Banking Reform Research Articles

Some Aspects of Chinese Policy Banks’ Activity at the Present Time

The Chinese policy banks (the State Development Bank of China, the Export-Import Bank of China and the Agricultural Development Bank of China) were created with the goal of financing national projects both abroad and inside China. They play an important role in providing loans to green and social projects and concessional lending to small and medium-sized enterprises. It is expected that there will be growth in the financing of scientific and technical areas during the 14th Five-Year Plan (2021-2025). In order to finance large-scale projects, the policy banks require a constant flow of funds. This article analyzes the main sources of the banks’ funding amongst which accepting loans from the People`s Bank of China and the issuing of bonds are in the lead. The two sources mentioned are characterized by reliability and constancy, but also have risks attached to them. These include limited sources of liquidity in general, increasing competition from local administrations which are also empowered to issue bonds, lending to low profit (but strategically important) projects, an implied long maturity period of medium and long-term loans, and other factors. Proof of sufficient capital is vital because policy banks have a key role regarding instruments for countercyclical regulation in the process of stabilizing the economy for example when funds were distributed through the banks to the most vulnerable sectors during the worst of the pandemic. To improve the policy banks’ financial efficiency it has been necessary to draft a Policy Banks Act. This supports the development not only of national but also of commercial projects, the granting of more independence to branches in the search for and selection of projects (taking into consideration local/regional/international specifics), the diversification of liquidity sources and the establishment of compensation for losses sustained during repayment of failing loans, to improve risk management. This necessary next stage of banking reform is expected to be enacted during 2022-2023.

From Personal Responsibility to Political Mobilization: Using Attribution Frames to Overcome Policy Feedback Effects

Public policies that promote personal responsibility while minimizing government responsibility are a key feature of modern American political economy. They can decrease Americans’ political participation on a given issue, with detrimental consequences for the wellbeing of economically insecure families. Can this pattern be overcome? I argue that attribution frames highlighting government’s role in and responsibility for policies may increase people’s propensity for political action on an issue, but only if the frame can increase the salience of their preexisting beliefs about government intervention. Drawing on the case of consumer financial protection, I administer an experiment to determine the effect of attribution framing on people’s willingness to act in support of a popular banking reform. I find that helping people draw parallels between an issue they feel responsibility for and one they accept government responsibility for can boost political engagement on behalf of the original policy.

Banking Reform, Risk-Taking, and Accounting Quality: Evidence from Post-Soviet Transition States

ABSTRACT The drastic banking reform within Central and Eastern Europe following the collapse of the Soviet Union provides an ideal quasi-experimental design to examine the causal effects of institutional development on accounting quality (AQ). We find that banking reform spurs significant improvement in predictive power of earnings and reductions in earnings smoothing, earnings-inflating discretionary provisions, and avoidance of reporting losses. These effects hold under alternative model specifications and after considering concurrent institutional developments. In contrast, corporate reform shows no such effects, refuting the alternative explanation that unobserved factors affect both reform speed in general and the quality of financial reporting. We further identify four specific reformative actions that are integral to the drastic banking reform process where prudential regulation contributes the most to the observed AQ improvement. It supports the conjecture that banking reform improves AQ by reducing banks' risk-taking behaviors and, as a result, their motive behind accounting manipulation. JEL Classifications: G21: G28; K20; M40; M48.

РЕГИОНАЛЬНЫЕ БАНКИ РОССИИ В УСЛОВИЯХ КОНСОЛИДАЦИИ БАНКОВСКОГО КАПИТАЛА: ДИНАМИКА И ПЕРСПЕКТИВЫ РАЗВИТИЯ

The article analyzes the dynamics and trends of changes in the number of regional entities of the Russian banking market in comparison with the federal ones. The definition of a regional bank has been clarified, the dynamics of changes in the number of credit institutions by federal districts of the Russian Federation has been identified, and districts have been identified that retain the stability of the presence of regional banks. The results of the banking reform impact (2017) on the bank capital consolidation and the banks separation into two levels are presented. It was concluded that there is a need for a regulatory and legislative definition and support for the credit sector of the regional economy, and competitive areas of business activity of regional banks of the Russian Federation are identified.

Enterprise risk management and sustainability of banks performance

PurposeThis study investigates firm attributes (namely level of capitalisation, scope of operation, organisational structure, organisational lifecycle, systemic importance and size) affecting the robustness of enterprise risk management (ERM) practice, the extent to which ERM affects the performance of banks and the impact of ERM on the long-term sustainability of banks in Nigeria. This was against the backdrop that the 2012 banking reform was a major regulatory intervention that mainstreamed ERM in the Nigerian banking sector.Design/methodology/approachThe study employed a mixed methodology of content, trend and quantitative analyses. Ex post facto research design was deployed to analyse performance differential of banks, with respect to the implementation of ERM, over a 10-year period (2008–2017). A disclosure checklist developed from the COSO ERM integrated framework was used to assess the robustness of ERM by content-analysing divulgence on risk management in published annual reports. The banking reform periods were dichotomised into pre- (2008–2012) and post- (2013–2017) reform periods. Jonckheere–Terpstra test, independent sample t-test and Mann–Whitney test were applied to analyse a total of 1,036 firm-year observations over the period 2008–2017.FindingsResult shows that bank attributes significantly affecting the robustness of risk management practice are level of capitalisation, scope of operation, systemic importance and size. Performance of banks improved slightly during the post-2012 banking reform period. This suggests that as banks consolidate on the gains of ERM, benefits of the regulatory policy on risk management may be realised in the long run. Result also shows that ERM enhances long-term performance, connoting that effective risk management could serve as a competitive strategy for surviving turbulence that typically characterises the banking sector.Practical implicationsThe emergence of level of capitalisation, scope of operation, systemic importance and size as determinants of ERM provides empirical evidence to support the practice of reviewing the capital requirements for banking business from time to time by regulatory authorities (i.e. recapitalisation policy) as a strategy for managing systemic risk. Top management of banks may consider instituting mechanisms that will ensure risk management is given prominence. A proactive approach must be taken to convert risks to opportunities by banks and other financial institutions, going forward, to cope with the vicissitudes of financial intermediation.Originality/valueThe originality of the study stems from the consideration that it provides some new insights into the impact of ERM on banks long-term sustainability in a developing country. The study also contributes to knowledge by exposing the factors determining the robustness of risk management practice. The study developed a checklist for assessing ERM practice from annual reports and other risk management disclosure documents. The paper also adds to the scarce literature on risk governance and risk management.

Corporate Social Responsibility for Banks in Cameroon—Which Governance Model?

Since the 1990s bank reforms, Corporate Social Responsibility (CSR) has continued receiving many meanings. Currently, it is one of the major concerns for banks looking out for competitiveness in their business sector, for which banks seek to play a key role in society, proclaiming their citizenship. As financial institutions, they are aware of how important it is to maintain long-term relationships with stakeholders. However, the variety of reflections upon this issue makes it difficult to uphold a universal logic among banks. This article’s objective is to examine the suitable governance model that can foster social responsibility in bank milieu in Cameroon. Empirical studies were conducted using the triangulation method characterised by desk review and semi-directive interviews with managers and clients from nine (09) banks. The results demonstrate that the necessary and suitable governance model that can foster banks’ Corporate Social Responsibility takes into account endogenous and exogenous aspects integrating economic, social and environmental dimensions.

Unfolding institutional plurality in hybrid organizations through practices: The case of a cooperative bank

This paper provides a theoretically informed analysis of how institutional pluralism unfolds in hybrid organizations through practices. Building on Quattrone's (2015) procedural model, the paper studies institutional plurality in the case of an Italian cooperative bank that has experienced enduring success. By reversing the usual approach to logic, defined as a stable set of beliefs, this paper shows that this hybrid organization uses a recursive system of practices in search of social order. This hybrid organization interrogates its organizational imperatives and defines adequate ways to achieve them. This paper then observes that this system of practices is permeable to external pressures, i.e., inspections by the central bank, a reform of cooperative banks, political pressure for mergers and acquisitions, and Italy's sovereign debt crisis. While such an organization appears to be ongoingly accountable to its multiple stakeholders, external pressures undermine its community accountability system and push this hybrid organization towards compliance accountability. Based on our findings, this paper develops a process model for hybrid organizations to navigate institutional plurality and to explain the potential limitations of the accountability system.

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.

ECONOMIES OF SCOPE IN THE INDIAN BANKING SECTOR: AN EXAMINATION OF INCOME STRUCTURE

The Indian Banking Sector has exhibited great dynamism in its operations and functions since the introduction of banking reforms in the early 1990s. While the banking reforms have been comprehensive, encompassing several aspects of concern, of particular significance is the entry to private banks, both domestic and foreign, post easing of entry norms that has instilled competition into the system. The entry of new private sector banks and foreign banks in India have led to structural changes in the Indian Banking Sector in terms of ownership pattern, deposit structure, advances and asset-based structure, and so on. On all these dimensions, the degree of privatization of the banking sector in India is rising, even as public sector banks continue to dominate. An important implication of these developments is the increasing thrust of banks on expanding the scope of their operations in order to maintain and increase their profitability, leading to change in the income structure, among other things. Increased use of technology has further enabled delivery of a wider range of financial products and services under the same roof. The present paper seeks to gauge the changes in the bank group-wise income structure in India. The study also compares economies of scope for the three bank groups; viz., public sector banks, private sector banks and foreign banks. The study finds substantial change in the income structure of the three bank groups over two and a half decades post banking reforms. The findings establish the greater scope efficiency of public sector banks in India.

Did China’s bank ownership reform improve credit allocation?

This paper studies the impact of ownership reform on the credit allocation of China’s three largest state-owned banks (SOBs) in 2004. Using firm data for 2000–2007, we show that listed companies with higher amounts of debt experience a larger decline in credit access in cities that are more exposed to these SOBs after bank reform, indicating that a bank ownership change pushes loan officers to give much more importance to credit risks in the lending process. We extend our study to the universe of unlisted manufacturing companies and find that bank ownership reform also reduces bank lending to state-owned enterprises (SOEs) and low productivity firms in addition to more indebted firms. The negative effect of the reduced SOB lending on firm performance in terms of profitability and investment is only prominent in SOEs and firms with low productivity.

Further Empirical Examination on Determinants of Bank Credit Growth in Nigeria: A Supply Side Approach

This study examined and carried out further examination on the determinants of aggregate bank credit growth in Nigeria from the period of 1984 to 2020. It specifically investigates the determinants of bank credit growth to private and public sectors of the Nigerian economic growth performance. The study employed econometric approach to further carried out the examination on the determinants of aggregate bank credit growth in Nigeria by applying the estimation techniques of Augmented Dickey Fuller (ADF)/unit root test, correlation analysis and ordinary fitted regression analysis. The study addressed broad money supply, monetary policy rate, inflation rate, exchange rate and real gross domestic product as explanatory variables while aggregate bank credit to private and public sectors was regressed as the explained variables. The data used for the analysis were gathered from secondary sources of Nigeria Central Bank Statistical Bulletin and National Bureau of Statistics.The findings revealed that monetary policy rate, money supply and real gross domestic product have significant and positive effects on aggregate credit to private and public sectors (credit growth) aside exchange and inflation that have a negative and insignificant effect. The effect of these is that macroeconomic variables used are the true parameter of measuring aggregate bank credit growth in Nigeria. The short run result and regression results validates and support the influence of aggregate bank credit as a major determinant of credit supply via financial and non financial intermediaries. While the financial reforms and bank reforms also strengthen the banking sector towards meeting their obligations towards investment proliferation and economic growth performance. JEL Classification Numbers: E44, E51, G21 Keywords: Bank credit, Aggregate credit to private and public sector, SMEs, Nigeria DOI: 10.7176/RJFA/12-11-02 Publication date: June 30 th 2021

25 years of averting the old age crisis in Eastern Europe

The influential World Bank Averting the old-age crisis study profoundly influenced pension policies around the globe, but nowhere more so than in Eastern Europe. While Western Europe dismissed radical carve-out pension privatization initiatives, Eastern European countries with similar Pas-As-You-Go legacies pursued World Bank reforms hoping to increase retirement incomes, spur economic growth, and hedge political risks inherent in public systems. However, 25 years later, reversals are taking place in all reforming countries, ranging from outright dismantling of mandatory private pension funds to their scaling-down and moving to voluntary participation. Empirical evidence presented in this article suggests that carve-out privatization failed to accelerate economic growth, while private pension funds turned out to be dynamically inefficient and inferior to PAYG systems they were intended to replace. We argue that the carve-out approach is the root cause of inherent economic and fiscal tension between public and private pension pillars. We identify a minimum set of Pareto improving reform adjustments that address the most pressing sources of economic inefficiencies and political instability by undoing the carve-out financing. The suggested re-reforms would be a first step in enabling private pension funds in Eastern Europe to become a meaningful supplement to existing PAYG benefits, in line with typical pension practices in Western Europe.

OPTIMIZING BALANCE SHEET FOR BANKS IN INDIA USING GOAL PROGRAMMING

In earlier years, there was abundance of funds in banks in the form of demand and savings deposits. Hence, the focus of banks was mainly on asset management. But intense competition and volatility of interest rate due to banking reforms reduced the availability of low-cost funds and therefore, banks focused on liability management as well. These pressures call for structured and comprehensive measures and not just ad hoc action. This is how banks started to concentrate more on the management of both sides of the balance sheet. As a result, the concept of asset-liability management originated in India and introduced in the Indian banking industry since 1st April 1999 to administer the risk management aspects. This paper attempts to optimize assets and liabilities of banks using goal programming technique. Secondary data is collected from annual reports of Allahabad bank from 2010-2019 and RBI website is used for modelling. The findings show that in Allahabad bank, goal programming help in achieving optimization and increase profitability. The model incorporating constraints and set objectives. It model can support banks in decision making process, planning, budgeting, and forecasting. An attempt is made to use realistic goals and constraints after discussing with bank officials.
 JEL Classification Codes: C61, G21, G32.

Banking reforms and bank efficiency: Evidence for the collapse of Spanish savings banks

This paper analyzes the impact of the banking system reform implemented through the banking consolidation (mergers and acquisitions) carried out in Spain to address the collapse of savings banks. The 2008 global financial crisis triggered a sovereign debt crisis in Europe and the burst of a real estate bubble in Spain, and forced a government intervention, despite policymakers not yet having developed a clear guidance for addressing banking crises. We therefore explore to what extent the efficiency of the Spanish financial system increased as the troubled savings banks merged with each other and/or were acquired by healthy savings or commercial banks. Our findings show that this Spanish banking reform impacts positively on the banking performance in terms of both bank efficiency and bank solvency. Consequently, banking reform via M&A drives out unviable banks and is a feasible alternative that minimizes the negative effects of government interventions in the financial systems.

Size Anomalies in U.S. Bank Stock Returns and Banking Reforms

Using unique data on over-the-counter bank stock prices and balance sheet information we explore bank funding cost differentials using the risk-adjusted return gap between the largest and the smallest depository institutions. We find that the largest commercial bank stocks, ranked by market value or gross deposits, have significant lower risk-adjusted annual returns than do small sized bank stocks even after controlling for standard risk factors including size. This return difference is one of the first instances of preferential treatment for large banks and can be attributed to the Banking Act of 1935 which authorized the FDIC to act as the liquidator for all insured banks, and to choose which bank would be resolved by purchase and assumption and which by liquidation. Failures of larger institutions tended to be resolved by purchase and assumption, which is preferred because it preserves the value of the going concern, while failures of smaller institutions tended to be resolved by payoff and liquidation. When examined during the period of 1926 to 1939, when there are no such guarantees, we do not find any risk-adjusted returns differences between different sizes of banks.

Bank reform demands monetary reform

The complex and technical subject of bank reform has scarcely been more popular. Events in Cyprus have demonstrated banks are a way of investing money for a return, with all the risk that entails. Van and minibus entrepreneur Dave Fishwick has created a documentary —Bank of Dave— which shows banking can be a simple entrepreneurial function providing a safe return to savers at the entrepreneur’s risk. It’s award-winning and a soar-away popular success.
 Of course, thanks to regulators, it’s not actually a bank: it’s a savings and loans firm. Whereas these route savings to borrowers, a bank creates credit. That is, banks lend money into existence. It is that distinction, together with other features of the financial system, which has led the world into crisis. It is both one of the least well-understood economic phenomena of our time and the most central to our present difficulties.
 Yet, astonishingly, Dave Fishwick has struck on a model of ban-king close to a theoretical ideal: he carries his own commercial risks and, even if he could take deposits, he wouldn’t provide cre-dit in excess of savings.
 It is towards this model the world should move.

Bank-Specific, Macroeconomic, and Institutional Factors Explaining the Capital Buffer and Risk Adjustments in Banks: A Simultaneous Approach

ABSTRACT This study aims to shed light on the capital buffer and risk adjustments in the banking sector of South-Eastern European countries following the financial crisis of 2008 that triggered a series of bank reforms and new regulations. Using Bankscope data for the period 2009–2014, we investigate the effect of economic growth and institutional quality on banks’ voluntary capital buffers and risk. Our main findings suggest first that changes in risk positively affect capital buffers. Second, we find that risk adjustments are negatively affected by economic growth, but no significant effect of economic growth on the capital buffer was noted. Finally, our results show that a rise in institutional quality reduces the need for banks to extend their capital buffers.

Fair Lending for Cannabis Banking Justice

This Comment offers a fair lending solution to promote racial equity in cannabis banking reform: amend the Equal Credit Opportunity Act to ensure individuals previously arrested, charged, or convicted for selling, cultivating, or possessing marijuana will not therefore be precluded from loans to start legal cannabis businesses. Given disparities in the criminal enforcement of marijuana laws, this amendment would provide racial justice benefits, while also encouraging entrepreneurship. As a market-based social justice effort, this amendment offers a bipartisan approach to one of the most vexing and contentious issues in marijuana banking reform. Part II of this Comment briefly surveys the federal statutes that have led to an under-banked cannabis industry and discusses the costs of cash for marijuana businesses. It then examines prior reforms proposed by academics, executive-branch officials, and legislators. Part III explores the racial equity concerns that these proposals fail to address, while Part IV offers a fair lending approach for justice in marijuana banking reform.

Иностранные банки в Китае: старт нового этапа

Received 16.10.2020. The article examines the most recent developments in the evolution of the foreign banks in China. Author provides a brief description of the stages of development of foreign banks in the PRC since the start of the Den Xiaopin’s Reform and Development policy till the present time. The change in assets of foreign banks for the last 15 years is analyzed in details. A comparison of assets of foreign banks with the assets of the China banking system is provided in a form of analytical graph. The author’s assessments of the foreign banking sector over the past ten years give grounds to conclude that there was a stagnation in the development of the foreign banks sector during this period. The recent steps of the Chinese authorities to liberalize the foreign banking sector are analyzed in detail. The author examines the Chinese leader’s systematic approach to the banking reforms and comes to the idea that it consists of three components: the change in the political vision and attitudes, the institution reform of the banking regulators and the reform of banking legislation. An assessment of the impact of liberalization on the development prospects of foreign capital banks is also given. Based on an analysis of the overall scale and impact of recent reforms in the foreign banking sector, the author concludes that a new stage in the development of foreign capital banks in China is likely to begin. The main problems and challenges that foreign banks in China will have to face at a new stage of development are also identified and described.

Bank Performance and the Relationship between Lending and Fee-based Activities in an Emerging Market

New banking reforms in Vietnam highlight requirements for banks to diversify into the non-lending business lines. In this study, we analyse the reciprocal relationship between bank lending and fee-based activities and examine the comparative effects of two segments on bank performance in the Vietnamese market from 2007 to 2018. Employing the system of equations with the three-stage least squares (3SLS) estimator and different sets of variables, we find an inverse reciprocal relationship between bank lending ratio and fee-based income share and thereby contribute to the “loss leaders” hypothesis. For bank performance analyses, we apply a rich set of alternative measures for bank profitability, risk-adjusted profits and bank risk, estimated by the generalized method of moments (GMM) estimator for the dynamic panel framework. The results indicate benefits of economies of scope and differences in the risk-return mechanism of lending and fee-based activities. More precisely, we find fee income to positively affect returns on assets/equity and risk-adjusted profits. In sharp contrast, increased lending boosts net interest margins but contains more risks as shown by higher loss provision levels. The essential discrepancy between the two categories of activities hascreated an interesting risk-return trade-off pattern.