Banks Face Research Articles

Zombie Firms, Corporate Restructuring and Relationship Banking: Credit Guidance as a Key to Tackle Zombie Lending?

Abstract Economists have examined the rise of so-called zombie firms in recent years. Such firms remain in financial distress for a prolonged period while financial creditors keep them alive through continued lending. Based on signaling theory, we investigate zombie firms in the context of corporate restructuring and relationship banking. Combining a theoretical approach with a multiple case study on German medium-sized firms facing private workouts, we derive the following main propositions: (i) Banks face information asymmetry and may have incentives for loan extension (i.e., rescheduled installments and additional collateral) when deciding about restructuring financing. In the case of financing unviable restructuring strategies, this can lead to the emergence of zombie firms. (ii) For this reason and in contrast to recent research, not only weakly capitalized but also healthy banks may face such incentives and might end up in financing zombie firms. (iii) Relationship banking reduces bank information asymmetry. Thus, it may enable banks to detect clients’ distress situations in the early stages and to support resolving them. Hence, guiding and inspecting banks (i.e., credit guidance) to carry out supportive relationship banking might be a key to preventing the emergence of zombie firms. The propositions bear several implications relevant to academic research, bank management and banking regulation.

A macroeconomic theory of banking oligopoly

We study the behavior and macroeconomic impact of oligopolistic banks in a tractable environment with micro-foundations for money and banking. In our model, large banks interact strategically as they compete against each other to make loans. Banks face potential liquidity issues as they try to secure deposits as a source of funds. We find that it is welfare-maximizing to have the banking sector as oligopolistic, i.e., to have a small number of large banks. In addition, inflation stimulates bank entry but always reduces welfare.

Sharīʿah non-compliant income disclosures and the moral legitimacy strategies of Islamic banks

PurposeThe purpose of this study is to understand the reasons behind the different patterns of Sharīʿah non-compliant income (SNCI) disclosures amongst Islamic banks and, in particular, the extent to which Islamic banks make SNCI disclosures. The process involved in gaining and maintaining moral legitimacy forms the framework for this study.Design/methodology/approachInterviews were conducted with managers of Islamic banks involved in the reporting of SNCI in company annual reports.FindingsThe interview findings show that Islamic banks prefer to use procedures to gain and enhance moral legitimacy amongst their customers, business partners and staff. The constraints and challenges that Islamic banks face in SNCI reporting make this a popular means of securing moral legitimacy. However, these practices may not lead to enhanced and more communicative SNCI disclosures by Islamic banks.Originality/valueTo the best of the authors’ knowledge, this is the first study that explains the motivations behind SNCI reporting by Islamic banks and frames these motivations under the moral legitimacy framework.

Competitive strategies-performance nexus and the mediating role of enterprise risk management practices: a multi-group analysis for fully fledged Islamic banks and conventional banks with Islamic window in Pakistan

PurposeThis paper aims to investigate whether the effect of competitive strategies on the performance is significantly different for fully fledged Islamic banks vis-a-vis conventional banks with Islamic window. Specifically, two competitive strategies namely the low-cost strategy and the differentiation strategy were considered. In addition, we examined further the competitive strategies–performance nexus by introducing enterprise risk management as a mediating factor.Design/methodology/approachThis study used structured questionnaires to collect data from 506 respondents (251 from fully fledged Islamic banks and 255 from conventional banks with Islamic window). A disjoint two-stage approach was employed to analyze a hierarchical component model. Construct Level Correction and Measured Latent Marker Variable approaches were employed to assess the common method variance. As a robustness check, two-stage approach was used to explore the curvilinear relationship, and the Gaussian copula approach was adopted to address the endogeneity issue.FindingsThe findings show the evidence of complementary partial mediation in the relationships between low-cost strategy, differentiation strategy, and performance through enterprise risk management practices in both types of banks.Practical implicationsCompetitive strategies are essential as they send signals to owners, managers, policymakers, and regulatory authorities. On the one hand, fully fledged Islamic banks face dual competition from pure conventional counterparts as well as conventional banks with Islamic window. On the other hand, Islamic window banks also face strong competition from the fully fledged Islamic banks due to their strong Shariah roots. Hence, this competitive pressure on both types of banks calls for more attention to focus on competitive strategies and enterprise risk management practices to accelerate their performance and overcome the bank risk. Moreover, these competitive strategies can be used as a tool to enter into a new market by reducing costs and risks. Besides, banks cannot achieve a competitive advantage without implementing enterprise risk management practices because competitive strategies are significant antecedents of enterprise risk management practices. Therefore, this study recommends both types of banks to focus on enterprise risk management practices to make these strategies successful.Originality/valueTo the best of our knowledge, this is the first study to examine the competitive strategies–performance nexus and the mediating role of enterprise risk management practices in an unexplored area of Islamic banking.

A predictive intelligence system of credit scoring based on deep multiple kernel learning

Banks face the task of improving the accuracy in predicting the behavior of individuals who utilize credit cards, as issuing cards to an appropriate applicant is considered an important matter. Credit card debt that is overdue by at least six months has seen a rapid increase in the past decade in the Chinese credit card industry. The problem of delinquency in credit cards not only affects the development of credit cards but it also influences the sustainability of banks. The use of credit risk assessment is critical in providing a solid foundation upon which the credit card issuer can appropriately approve an applicant for a credit card. In previous studies, a variety of machine learning methods have been proposed to assess credit risk. However, conventional methods are viewed as shallow models and are not good at representing compositional features. Thus, this study applies a deep multiple kernel classifier as a state-of-the-art technique, which is proficient in coping with deep structure and complex data in credit risk assessment. It will support decision-makers issuing credit cards in China appropriately. The results indicate that deep multiple kernel classifier outperforms conventional and ensemble models. Credit card departments with better risk management can avoid possible bad debt, hence benefiting banks’ operations. The applications of predictive intelligence enhance the prediction of human behavior in the credit card industry.

Acceptance of digital investment solutions: The case of robo advisory in Germany

The financial services sector is undergoing substantial change due to technological innovation and digitalization. Traditional banks face intensifying competition through the market entry of digital investment platforms that make use of automated investment advisory, so-called robo advisors. Based on replica of two German robo advisors, a sample of 96 participants assessed their intention to use such digital investment services. The results obtained using partial least squares (PLS) path modelling indicate that perceived usefulness and privacy are the most decisive factors with a one percent higher perceived usefulness (higher privacy) increasing usage intentions by 0.57 % (0.25 %). The results are robust to various socio-demographic and FinTech-related controls as well as alternative estimation procedures such as generalized structured component analysis (GSCA).

Islamic Banks: History, Stability and Lessons from Cooperative Banking

Islamic banking’s profit-maximising fervour, building upon the use of interest-resembling products, has raised concerns about its Shariah authenticity and financial stability. While early Islamic economists envisioned an industry built on values of mutuality and participation, architects of Islamic banking have chosen to replicate interest-based conventional banking for the purpose of fast growth. This study has two objectives. First, to narrate the history of Islamic banking, from the theories postulated to the beginnings of the industry. This builds an understanding of why ‘Islamic’ banking operates as it does currently, which has implications for Shariah compliance and financial stability. It is suggested that the mimicking of conventional banks may cause instability since unlike commercial banks, ‘Islamic’ banks face Shariah constraints. This leads to the second objective, which is to analyse the cooperative banking model, which has been described as the closest theoretical model to Islamic banking. Specifically, this study focuses on the model in Europe which, despite its challenges, has managed to silence critics in the way it contributes to communal welfare and financial stability, especially during credit crunches when commercial banks are known to retreat from markets. This first study of a functioning cooperative banking model, in the context of Islamic banking, may thus offer lessons for Islamic banking reform.

U.S. Monetary Policy Spillovers to Emerging Markets: Both Shocks and Vulnerabilities Matter

Using a macroeconomic model, we explore how sources of shocks and vulnerabilities matter for the transmission of U.S. monetary changes to emerging market economies (EMEs). We utilize a calibrated two-country New Keynesian model with financial frictions, partly-dollarized balance sheets, and imperfectly anchored inflation expectations. Contrary to other recent studies that also emphasize the sources of shocks, our approach allows the quantification of effects on real macroeconomic variables as well, in addition to financial spillovers. Moreover, we model the most relevant vulnerabilities structurally. We show that higher U.S. interest rates arising from stronger U.S. aggregate demand generate modestly positive spillovers to economic activity in EMEs with stronger fundamentals, but can be adverse for vulnerable EMEs. In contrast, U.S. monetary tightenings driven by a more-hawkish policy stance cause a substantial slowdown in activity in all EMEs. Our model also captures the challenging policy tradeos that EME central banks face. We show that these tradeoffs are more favorable when inflation expectations are well anchored.

The Nexus between Mobile Money Regulation, Innovative Technology and the Promotion of Financial Inclusion in Zimbabwe

The advent of mobile money innovations has given people in rural areas, informal settlements and other poor communities an opportunity to participate in Zimbabwe's mainstream financial economy. However, the technology-driven money services have presented some challenges to the traditional banking sector in general and the regulation of financial services in particular. Firstly, most mobile money services are products of telecommunication corporations, which are not banks. Telecommunication companies use their network reach to provide mobile money services via mobile devices at a cheaper cost than banks across the country in Zimbabwe. As such, banks face unprecedented competition from telecommunications companies that are venturing into financial services. It also appears that prudential regulation of banks cannot keep up with the fast pace at which technological innovations are developing and this has created a disjuncture between the regulation and the use of technological innovations to promote financial inclusion in Zimbabwe. The Banking Act [Chapter 24:20] 9 of 1999, the Reserve Bank of Zimbabwe Act [Chapter 22:15] 5 of 1999 and the National Payment Systems Act [Chapter 24:23] 21 of 2001 have a limited scope in terms of the regulation of mobile money services in Zimbabwe. The Ministry of Finance and Economic Development launched the National Financial Inclusion Strategy (NFIS) 2016-2020 to provide impetus to the financial inclusion of the poor, unbanked and low-income earners in Zimbabwe. However, the NFIS appears to push more for bank-led financial inclusion than it does for innovation-driven initiatives such as mobile money services. This article highlights the positive influence of mobile money services in improving financial inclusion for the poor, unbanked and low-income earners in Zimbabwe. The article also seeks to point out gaps and flaws in the financial services regulatory framework that may limit the potential of mobile money services to reach more people so that they actively participate in the Zimbabwean economy. It is submitted that the Zimbabwean mobile money services regulations and the financial regulatory framework should be carefully amended in line with the recent innovations in mobile money to adequately regulate the use of mobile money services and innovative technology to address the financial exclusion of the poor, unbanked and low-income earners in Zimbabwe.

Prediction of credit card defaults through data analysis and machine learning techniques

Bank of recent year plays a significant role in the development of the nation. The bank offers a few things that are directly dependent on any nation's general economic and financial condition. Banking efficiency leads to the business, growth in the industry, economic growth, and support for the common man with savings, improving financial security. Bank Loan has been one of the fastest-growing financial services banks in recent years. However, with the increasing number of bank loan users, banks face an ever-increasing rate of bank loan decline. This program is offered primarily to a person or company of higher value than another. Under this scheme, a small amount can be provided as a cash transfer or electronic transfer to the debtor when they can be in demand. Few of them have not returned a set amount in time, so sometimes they do not. This situation creates a problem for the bank. Then with the help of historical data, the need to predict bank loan error can be determined. As such, machine learning may offer options for addressing the current issue and handling credit risk. This analysis has the function of forecasting the inability to pay the bank loan. The study found more than 10 million Bank of Taiwan records. Analysis of the logistic regression hits the relation between the class variable and the set of independent variables. The primary analysis produces exploratory views of data correctly. Further, this paper used ML algorithms to get predictions with accuracy to detect the default users based on transactional data.

Barriers to the Development and Sustainability of Bone Banking Programs in Low- and Middle-Income Countries: A Systematic Review.

Purpose: The number of bone allograft transplantations required in low- and middle-income countries (LMICs) is growing very quickly. No previous study has investigated the challenges clinical banks face to sustain operations or meet this demand. The purpose of this study was to conduct a systematic review of the barriers to implementation and sustainability of clinical bone tissue banks in LMICs. Barriers identified in clinical bone banking can shed light on strategies for overcoming obstacles in other biobanking programs. Methods: A systematic review protocol was registered with PROSPERO under identification number CRD42019136045. LMIC was defined using World Bank criteria. A search strategy targeting PubMed, Cumulative Index of Nursing and Allied Health Literature (CINAHL), and the World Health Organization (WHO) Global Health Library was used. Studies from the inception of bone banking until June 4, 2019, that discussed an identifiable barrier to bone banking were included. Study quality was assessed using The Critical Appraisals Skills Programme (CASP) Qualitative Checklist. Results: Of studies identified, 33 studies were included in the final analysis. Based on the full-text review, the primary barriers identified were lack of regulation, low donor rates, and insufficient training and staffing. CASP analysis performed on the 24 qualitative articles showed an average of 3.6 qualitative measurements met. Conclusions: As international organizations such as the International Atomic Energy Agency (IAEA) restructure their participation in global bone banking regulation, these barriers such as lack of regulation, low donor rates, and insufficient training and staffing could pose a challenge to meeting the rising demand for bone transplantation in LMICs. Articles with higher quality evidence are needed to better define barriers and propose evidence-based solutions.

A framework for managing regulatory policy life-cycle challenges: an empirical design

This paper proposes a process for developing a comprehensive policy life-cycle management (PLM) framework that institutionalises the essential elements of regulatory policy life-cycle implementation. Central banks face challenges during the life-cycle processes of regulatory policy management. The evident reasons for some of these challenges are missing significant policy quality attributes (PQAs) associated with the dynamics of multidimensional constraints that negatively impact the policies' return. This paper suggests using PQAs to formalise a systematic and comprehensive PLM framework. Thematic analysis of data collected at Saudi Central Bank (SAMA) revealed thirteen policy life-cycle challenges and identified eleven PQAs. The constructed PLM framework encompasses six phases: engineering, analysis, evaluation, execution, monitoring, and optimisation. The application of the PLM framework and its PQAs in a single case study provides insights into its potential usability and strength in improving regulatory policy implementation more broadly. The extended PLM framework's contribution is to open avenues of research and inform practice for diverse stakeholders such as regulatory authorities, policy science community engagement, and on-the ground regulatory policy initiatives.

International Real Estate Review

This paper is about investigating how different bank liquidity creation activities affect housing markets. Using data of 401 metropolitan statistical areas/metropolitan statistical area divisions (MSAs/MSADs) of the U.S. between 1990 and 2018, we show that not all bank liquidity creation activities boost the housing markets. In particular, unlike assetside and off- balance sheet liquidity creations, funding-side liquidity creation dampens housing markets. The relationships between liquidity creation activities and housing markets are stronger in regions with inelastic house supply, but flip when banks face external liquidity shocks. We also find that housing markets dominated by large banks are more sensitive to off-balance sheet liquidity creation activities. Finally, as expected, asset-side and off-balance sheet liquidity creations boost housing markets by driving house prices away from fundamental values. Our results offer a more thorough explanation of how bank liquidity creation fuels the momentum of housing markets.

Effect of turbulent structures on the riverbank erosion due to tidal influence: A case study from the Rupnarayan River, eastern India

For understanding the sediment removal mechanism from the bank face, field measurements of the dominating turbulent flow structures under the influence of flood and ebb tide were carried out at the middle reach 98 km upstream of the mouth of Rupnarayan River, India where the bank erosion activity was highly dynamic. Measurement of the three-dimensional temporal variation of velocity was carried out using a 16-MHz Micro-ADV during the transition period of flood to ebb tide. Results from the present field study depict that during the transition of the onset of the ebb tide, the velocity field showed reduced values that gradually acquired negative values at the near bank region. This manifested the existence of an anti-clock circulation during flood tide and clock-wise circulation during ebb tide at the near bank flow field. It was also pertinent that the velocity gradient during ebb tide was greater as compared to the velocity gradient during flood tide. Accordingly, the turbulent bursting analysis revealed that the ejection and sweep events were prominent during ebb tide resulting in the dislodgement of sediment from the bank face at a larger rate. Further, the similarity of the wavelet patterns revealed that a good correlation existed between the stream-wise and transverse velocity component during ebb tide that enhanced the erosion process during the ebb tide event.

Leveraged Funds and the Shadow Cost of Leverage Constraints

ABSTRACTUsing the most comprehensive data set of leveraged funds known to the literature, we measure the market‐wide shadow cost of leverage constraints and examine its pricing implications. The shadow cost averages 0.53% per annum from 2006 to 2016, spikes upon quarter‐ends when banks face tighter capital requirements, positively predicts future betting‐against‐beta (BAB) returns, and negatively correlates with contemporaneous BAB returns. Stocks that experience lower returns when the shadow cost increases earn 0.85% more per month. Overall, our shadow cost measure fits the predictions of leverage‐constraint‐based theories better than the widely used TED spread.

Revisiting the Stabilization Role of Public Banks

This paper revisits the stabilization role of public banks and analyzes whether weak public finances may hinder this role. During the global financial crisis (GFC), public banks were widely used to counter the private credit crunch and prop up the economy. Using cross-country bank-level data for 125 advanced and developing economies for 1999–2018, the paper finds public bank lending to be less procyclical than private bank lending on average, particularly during busts. A key result, however, is that in developing economies with high public debt levels, public bank lending has been more procyclical, particularly outside of the GFC period. This finding suggests high public debt can limit the stabilization role of public banks during domestic busts, likely reflecting higher financing costs public banks face and lower subsidies they receive in economies with tighter budget constraints.

ЕКОНОМІКО-МАТЕМАТИЧНЕ МОДЕЛЮВАННЯ ВПЛИВУ COVID-19 НА ФУНКЦІОНУВАННЯ АВТОТРАНСПОРТНОГО ПІДПРИЄМСТВА

The article covers the trends of COVID-19 influence on the economic situation of the motor transport enterprise in Ukraine. As a result of the pandemic, Ukraine has seen a reduction in production, reduction of corporate incomes, an increase of unemployment, and impoverishment. The paper investigates the consequences of the pandemic the motor transport. In the example of a small trucking company, profits and profitability decrease of the company during a pandemic is considered. An economic-mathematical model based on net present value and internal profitability is created. By changing the key parameters of the model, the sensitivity analysis is performed, which consists of substituting various hypothetical values of critical parameters into the financial model of the project with their subsequent calculation. Calculated indicators of variation. The coefficient of variation used to estimate the risk per unit of return is calculated. Recommendations on the work of the enterprise after the pandemic are given. Possibilities of basic expenses optimization are analyzed. As a result of the spread of the coronavirus, the expected reduction in employment in passenger traffic is 21%. During a pandemic, bank loans and deposits are important. However, given the economic and political instability in the country, banks face significant difficulties in formulating and implementing effective interest rate policies. Interest rates on active and passive operations of the NBU have currently risen to 7.5%. Because any loans need to be given, the internal rate of return, or internal rate of return (IRR), is analyzed. The internal rate of return is calculated using the IRR function MS Excel. For the case considered in the work, it will be impossible to give loans. Substantial assistance during a pandemic should be state support. The situation in which enterprises found themselves during the pandemic proved the need to develop new methods for the management and planning of medium and large transport enterprises. Currently, all models are based on outdated and inaccurate methods, which leads to significant differences between the desired and achieved results.

Revisiting the Stabilization Role of Public Banks: Public Debt Matters

This paper revisits the stabilization role of public banks and analyzes whether weak public finances may hinder this role. During the global financial crisis (GFC), public banks were widely used to counter the private credit crunch and prop up the economy. Using cross-country bank-level data for 125 advanced and developing economies for 1999-2018, the paper finds public bank lending to be less procyclical than private bank lending on average, particularly during busts. A key result, however, is that in developing economies with high public debt levels, public bank lending has been more procyclical, particularly outside of the GFC period. This finding suggests high public debt can limit the stabilization role of public banks during domestic busts, likely reflecting higher financing costs public banks face and lower subsidies they receive in economies with tighter budget constraints.

Capital Buffers in a Quantitative Model of Banking Industry Dynamics

We develop a model of banking industry dynamics to study the quantitative impact of regulatory policies on bank risk‐taking and market structure. Since our model is matched to U.S. data, we propose a market structure where big banks with market power interact with small, competitive fringe banks as well as non‐bank lenders. Banks face idiosyncratic funding shocks in addition to aggregate shocks which affect the fraction of performing loans in their portfolio. A nontrivial bank size distribution arises out of endogenous entry and exit, as well as banks' buffer stock of capital. We show that the model predictions are consistent with untargeted business cycle properties, the bank lending channel, and empirical studies of the role of concentration on financial stability. We find that regulatory policies can have an important impact on banking market structure, which, along with selection effects, can generate changes in allocative efficiency and stability.

Time Inconsistency in Stress Test Design

We show that central banks face a time inconsistency problem when publishing bank stress test results. Before a stress test, they want to appear tough as the threat of letting banks fail the stress test incentivizes prudent behaviour. After the stress test, they want to act soft by releasing only partial information in order to reassure financial markets about bank health. We characterize an institutional design solution to this commitment problem: a social planner sets the framework within which the central bank communicates. We find that a hurdle rate framework, where all banks are judged to pass or fail relative to a common threshold, is optimal in many settings as it generates intermediate levels of both incentives and reassurance. With a hurdle rate framework, stress tests become an informational contagion channel, as changes in the health of one bank affect beliefs about the health of other banks. Thus, informational contagion can be a feature of a socially optimal institutional design in the presence of a time inconsistency problem.