Bank Earnings Research Articles

Bank Capital and the Performance of Banks As Financial Intermediaries: Comment

Capital adequacy historically has been an important concern of bank managements and regulators and a question on which there is little agreement as to guiding principles.l The role of bank can be examined from at least three different viewpoints: (1) that of depositors and the monetary system, (2) that of shareholders, and (3) that of the functioning of banks as financial intermediaries. Bank traditionally has been viewed primarily in terms of depositor interests, that is, (1) above, and most of the literature on capital adequacy reflects this viewpoint. The function of from the standpoint of depositor interests usually has been seen as bearing the risks of banking and thereby (a) protecting depositors of individual banks against loss and (b) guaranteeing the banking system as a whole against general banking panics. In attempting to judge how well bank has performed these functions, it is pertinent to note that, in normal times, bank earnings have been more than adequate to cover default and realized market losses and that in times of panic, positions appear to make little difference [1, 13, 27] . The relationship between positions and bank failure is a topic of controversy [1, 27]. Some writers [9, 14] have argued that deposit insurance has reduced, if not largely eliminated, the importance of with respect to both purposes (a) and (b) above. Additional questions have been raised by Peltzman [17] regarding the extent to which regulatory guidelines actually have influenced positions (see also Mayne [1 1 ] ). Although the evidence is mixed on a number of these issues, studies such as those cited above raise questions regarding the economic role of bank capital. Moore [12] has suggested that bank plays no economic role at all.2 Other wnters have defined the role of in such vague terms as to leave its importance in considerable doubt.3

Les dimensions économiques de la question nationale en Yougoslavie

Economie Dimensions of the National Dispute in Yugoslavia. The problem of the economic causes of the national controversy in Yugoslavia can be divided into two broad categories : the controversy over aid to the under-developed republics, and the role of the federal government in the economy. In respect to the former of these two problems, the Yugoslav government has extended considerable aid to the underdeveloped republics, but differences between these areas and the more advanced regions have persisted and, in many respects, grown more pronounced. Migration to industrialized areas, which might mitigate some of these differences, has occurred largely within republics rather than across republic boundaries, while in certain areas — notably Bosnia-Hercegovina and Kosovo — the agricultural population remains at, or exceeds, pre-World War II levels. The federal fund to aid underdeveloped republics, which was established in 1965, has been the subject of acrimonious debate, most recently in 1970, when the time came to renew the fund's existence. Slovenia and Croatia argued that the fund should be turned into a conventional banking operation providing loans at regular rates of interest. The underdeveloped republics resisted this solution. The compromise finally approved called for 1.94 % of the social product of all the republics to go to the fund, while terms of repayment of loans made by the fund to the underdeveloped republics were tightened. The dispute centering on the role of the federal government in the economy has divided the country along different lines, pitting Slovenia and especially Croatia against Serbia. The origins of this conflict lie in the economic reforms of 1965, which failed to reduced the power of the federal government in the economy to the degree expected by Croatia and Slovenia, and at the same time encouraged the emergence of new centers of economic power in the banks and trading organizations in Belgrade. The Slovenians and the Croats demanded the liquidation of the federal banks, the abolition of « extra- budgetary accounts», and the end of all federal investment programs. The Croatians also wished to receive a greater share of foreign currency earned in Yugoslavia, and asserted that investments by Serbian firms in Croatia were a form of exploitation. The constitutional amendment of 1971, by liquidating most extra-budgetary accounts of the federation, ending federal investments, and providing for control over earnings of banks by their depositors, sought to end the problems just alluded to. Failure to solve the question of allocation of foreign currency, and the slowness with wich the constitutional reforms were implemented, (resulted in continued controversy and played a major role in the disturbances in Croatia in 1971. Yugoslavia faces many complex issues in alleviating the economic sources of national controversy. A basic problem lies in the fact that economic demands in Croatia and Slovenia reflect the needs of a growingly affluent society, while in the south the problem is still one of encouraging economic development and overcoming backwardness.

Bank Earnings and Securities Gains and Losses

Bank Earnings and Securities Gains and Losses

Deposit Composition and Commercial Bank Earnings

Deposit Composition and Commercial Bank Earnings

Cost of Capital and Dividend Policies in Commercial Banks

The purpose of this study is to analyze the behavior of the cost of equity capital in the commercial banks by looking at whether there exists an optimal composition of the bank “fund structure” that would maximize bank earnings through the minimization of its cost of funds. The analysis should give an approximate cut-off point for testing such projects as “checking plus,” checkless payment systems, etc.

Deposit Composition and Commercial Bank Earnings

Deposit Composition and Commercial Bank Earnings

What Are Bank Earnings?

IT HAS BEEN the general practice of many banks to issue annual statements in abbreviated form with not as much detail as a security analyst might desire. The house audited reports formerly published seemed oriented more from a bank examiner's regard for depositor safety than from the shareholders' point of view. Important transactions and events have taken place affecting a bank's financial position at almost random intervals and in the course of time there seems to have been a shift away from emphasizing the concept of net income as reported on the bank's income tax statement in favor of net operating earnings which exclude such items as loan losses and the net effect of security transactions. Recent changes in the accounting practices of banks and the entrance into new types of business such as credit cards have given the accounts new importance in the overall picture of bank earnings. The reason for the shift in accounting was Regulation F, issued by the Federal Reserve Board and the Federal Deposit Insurance Corporation which applies to banks with 500 or more shareholders -those banks of most interest to investors.' Additionally, the Comptroller of the Currency has published similar rules covering disclosure to bank shareholders although these regulations fall somewhat short of what is required under Regulation F. In addition to other useful information, registration statements must disclose gains or losses in bond trading accounts and reconciliation of reserves for bad debts. The regulations provide that securities accounts, in both the balance sheet and income statements, reflect both amortization of premiums and accretion of discounts, except that, if discount is not accumulated into operating income, the effect on earnings must be disclosed in a footnote. Under past accounting practice certain changes in the below the line accounts have had the effect of offsetting each other so that their impact on true earnings was mitigated to a degree. As will be illustrated later in this article, the reporting of gains and losses on securities was overly conservative which more than offset the effect of disregarding loan losses actually taken in each year. This situation has now shifted from somewhat overly conservative reporting to a decided overstatement of operating earnings.

Senior Securities and Bank Stock Prices

THERE IS no doubt that investors are relatively disenchanted with bank stocks today. In view of the record, the only rational explanation is that many investors fear the future will not repeat the past, and bank earnings will not show the same relatively stable growth in the next decade. There are many reasons for such doubts -fear that banks cannot continue to increase their income to keep pace with increased interest paid on time deposits, that labor costs cannot be held in line, that we are headed for some vaguely defined financial crises, etc. Some of these doubts are, in my opinion, groundless. Others have more merit.

Savings Accounts and Commercial Bank Earnings.

Savings Accounts and Commercial Bank Earnings.

Bank Earnings and the Competition for Savings: A Further Comment

Previous articleNext article No AccessBank Earnings and the Competition for Savings: A Further CommentPaul M. HorvitzPaul M. Horvitz Search for more articles by this author PDFPDF PLUS Add to favoritesDownload CitationTrack CitationsPermissionsReprints Share onFacebookTwitterLinkedInRedditEmail SectionsMoreDetailsFiguresReferencesCited by Journal of Political Economy Volume 70, Number 1Feb., 1962 Article DOIhttps://doi.org/10.1086/258593 Views: 2Total views on this site Citations: 1Citations are reported from Crossref Copyright 1962 The University of ChicagoPDF download Crossref reports the following articles citing this article:David E. Clark, William J. Hunter THE IMPACT OF ECONOMIC OPPORTUNITY, AMENITIES AND FISCAL FACTORS ON AGE-SPECIFIC MIGRATION RATES, Journal of Regional Science 32, no.33 (Aug 1992): 349–365.https://doi.org/10.1111/j.1467-9787.1992.tb00191.x

Bank Earnings and Savings Deposits: A Comment

Previous articleNext article No AccessBank Earnings and Savings Deposits: A CommentAllan R. DrebinAllan R. Drebin Search for more articles by this author PDFPDF PLUS Add to favoritesDownload CitationTrack CitationsPermissionsReprints Share onFacebookTwitterLinkedInRedditEmail SectionsMoreDetailsFiguresReferencesCited by Journal of Political Economy Volume 69, Number 3Jun., 1961 Article DOIhttps://doi.org/10.1086/258471 Views: 2Total views on this site Copyright 1961 The University of ChicagoPDF download Crossref reports no articles citing this article.

Bank Earnings and the Competition for Savings: A Reply

Bank Earnings and the Competition for Savings: A Reply

Bank Earnings and the Competition for Savings

THIS comment questions and supplements some portions of Dean Carson's paper, The Competition for Savings Deposits.' Carson's framework for discussing bank earnings and the competition for savings is very useful. However, he may have overlooked two major factors, the addition of which would contribute to the value of his analysis and significantly alter his conclusions. One of these factors is the geographic flow of funds to conform with preferences of depositors. Ignoring this, Carson commits a fallacy of composition. He fails to take account of the different consequences for an individual commercial bank and for a banking system that result from a loss of funds to non-bank savings institutions-in particular, to savings-and-loan associations (SLA). Another factor not taken into consideration is the reaction of the monetary authorities to secondary effects of such a shift of funds. These points will be considered in order.

Commercial Bank Earnings, the Strengthening of Capital Accounts, and Monetary Policy

It has long been known1 that a central bank exercises only very imperfect control over the volume and composition of commercial bank earning assets when its operations are directed primarily towards influencing the amount of excess reserves and the level of reserve requirements against demand and time deposits. Such a measure of control may, indeed, not be the aim of the central bank. However, it is largely through its influence on earning assets, whether intended or not, that central bank actions affect aggregate demand. Increased reliance on the general (or quantitative) monetary instruments in promoting economic stability has, in recent years, become more or less a political fact. At the same time, a number of arguments have appeared which cast considerable doubt on the Federal Reserve's ability, under certain circumstances, both 1) to restrain total bank lending and investing and 2) to avoid an undesirable degree of selectivity from the standpoint of certain social objectives (e.g., widespread home ownership or optimal economic growth).2 The former set of arguments can be traced to two so-called destabilizers: portfolio shifts and deposit shifts. In the first case it is argued that, during periods of rising interest rates and pressure on bank reserves, banks may attempt to maintain their lending activity by selling short-term investments (chiefly Treasury securities) to businesses, nonbank financial institutions, and the general public. If the buyers of these highly liquid assets, attracted by the higher yields, dispose of idle cash balances in payment and if banks, in turn, fill their earning asset vacancies with loans to active spenders, an increase in velocity, though not necessarily in the ney suppply, may result.' Th deposit shift argument states that banks (and possibly other financial institutions) may attempt to counteract monetary restriction, i.e., to restore reserves and maintain lending, by attracting time deposits (or intermediary claims) via higher interest rates. If this precipitates shifts from currency or demand deposits to time deposits (or shifts from any of these to intermediary claims), there may be several consequences: th generation of excess reserves and a low ring of average reserve requirements against the total of time and demand deposits (and, with intermediaries in the picture, a pyramiding of reserves).' The proponents of perverse selectivity argu*ments, on the other hand, maintain that general monetary restriction does not necessarily guarantee that all supermarginal loans, from society's point of view, will be satisfied. This may be partly the result of market imperfections, e.g., discrimination against small borrowers or the sluggishness of FHA loan rates and public utility ra es. But it may also be the result of inadequate provision for certain social wants by private market processes of credit allocation, e.g., loan financed public schools and roads at low debt service cost.

COMMERCIAL-BANK TREATMENT OF BAD-DEBT LOSSES: RELATIONSHIP TO ECONOMIC AND ACCOUNTING CONCEPTS OF INCOME MEASUREMENT AND EFFECTS OF FEDERAL INCOME TAX REQUIREMENTS*

THE REQUIREMENTS of the federal income tax regulations have historically determined the procedure followed by commercial banks in handling bad-debt losses. No specific procedure was established by the Bureau of Internal Revenue before late 1947, and banks usually charged off accounts on a current basis when they were deemed uncollectable. The bureau established a formula in December, 1947, that could be used for setting up valuation reserves to provide for the treatment of bad-debt losses. A supplemental ruling was issued during 1954 which provided an alternative bad-debt formula. These rulings have not been completely accepted by bankers; they have been criticized as inadequate and not in conformity with historical bad-debt-loss experience. This study was undertaken to determine the significance and relationship of the bad-debt deduction to commercial-bank income and to determine the basis for the bad-debt deduction that would result in the most accurate measurement of income. The amounts and timing of bad-debt losses were found to be one of three major influences on bank earnings before income taxes. Therefore, it was considered of utmost importance that the correct amount be used as the deduction to determine annual net income before income taxes. The financial structure and operating results of all insured commercial banks in the United States were examined. A study was made of thirty-four commercial banks, and the percentage ratios for the two groups were compared, with special emphasis on the relationship of bad-debt losses. The study of all insured commercial banks revealed the close relationship between bad-debt charge-offs and net profits after income taxes. Income measurement was considered an

Bank Earnings and the Competition for Savings Deposits

Previous articleNext article No AccessBank Earnings and the Competition for Savings DepositsDeane CarsonDeane Carson Search for more articles by this author PDFPDF PLUS Add to favoritesDownload CitationTrack CitationsPermissionsReprints Share onFacebookTwitterLinkedInRedditEmail SectionsMoreDetailsFiguresReferencesCited by Journal of Political Economy Volume 67, Number 6Dec., 1959 Article DOIhttps://doi.org/10.1086/258245 Views: 7Total views on this site Citations: 1Citations are reported from Crossref Copyright 1959 The University of ChicagoPDF download Crossref reports the following articles citing this article:William D. Jackson Thrift Institution Competition with Commercial Banks: Empirical Evidence, SSRN Electronic Journal (Jan 1974).https://doi.org/10.2139/ssrn.2118843

A Note on Bank Earnings and Savings Deposit Rate Policy

A Note on Bank Earnings and Savings Deposit Rate Policy

Outlook for Bank Earnings

IT IS A PLEASURE to be here this morning to talk about my favorite subject, banking, but today we are isolating one segment of banking for discussion, Outlook for Bank Earnings. In view of developments since the first of the year, with the substantial easing in the money market and decline in business activity, the earnings outlook is receiving more than passing attention by everyone in the industry. Today I should like to talk about the earnings outlook for 1958 as well as make some observations on the long-range viewpoint.

Bank Stocks and the Analysis of Covariance

THIS HIGHLY specialized paper grew out of a rather general program for analyzing security prices by multiple regression, with the ultimate objective of answering a whole series of questions regarding the supply of and demand for capital. The selection of bank stocks for immediate attention arose out of the unusual condition of bank capital following the World War II inflation, when rapid expansion of deposits was reducing the capital-to-asset ratios of banks to historically low levels. At the same time, the market for bank stocks was somewhat unfavorable, with many issues selling for less than book value, so that bankers often seemed reluctant to raise additional capital by means of new stock issues. Thus the bank stock market commanded the attentions of the bank supervisory officials and bankers alike. Were the common discounts from book value due to unsatisfactory bank earnings? If so, what level of eamings would be required to eliminate these discounts? Or could discounts be substantially reduced, if not entirely eliminated, by merely paying more generous dividends out of existing earnings? Finally, were the discounts in any way affected by capital-to-asset ratios? These questions, whose economic implications are discussed elsewhere,2 can all be attacked by a multiple regression analysis in which the dependent variable consists of bank stock prices and the independent variables consist of such quantities as book value, dividends, and earnings. But although the answers thus obtained are suggestive, and possibly provocative, there remains the haunting doubt that the rigid assumptions of regression analysis do not justify its use with bank stock prices.

The Lesson of the World Bank

THE International Bank for Reconstruction and Develop ment, popularly known as the Bank, is about to celebrate the third anniversary of the commencement of its operations. Those three years have been fascinating and ex citing ones, crowded with problems as unique and complex as they have been pressing. Solutions have not been and are not yet easy to find ; the state of knowledge about the whole business of international investment is still remarkably incomplete. By now, however, some of our experiences and some of the lessons we have learned seem worth recording. Deceptive and unfortunate ideas of grandeur are quite natu rally evoked in many minds by the designation World Bank. I fear that in many quarters those ideas of grandeur led to expec tations of rapid and spectacular achievement and to consequent disillusionment when the spectacular failed to materialize. Solid, gradual growth and development make poor news copy and thus escape public attention, but they are not for that reason to be deprecated. The fact is that, slowly but quite perceptibly, the Bank has gained general acceptance of its credit in the public markets and a reputation for objectivity, fair dealing and com petence in the councils of its member states. The loans which it has granted, totalling some $650,000,000 as of the end of April 1949, have been for essential and well-conceived programs or projects which should materially strengthen the economies of the borrowing countries. Its advice and encouragement to various of its members have led to the adoption of economic and financial measures and administrative reforms which may well prove to be at least equally as beneficial as the Bank's financial help. The Bank's bonds have had a very satisfactory market record; as a result of legislative or administrative action in 37 states, the bonds are now eligible investments for almost all institutional investors in the United States and there is at present a substantial unsatis fied demand for the bonds. The Bank's earnings record has been good and has enabled a promising start to be made in building up reserves. These, to me, are satisfying accomplishments. They are not spectacular in any sense, but they represent the fruit of much intensive work.