Branch-level Data Research Articles

Internal Markets and M&A Value Creation: Evidence from Bank Branch-level Data

Internal Markets and M&A Value Creation: Evidence from Bank Branch-level Data

Internal Markets and M&A Value Creation: Evidence from Bank Branch-Level Data

Internal Markets and M&A Value Creation: Evidence from Bank Branch-Level Data

Climate risk, ESG performance, and ESG sentiment in US commercial banks

We measure US commercial banks' exposure to and materiality of physical climate risk by examining branch-level data. Our location-specific climate risk measure is pos- itively associated with banks' ESG performance and negatively associated with stake- holders' sentiment regarding ESG issues. Furthermore, banks that experience climate risk shocks, as proxied by NOAA billion-dollar disasters, improve ESG performance and receive positive ESG sentiment accordingly compared with matched banks. While negative sentiment due to climate risk exposure is associated with worsened financial performance, stronger ESG engagement mitigates this adverse effect.

Active depositors

Do households react to negative non-financial and climate related information about their financial institutions? Using branch level data for the United States, I show that banks that financed the highly controversial Dakota Access Pipeline experienced significant decreases in deposit growth. These effects were greater in localities with higher support for the protests and higher environmental awareness. Data suggests that locally oriented banks were among the main beneficiaries of this depositor movement. Overall, this paper adds significantly to our understanding on the non-financial preferences of household financial investment decisions and climate finance debate.

How Did Depositors Respond to COVID-19?

Why did banks experience massive deposit inflows during the first months of the pandemic? Using weekly branch-level data on interest rates and county-level data on COVID-19 cases, we discover that interest rates at bank branches in counties with higher COVID-19 infection rates fell by more than rates at other branches—even branches of the same bank in different counties. When differentiating weeks by the degree of stock market distress and counties by the likely impact of COVID-19 cases on economic anxiety, the evidence suggests that the deposit inflows were triggered by a surge in the supply of precautionary savings.

Warm temperatures increase population growth of a nonnative defoliator and inhibit demographic responses by parasitoids.

Changes in thermal regimes that disparately affect hosts and parasitoids could release hosts from biological control. When multiple natural enemy species share a host, shifts in host-parasitoid dynamics could depend on whether natural enemies interact antagonistically vs. synergistically. We investigated how biotic and abiotic factors influence the population ecology of larch casebearer (Coleophora laricella), a nonnative pest, and two imported parasitoids, Agathis pumila and Chrysocharis laricinellae, by analyzing (1) temporal dynamics in defoliation from 1962 to 2018, and (2) historical, branch-level data on densities of larch casebearer and parasitism rates by the two imported natural enemies from 1972 to 1995. Analyses of defoliation indicated that, prior to the widespread establishment of parasitoids (1962 to ~1980), larch casebearer outbreaks occurred in 2-6yr cycles. This pattern was followed by a >15-yr period during which populations were at low, apparently stable densities undetectable via aerial surveys, presumably under control from parasitoids. However, since the late 1990s and despite the persistence of both parasitoids, outbreaks exhibiting unstable dynamics have occurred. Analyses of branch-level data indicated that growth of casebearer populations, A. pumila populations, and within-casebearer densities of C. laricinellae-a generalist whose population dynamics are likely also influenced by use of alternative hosts-were inhibited by density dependence, with high intraspecific densities in one year slowing growth into the next. Casebearer population growth was also inhibited by parasitism from A. pumila, but not C. laricinellae, and increased with warmer autumnal temperatures. Growth of A. pumila populations and within-casebearer densities of C. laricinellae increased with casebearer densities but decreased with warmer annual maximum temperatures. Moreover, parasitism by A. pumila was associated with increased growth of within-casebearer densities of C. laricinellae without adverse effects on its own demographics, indicating a synergistic interaction between these parasitoids. Our results indicate that warming can be associated with opposing effects between trophic levels, with deleterious effects of warming on one natural enemy species potentially being exacerbated by similar impacts on another. Coupling of such parasitoid responses with positive responses of hosts to warming might have contributed to the return of casebearer outbreaks to North America.

Banks, Low Interest Rates, and Monetary Policy Transmission

This paper studies the effect of low interest rates on financial intermediation and the transmission of monetary policy. Using U.S. bank- and branch-level data, I document two new facts: first, the long-run decline in bond rates has not been fully passed through to loan rates; second, the short-run pass-through of policy rates to loan rates is lower at lower rates. To explain these facts, I build a model in which banks provide both credit and liquidity, and the nominal interest rate affects the composition of bank interest income between loan and deposit spreads. In the long run, a decline in the equilibrium real rate r* compresses deposit spreads but increases loan spreads. In the short run, the sensitivity of output to monetary shocks is dampened relative to a benchmark with perfect pass-through, and even more so the lower r* is: I find a dampening that grows from 20% to 32% as r* falls from 3% to -1%. A higher inflation target can redistribute from depositors to borrowers and enhance monetary policy transmission.

Market Contestability and Payout Policy

We analyze the impact of market contestability on the payout policy of banks by exploiting plausibly exogenous changes in interstate geographical restrictions on branch expansion of banks. Leveraging branch-level data on bank deposits, we provide evidence of a negative impact of branching restrictions on payout ratios, which occurs only for banks with a low degree of market power. Our results are valid when we use different proxies for market contestability, and bootstrap simulations suggest that our results are not due to confounding factors. These findings support the view that banks might respond to a change in charter values due to market contestability.

Depositors Disciplining Banks: The Impact of Scandals

Do depositors react to negative non-financial information about their banks? By using branch level data for the United States, I show that banks, that financed the highly controversial Dakota Access Pipeline, experienced significant decreases in deposit growth, especially in branches located closest to the pipeline. These effects were greater for branches located in environmentally or socially conscious counties, and data suggests that savings banks were among the main beneficiaries of this depositor movement. Using a global hand-collected dataset on tax evasion, corruption, and environmental scandals related to banks, I show that negative deposit growth as a reaction to scandals is a widespread phenomenon.

Branch manager characteristics and efficiency during capital controls

This paper investigates the impact of manager characteristics on bank branch efficiency during the extreme economic event of capital controls. A unique branch-level data set comprising of accounting and personal managerial information of a representative Greek systemic bank is utilised. A profit-oriented bootstrapped DEA model is run for both the total branch network of the bank under investigation and a homogeneous group of its branches, covering the period from January 2016 to February 2017. It is found that university graduate managers outperform on average their colleagues with a secondary education level regardless of the sample used. In the case of the homogeneous sample, more experienced managers can tackle adverse crisis effects on branch performance more effectively than inexperienced managers; this is even more applicable to the large branches. In this homogeneous branch framework, management experience can satisfactorily compensate for educational limitations caused by a manager not having higher education qualifications.

Branch manager characteristics and efficiency during capital controls

This paper investigates the impact of manager characteristics on bank branch efficiency during the extreme economic event of capital controls. A unique branch-level data set comprising of accounting and personal managerial information of a representative Greek systemic bank is utilised. A profit-oriented bootstrapped DEA model is run for both the total branch network of the bank under investigation and a homogeneous group of its branches, covering the period from January 2016 to February 2017. It is found that university graduate managers outperform on average their colleagues with a secondary education level regardless of the sample used. In the case of the homogeneous sample, more experienced managers can tackle adverse crisis effects on branch performance more effectively than inexperienced managers; this is even more applicable to the large branches. In this homogeneous branch framework, management experience can satisfactorily compensate for educational limitations caused by a manager not having higher education qualifications.

Interest Liberalization and the Estimation of Implicit Interest Rates in China's Banking Sector

China's interest rate liberalization process has yet to be completed. Despite removal of deposit interest rate ceilings on 23 October 2015, controls like window guidance are still imposed to prevent commercial banks from setting interest rates freely. This paper estimates implicit interest rates in China (i.e., the additional yield to official interest rates that banks must pay to attract deposits) using headquarter-level data of 88 commercial banks from BankScope and branch-level data of 317 branches in 90 counties and 14 provinces for the period 2005–13. The econometric methods allow for both heterogeneity and spatial correlation in banks’ behavior to better capture the characteristics of the Chinese banking industry. Three main findings emerge from this study. First, the estimated mean implicit interest rate is between 70 percent and 78 percent of the explicit interest rate—ignoring implicit interest rates results in underestimation of funding costs. Second, a 1 percent increase in deposit interest rates is estimated to decrease implicit interest rates by 0.44 percent, implying that the cost of interest rate liberalization will be smaller than the increase in deposit interest rates. Third, small share-holding banks, city commercial banks and rural commercial banks pay higher implicit interest rates than large state-owned banks. To promote efficient resource allocation, therefore, interest rate liberalization needs to be firmly pursued but its impact on different types of banks needs to be closely monitored to minimize disruptions to the real economy.

Heterogeneous Effects of Bank Consolidations in Local Markets: Evidence from Branch Level Data

This paper investigates the efficiency and competition effects of bank mergers and acquisitions on deposits growth and mortgage loan lending, using a sample of bank M&As between 1997 and 2014. I exploit the within-bank cross-branch variation in whether there is a merging opponent branch nearby, as a variation in changes in lo- cal competition condition at branch level. I find that deposits growth increases for all branches involved in M&As on average, but branches with merging counterpart branches nearby actually see drop in deposits growth. Regions affected by M&As on average experience increase in mortgage loan denial rates, with especially large increase among the regions with opponent branches located closely. Subsample analyses reveal the increase in denial rates generally comes from low-income applicant, especially for M&As with government assistance, suggesting an additional social cost the government should consider in assessing assisted bank mergers.

The Deposits Channel of Monetary Policy

We propose and test a new channel for the transmission of monetary policy. We show that when the Fed funds rate increases, banks widen the interest spreads they charge on deposits, and deposits flow out of the banking system. We present a model in which imperfect competition among banks gives rise to these relationships. An increase in the nominal interest rate increases banks' effective market power, inducing them to increase deposit spreads. Households respond by substituting away from deposits into less liquid but higher-yielding assets. Using branch-level data on all U.S. banks, we show that following an increase in the Fed funds rate, deposit spreads increase by more, and deposit supply falls by more, in areas with less deposit competition. We control for changes in banks' lending opportunities by comparing branches of the same bank. We control for changes in macroeconomic conditions by showing that deposit spreads widen immediately after a rate change, even if it is fully expected. Our results imply that monetary policy has a significant impact on how the financial system is funded, on the quantity of safe and liquid assets it produces, and on its lending to the real economy.

Allometric Convergence in Savanna Trees and Implications for the Use of Plant Scaling Models in Variable Ecosystems

Theoretical models of allometric scaling provide frameworks for understanding and predicting how and why the morphology and function of organisms vary with scale. It remains unclear, however, if the predictions of ‘universal’ scaling models for vascular plants hold across diverse species in variable environments. Phenomena such as competition and disturbance may drive allometric scaling relationships away from theoretical predictions based on an optimized tree. Here, we use a hierarchical Bayesian approach to calculate tree-specific, species-specific, and ‘global’ (i.e. interspecific) scaling exponents for several allometric relationships using tree- and branch-level data harvested from three savanna sites across a rainfall gradient in Mali, West Africa. We use these exponents to provide a rigorous test of three plant scaling models (Metabolic Scaling Theory (MST), Geometric Similarity, and Stress Similarity) in savanna systems. For the allometric relationships we evaluated (diameter vs. length, aboveground mass, stem mass, and leaf mass) the empirically calculated exponents broadly overlapped among species from diverse environments, except for the scaling exponents for length, which increased with tree cover and density. When we compare empirical scaling exponents to the theoretical predictions from the three models we find MST predictions are most consistent with our observed allometries. In those situations where observations are inconsistent with MST we find that departure from theory corresponds with expected tradeoffs related to disturbance and competitive interactions. We hypothesize savanna trees have greater length-scaling exponents than predicted by MST due to an evolutionary tradeoff between fire escape and optimization of mechanical stability and internal resource transport. Future research on the drivers of systematic allometric variation could reconcile the differences between observed scaling relationships in variable ecosystems and those predicted by ideal models such as MST.

Incentive Pay and Performance: Insider Econometrics in a Multi-Unit Firm

We exploit organizational reforms in a foreign-owned bank in Central-East Europe to study the implementation of modern HRM policies in an emerging market context. We have branch-level data and use our knowledge of the process that led to the adoption of the reforms to implement two estimators that address endogeneity bias in a complementary fashion: an IV approach and Generalized Propensity Score estimation. Our results show that some of the reforms had a positive impact on productivity, but they also underscore the risks of quantity-based incentives where quality is important.

Identifying Subalpine Fir (Abies lasiocarpa) Attacked by the Balsam Woolly Adelgid (Adelges piceae) Using Spectral Measurements of the Foliage

Balsam woolly adelgid is an invasive pest of firs in the United States. Aerial surveys are conducted for detection of adelgid infestations but other remotely sensed data may also be useful. Our objective was to determine if high spectral resolution, branch-level data can be used to distinguish infested from noninfested trees. Stepwise discriminant analysis yielded a three-variable model (the red-green index and two narrow-bands (one at 670 nm and the other at 1912 nm)) that classified infested versus non-infested trees with 94% accuracy compared with the 83% accuracy obtained with a single-variable model. The response of trees in narrow spectral bands was integrated across wavebands to simulate measurements from the multispectral SPOT5-HRVIR sensor. Stepwise discriminant analysis again yielded a three-variable model (simple ratio, the SPOT5-HRVIR band in the SWIR region and NDVI) with similar accuracy (93%) at discriminating infested from non-infested trees compared with the 83% accuracy obtained with a single-variable model.