

Since the 1970s, China’s economy has been changing rapidly, especially after joining the World Economic and Trade Organization, and with the increase in multinational enterprises, the development of overseas markets has become more convenient, contributing to the further strengthening of our economic power. The financial industry plays an essential role in the development of a country, and commercial banks are the leaders in the financial sector. They have made significant contributions to national economic growth. Under the background of substantial economic development, the economic management decisions of commercial banks have become more complex, which makes the risks faced by commercial banks increase continuously. The rapid growth of global informatization has effectively boosted the development of all walks of life. Based on the intelligent characteristics of big data, this paper analyzes the influencing factors of economic management decisions of commercial banks based on wise choices of big data, hoping to enable commercial banks to achieve the ideal expectation of financial management of “reducing risk and creating value” to enhance the competitiveness of commercial banks in the whole market.

Impact of Income Diversification on Capital Market Investment Decision: A Study on Indian Public Sector Banks

Income diversification strategy is one of the useful tools of risk management technique. Banks have identified different sources of income apart from their traditional source of income. Capital market is one of such source of income identified by the banks today. Every year banks invest a large volume of fund in capital market. In this study it is attempted to observe the impact of income diversification on the capital market investment decision of the public sector banks in India. For this purpose data are collected from 12 public sector banks for 5 years period from 2017 to 2021. Variants of panel data regression analysis are applied in this study. The result revealed that there is a significant impact of income diversification on the capital market investment of Indian public sector banks.

Evaluation of bank efficiency by considering the uncertainty of nonperforming loans

Research of banking operations has recently attracted increasing interest among bank managers and scholars, especially research on the evaluation of bank efficiency. As a prominent factor, nonperforming loans are always considered when measuring bank efficiency. Actually, the complex structures and uncertainty of non-performing loans have been neglected in previous studies. In our study, a new robust two-stage DEA (data envelopment analysis) model is proposed to analyze bank efficiency while considering the structure and uncertainty of nonperforming loans. The proposed model was utilized to assess Chinese commercial banks’ performance. Results indicated traditional model may overestimate banks’ performances, which will mislead bank decision-makers seeking to implement improvement strategies. Moreover, the majority of banks performed better in producing deposits compared with earning profits. Lastly, gaps between small medium banks and state-owned banks are still larger when considering the structure and uncertainty of nonperforming loans. Specific recommendations are proposed for each type of bank.

Capital Decision of Islamic Banks in Developing Countries

The study investigates capital decisions of Islamic banks in developing countries. The study uses 96 Islamic banks in developing countries from period of 2007 to 2021. By applying the random effect model with cluster regression, the findings reveal that all variables are found to be negatively correlated with the capital buffer. The results recommend regulators in developing countries to ensure Islamic banks maintain consistent capital ratios at all times to address the moral hazard issue that is apparent in larger banks. In response to economic cycles, Islamic banks are also encouraged to manage their capital buffers in a counter-cyclical manner.

IMPACT OF ENVIRONMENTAL ADVERTISING ON CUSTOMERS’ PATRONAGE DECISION IN NIGERIA BANKS

This research study examined the impact of Environmental Advertising on Customer’s Patronage Decision in Nigerian Banks. The survey research method was engaged for the purpose of this research study. The primary source of data was employed and the research questionnaire was the instrument of data collection. The study population was 384 out of which a total of 250 representing 65.1% was retrieved from the various respondents who are customers of the Tier 1 banks in Nigeria. Data collected was analysed using the Simple Regression Technique and this was done with the aid of Statistical Package for Social Sciences (SPSS) 21. The result of the tested hypothesis using the Simple Regression Technique showed a p value less than 0.005 which indicates the rejection of the null hypothesis and the acceptance of the alternate hypothesis that states that Environmental response has a significant impact on customer’s patronage decision of Nigerian banks. Consequently, the study recommended that Banks should pay more attention on creating a good ambience at their various branches as this has a significant impact on their customer’s patronage decision.

Following the crowd? Peer influence on voluntary bank audits

AbstractWe examine whether peer audit choices influence a bank's decision to obtain an audit voluntarily. We find that the likelihood of a bank voluntarily obtaining an audit is significantly associated with the audit decisions of peers. The relation is stronger when the peers are more salient due to closer geographic proximity, similarity in loan portfolio, and similarity in size. In addition, we find that peer influence on a bank's audit decision is moderated by the bank's existing level of assurance. Specifically, banks already obtaining a lower level of assurance are less likely to begin an audit in response to peer influence. We also find no evidence that peer influence extends to banks' decisions to cease obtaining an audit. Overall, our findings are consistent with peer influence significantly influencing banks' decisions to begin obtaining an audit.