Big Banks Research Articles

Coopetition strategy and industry convergence. Evidence in the Chinese banking market.

ABSTRACT The paper examines the strategy adopted by banks in interacting with Fintech. In particular, among different options that range from partnership and acquisition, we investigate how big Banks relate to Bigtech firms. To investigate this question, we explore the strategy adopted by major Chinese banks in interacting with BigTech, using a case study approach. We focus on industry dynamics rather than inter-firm dynamics exploiting the drivers of the convergence process. Evidence reveals that coopetition strategy is adopted as a possible result of the evolutionary process of convergence in the industry. Convergence destabilizes sectoral equilibria, leading firms to generate a confluence of new value proposals, new technologies, and new markets reachable through a coopetition strategy.

Interconnectedness and systemic risk measures of Chinese financial institutions

PurposeIn this paper the interconnectedness among financial institutions and the level of systemic risks of four types of Chinese financial institutions are investigated.Design/methodology/approachBy the means of RAS algorithm, the interconnection among financial institutions are illustrated. Different methods, including Linear Granger, Systemic impact index (SII), vulnerability index (VI), CoVaR, and MES are used to measure the systemic risk exposures across different institutions.FindingsThe results illustrate that big banks are more interconnected and hold the biggest scales of inter-bank transactions in the financial network. The institutions which have larger size tend to have more connection with others. Insurance and security companies contribute more to the systemic risk where as other institutions, such as trusts, financial companies, etc. may bring about severe loss and endanger the financial system as a whole.Practical implicationsSince other institutions with low levels of regulation may bring about higher extreme loss and suffer the whole system, it deserves more attention by regulators considering the contagion of potential risks in the financial system.Originality/valueThis study builds a valuable contribution by examine the systemic risks from the perspectives of both interconnection and tail risk measures. Furthermore; Four types financial institutions are investigated in this paper.

Contract Length Determination in the B2B Service Industry: Role of Economic Factors, Business Relationship, and Learning

In B2B markets, when firms sign contracts for transactions pertaining to the exchange of services that are delivered over a period of time, one critical decision they make is the length (or duration) of the contract. If the services are hired for a long project, companies often sign multiple, successively run contracts with the same vendor. This is prevalent in projects such as when multinational companies hire consulting firms like Accenture to streamline and digitize their business processes, when big banks in developing countries hire firms like Tata Consultancy Services to extend banking facilities into rural markets, and when oil companies hire rig firms to drill oil wells. From a traditional economic perspective, companies would decide on an optimal contract length that is not too long or too short; the former disables the firms from reacting to market changes while the latter makes negotiation costs expensive. However, when a company signs a series of successive contracts with a service-firm, both companies get to learn about the other company’s goals and operations dynamically, which might influence the length of each contract in the series. Thus, determining the contract length in a series of successive contracts is more challenging. In this study, we build a contract length determination model that considers both the economic factors and the dynamic learning. The model provides managers with a theoretical yet practical tool to make optimal decisions on contract length. We use data from the oil-drilling industry to empirically test the proposed model.

Government support of banks and market discipline: International evidence

AbstractThis study analyzes the effect of government support on market discipline in an international sample of banks rated by Moody's or Fitch. We also evaluate how a financial crisis and size shape the effect of government support on market discipline. We control for unobservable, country, and time‐specific effects with a panel dataset of banks from 77 countries. Through this comprehensive dataset, we find that government support significantly reduces the market discipline of banks, and this effect is most reflected by an expected increase in charter value. However, market discipline is more pronounced after the 2008 financial crisis and for smaller than bigger banks. These results have important implications for banking regulation and supervision, particularly during a crisis period.

Bank size and performance: An analysis of the industry in the United States in the post‐financial‐crisis era

AbstractWe compare the 2007–2009 post‐financial‐crisis performance of US banks with their performance before the financial crisis, based on bank size using financial ratios. We find bank performance declined in the post‐financial‐crisis period as compared to its pre‐financial‐crisis performance, evidenced by reduced return on equity (ROE) and return on assets (ROA), higher debt ratios, lower net interest margin, increased net loan losses, more nonperforming loans, and, to a lesser extent, estimated losses on loans. In difference‐in‐differences tests between the largest and smallest groups, we find the biggest banks report significantly higher ROA and lower debt ratio, in addition to outperforming small banks in net interest margin and loan loss reserves. Smaller banks did better only in net loan losses. General economic conditions and interest rate changes are controlled for in our results. We conclude that small banks have a significant disadvantage in the industry in the post‐financial‐crisis era compared to both big banks and their own pre‐financial‐crisis historical performance.

Is bailout insurance and tail risk priced in bank equities?

We present a pricing model of bank bailout insurance guarantees against tail risk and empirical evidence that provides a rational explanation why big bank equities “underperform” relative to small banks during normal times while they “overperform” during crises. A new measure accounting for left-tail risk protection against losses conditional on a crisis explains the “underperformance” of large banks during normal periods. Over the long-term spanning several economic cycles, bank assets are fairly priced regardless of size. Our empirical evidence supports our model’s predicted pattern of excess bank return reversals across economic cycles following Too-Big-To-Fail (TBTF) bailout policy in 1984.

ECB quantitative easing, euro depreciation and supply chains: Industry-level estimates for Germany, Italy and Greece. New prospects for a Minskyan big bank?

We investigate how the 2014-2016 depreciation of the euro against the US dollar triggered a cascade effect on the European supply chains which reduced the current account imbalances among the EU member states. In particular, we analyze the specific case ofGreece to verify whether the higher export demand towards the USA in the two main European exporting countries, Germany and Italy, increased the demand for Greek goods and services by the German and Italian economies. We employee a linear ARDL model whichis able to track short-and long-term effects of the depreciation on the industries of Greece with respect to Germany, Italy and the USA for the period 2010-2016 using bilateral monthly data. The empirical findings show that the euro depreciation increased the integration between the German and Greek production structures in various industries representing more than 35% of the entire trade between the two countries.

Enhancing Roles of Banks and the Comparison of Market Risk and Risk Policy Implications in Group of Listed Vietnam Banks During 2 Stages: Pre and Post-Low Inflation Period

By classifying period 2011-2020 into 2 stages: pre-low (L) inflation stage (2011-2015) and post-low inflation stage (2015-2020), we can compare market risk in total 7 listed big banks in Vietnam including: Previous SOEs banks (including VCB and CTG) and Previous Private banks (including STB, SHB, NVB, EIB and ACB). Authors then use combination of quantitative methods (statistics, calculation formulas) and qualitative methods including synthesis, inductive and explanatory methods, esp. Authors use comparison methods for analyzing and evaluating beta CAPM (Stand for market risk) of banks in 2 special stages. The research findings tell us that In groups of banks (SOEs previously) VCB and CTG we find out: beta mean GAP of CTG higher than beta mean GAP of VCB case (0.24 > 0.19), and GAP of beta mean is positive in this case for both periods. In groups of joint stock banks (private banks) SHB, STB, NVB, ACB and EIB we figure out: beta mean GAP of STB is the highest (0.68) while only 1 case SHB, in which beta mean GAP is negative (-0.26). Besides, this study also give out recommendations for risk policy implications for bank system and for the country.

Can the Indonesian banking industry benefit from a risk-based deposit insurance system?

ABSTRACT A risk-based premium scheme could be a reliable system to determine a fairer deposit insurance premium. This research aimed to assess Indonesian banks’ risk profile, including per size classification and ownership as well as to counterfactually simulate a risk-based deposit insurance system for the individual banks. This research combined analysis of variance (ANOVA) and non-parametric approach applied to 75 banks (2008q1-2019q3). The results showed that big banks did not necessarily posture better risk management compared to small banks. Also, under the risk-based scheme, banks with better risk management could be rewarded, while less prudent banks could be punished.

Enforcement against the Biggest Banks

ABSTRACT Being a big bank means the regular payment of huge fines to a number of different regulators, paired with profuse apologies, and promises to do better next time. This article makes use of a hand-collected dataset to show how this enforcement worked in the United States after the passage of the Dodd-Frank Wall Street Reform Act. American regulators have tended to hunt the big banks in packs, with multiple regulators pursuing fines against financial institutions for the same misconduct. Regulators frequently enforce in a ‘viral’ manner: once they sanction one bank for a type of misconduct, the chances that they will sanction another bank for the same sort of misconduct increases. Some regulators like to bundle a variety of different unlawful actions by banks into one global settlement. Enforcement by the Department of Justice can result in spectacularly expensive settlements compared to the level of enforcement by primary banking regulatory agencies; overall, Department of Justice sanctions in dollars dwarf those of all other agencies policing part of what a bank does. American enforcement, despite suspicion to the contrary, does not appear to protect domestic banks and discriminate against foreign ones. Although this article’s primary goal is to make sense of the federal government’s overall enforcement practices, one recommendation is made: criminal prosecutors should consult with safety and soundness regulators before unveiling indictments and settlements against banks.

Are Bigger Banks Better? Firm-Level Evidence from Germany

The effects of large banks on the real economy are theoretically ambiguous and politically controversial. I identify quasi-exogenous increases in bank size in postwar Germany. I show that firms did not grow faster after their relationship banks became bigger. In fact, opaque borrowers grew more slowly. The enlarged banks did not increase profits or efficiency but worked with riskier borrowers. Bank managers benefited through higher salaries and media attention. The results are based on newly digitized microdata on German firms and their banks. Overall, the findings reveal that bigger banks do not always raise real growth and can actually harm some borrowers and the real economy.

Big Data Support for Problem Solving Method in Mass Spectrometry Topic in Modern Analytical Chemistry Course

Extremely large and unpredictable user generation of data, all digitized and stored in large data repositories is built up by scientists, especially from modern analytical chemistry. This study aims to build a new approach in chemistry education, by utilizing Big Data sources to support IDEAL (I-Identify problem, D-Define goal, E-Explore possible strategies, A-anticipate outcomes and act, L-Look back and learn) Problem Solving learning model. Modern analytical chemistry studies and uses instruments to analize chemical compounds up to structural analysis. Modern instruments, such as mass spectrometer, generate information of compounds and stored in big data bank. This must be able to be accessed and used in chemistry education. This report would be around the benefits of using Big Data during learning process in this digital era, through IDEAL Problem Solving learning. Some preliminary progress would be presented. The growing number of data and resources would change also teaching and learning methodology in higher education. Some highlights about disruptive learning innovation would be described

Does market competition affect all banks equally? Empirical evidence on Montenegro

Abstract Bank stability is an important aspect of financial stability, especially in bank-centric systems like that of Montenegro. Hence, it is important to analyse risks affecting stability of both the banking and financial system as a whole. Rising competition among banks could pose a challenge and possibly change the level of credit risk, especially if the banks are small in size. This can affect both credit risk and financial stability. Small-sized banks could be the ones to react less nimbly to a changing market structure than bigger banks with stable market shares. This study tries to answer whether competition affects credit risk in Montenegro and whether banks differing in size react differently. Panel data techniques were applied to eleven banks which account for over 90 percent of the banking sector. The results indicate that market concentration could be particularly harmful when it comes to credit risk of small-sized banks, while large-sized banks are less affected. Overall, the increasing competition may positively affect credit risk in Montenegro.

Profitability Determinants of Big European Banks

Abstract The subject of research in this paper is the profitability of the biggest banks in the European financial market, some of which operate in Montenegro. The profitability of banks is influenced by a large number of factors, including internal banking and external macroeconomic factors. The aim of this paper is to use statistical and econometric methods to examine which factors and with what intensity affect the profitability of large banks in Europe. The empirical analysis used highly balanced panel models with annual data on 47 large banks from 14 European countries over the period 2013-2018. Three static panel models were estimated and evaluated (pooled ordinary least squares, model with fixed effects and model with random effects), as well as dynamic model utilizing general methods of moments. The POLS model was chosen as the best, confirming that all macroeconomic factors have a statistically significant impact on the profitability of big banks, while the impact of internal factors, which are controlled by the bank’s management, is not significant. GDP growth rate, inflation rate and market concentration have a positive effect on profitability, while the membership of the European Union has a negative impact on profit, meaning that banks with headquarters outside the EU are more profitable.

The Strategic Response of Banks to Macroprudential Policies: Evidence from Mortgage Stress Tests in Canada*

Abstract Following the crisis, macroprudential regulations targeting mortgage-market vulnerabilities were widely adopted, their success often relying on the response of financial intermediaries. We provide evidence from Canada suggesting banks may have behaved strategically to limit the effectiveness of recently implemented mortgage stress tests. Before implementation, borrowers had to prove they could make mortgage payments based on the interest rate specified in the contract. The new tests require borrowers to show they can afford payments based on a typically higher qualifying rate, derived from the mode of 5-year rates posted by the six largest banks. The government’s objective was to cool credit markets, but, since many mortgages are government-insured, the big banks’ interests were not aligned. We find evidence of rate manipulation using a difference-in-differences approach comparing changes in spreads for 5-year mortgages with 3-year spreads, unaffected by the policy. The qualifying rates were lowered encouraging continued borrowing, muting the tests’ impact.

Big Banks, Household Credit Access, and Intergenerational Economic Mobility

Consolidation in the United States banking industry has led to larger banks. I find that low income households face reduced access to credit when local banks are large. This result appears to stem from large banks’ comparative disadvantage using soft information, which is particularly important for lending to low income households. In contrast, the size of local banks has little or no effect on high income households. Consistent with low income parents’ credit constraints limiting investment in their children’s human capital, areas with larger banks exhibit a greater sensitivity of educational attainment to parental income, and less intergenerational economic mobility.

The rise of big U.S. banks and the fall of big European banks: A statistical decomposition

Bank asset concentration has risen in the U.S. since the 1980s and declined in Europe since 2008. We decompose this rise and fall of big banks using rank-based empirical methods that characterize dynamic power law distributions into two shaping factors: the growth rates and idiosyncratic volatilities of assets for different size-ranked banks. Higher relative growth rates for the largest U.S. banks led to greater asset concentration. Idiosyncratic volatilities for U.S. banks declined, resulting in lower fundamental volatility of bank assets — the aggregate volatility due to idiosyncratic, bank-specific shocks — despite the rise in concentration since the 1990s. In contrast, the relative growth rates for the largest European banks declined and this led to the lower concentration of European bank assets. Over this same time period, the idiosyncratic volatilities and fundamental volatility of European bank assets have been stable.

Measuring and forecasting retail trade in real time using card transactional data

We build big data retail trade indicators for Spain using high-dimensional card transaction data from one of the country’s biggest banks. The resulting indicators replicate the dynamics of the Spanish retail trade indices (RTI), regional RTIs (Spain’s autonomous regions), and RTI by retailer type (distribution classes) released by the Spanish National Statistics Institute. The new indicators not only have a higher frequency (daily data) and higher geographical and sectorial breakdown but are also shown to improve nowcasting and forecasting power for the official RTI, making them key variables to monitor consumption.

Small Number of Big Banks: An Overview of Recent Mergers in Indian Banking Sector

Government of India with its vision to create globally competitive banks has initiated the consolidation of smaller PSB’s in bigger entities. The merger of five regional banks with State Bank of India and merger of two Public Sector Banks (PSBs) Dena and Vijaya with Bank of Baroda in recent past (2019) followed by mega consolidation plan of merging ten public sector banks into four banks is an indication of direction of the wind is going to blow for Indian banking industry. This policy of consolidation is an important tool used by banks for corporate restructuring and is in line with reformist agenda pursued by Govt of India (GOI) since 1990. These entities are to receive recapitalization funds from GOI to boost their net-worth strengthening their capital base. The present research is conducted to understand the objectives and statistics behind these mergers.

COUNTRY RISK ASSESSMENT FOR THE UNITED KINGDOM

The study aims to make risk assessment of investment in the United Kingdom so as to open a new branch of a big bank in United Arab Emirate. The findings of the risk assessment recommended to establish the new branch in the UK basing on diverse reasons. Firstly, according to the international monitory fund report, the GDP of the United Kingdom will increase from the financial year 2018 through the financial year 2022. The economy will advance and widen. Plus, the growth in GDP indicate that all sector in economy including the banking sector will also develop. Secondly, according to the UK office Budget Responsibility (ORB) projections, the UK interest rate will rise in the coming four financial years that will surely be reflected on the increase of profitability. Thirdly, the inflation rate in the UK will decrease in the coming four years, which has positive effects on the banking sectors because inflation rate leads to low costs of products and services. Additionally, the GDP per capital of the UK rise in the coming four fiscal years which is healthy for banking sector to be highly productive and profitable. More importantly the population of the UK will increase in the coming four years, which is favourable to the banking sector this means that the number of will increase. Moreover, the bank of England allows all the commercial banks in the country. Another reason that encourage investing in the UK is the advancement in technology. Besides, the most important reason encourage investment in the UK is the country’s system of governance that is a democratic system of leadership that does not hinders private investors unless they violate law. The researchers conclude that they recommend the decision to open the new bank in the UK. Since the benefits supersede the costs. 
 
 JEL: E22; F21; G21
 
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