Financial Intermediation Process Research Articles

Management of Derivative Financial Products within the Banking Activity

Abstract Current developments in the national financial markets, as well as in the international market, mark a period of great changes. As the process of globalization intensifies, the economic environment is marked by increasing volatility and uncertainty. Financial institutions, as links in the financial intermediation process, play a crucial role in directing capital flows to the areas where they are most productively used. This is also the case of derivative financial products, stock exchange and over the counter, which become elements found in the reports of commercial banks. In this context, this article wanted to identify, on the one hand, the causes that determined commercial banks to focus on activities with financial derivative products, going beyond the traditional sphere of banking operations, and on the other hand to explore ways in which products derivatives can be used in banking. Within the article, complex methods were used, both at the statistical level, materialized through the econometric model exposed, and at the theoretical level, of observation and analysis. An entire point of discussion is intended to x-ray the main derivatives, how they can be used and integrated into banking. Another goal was to deepen, at least theoretically, the consequences of using derivative financial products in banking on systemic risk and monetary policy. Also, the paper aimed to highlight the current conditions and prospects for increasing the use of derivative products in the Romanian banking system.

Financial Intermediation and Fixed Capital Formation in Zimbabwe

Business sustainability is heavily constrained by the shortage of affordable finance of adequate duration and quality. This affects producers and traders' capacity to reorganize their production and exchange systems to attain dynamic competitiveness. Ensuring sufficient and cost-effective high-quality finance in the nation facilitates financial intermediation. The traditional method of channelling and allocating financial resources in an economy has predominantly been carried out by the banking sector. Notably, the level of intermediation had been largely lower than the expected especially during the Covid-19 era implicating as serious problem of disintermediation. This study analyses the impact of financial intermediation on capital formation in Zimbabwe using Autoregressive Distributive Lag (ARDL) model from the first quarter of 2011 to the fourth quarter of 2020. The study finds that the financial intermediation process in the country remains largely weak to enable gross fixed capital formation which facilitates business sustainability. Financial disintermediation by banks is also reducing business sustainability. Several initiatives are suggested to alleviate financial restrictions within the country. One significant proposal involves enhancing competition in the banking sector by further liberalizing it. This is aimed at reducing the cost of credit, fostering financial innovation, and promoting increased credit circulation.

Aturan Hukum Lembaga Keuangan Mikro Syariah (Bmt Dan Koperasi Syariah) Beserta Akad Akadnya

Law No. 1 of 2013 concerning Microfinance Institutions was born, LKMS in Indonesia are known as Baitul Mal wa Tamwil (BMT) or Sharia Savings and Loans and Financing Cooperatives (KSPPS) which are generally incorporated as cooperatives. Based on sharia principles, cooperatives are legally incorporated under the supervision of the ministry of cooperatives and small and medium enterprises. The existence of this dualism of legal regulations has led to overlapping regulations, supervision and guidance by related agencies, as well as contradictions in the regulations between one another. This legal problem requires a solution through the reformulation of legal regulations relating to Islamic MFIs. Microfinance institutions (MFIs) in Indonesia are currently growing rapidly and have an important role in improving the people's economy. The rapid development of this MFI is because almost 51.2 million units or 99.9% of business actors in the Indonesian economy are dominated by micro and small business units (Ali sakti: 2013). MFIs can be said to be one of the important pillars in the financial intermediation process needed by small and medium-sized communities for consumption and production as well as storing their business results. In Indonesia, MFIs are regulated in Law no. 1 of 2013 concerning Microfinance Institutions. According to Article 1 (1) of Law no. 1 of 2013 concerning Microfinance Institutions, what is meant by MFIs are: financial institutions specifically established to provide business development services and community empowerment, either through loans or financing in micro-scale businesses to members and the public, managing deposits, as well as providing development consulting services business that is not solely for profit. Based on the definition above, it can be understood that an MFI is a financial institution that functions as an intermediary institution that aims not only to seek profit (profit motive), but also has other goals, namely social motives whose activities are more in the nature of community development.

Post Covid stress and coping strategies in gen z in India: An empirical investigation

Stress in early age can result in lifelong physical and mental health consequences, limiting the opportunities to lead fulfilling lives up to one’s greatest potential. Reports show that approximately a vast majority of 2,98,29,075 students are enrolled in UG programs in different universities every year, and post-covid nearly 14% of Indian youth are mentally stressed, requiring urgent attention towards understanding different stressors and coping strategies for managing stress effectively. This study was undertaken primarily to explore the various sources of stress and to investigate the stress-coping strategies used post-covid by Indian youth represented by undergraduate students. Results reveal that these students are stressed the most on uncertainties relating to their careers, work, and future, academic matters, inability to manage time between different activities, insufficiency of their capabilities and confidence, and inability to handle challenges and difficulties of life. Enjoying hobbies such as music, dancing, reading, and painting emerged as the key stress busters along with having fun time online or with family or friends, or simply talking to them about the issue causing stress whereas seeking professional counseling, exercise, yoga, breathing exercises or meditation have been less favored for managing their stress. The findings might be helpful for the various policymakers, HEIs, parents, psychologists, researchers, and the students themselves to design effective stress-coping strategies to ensure their successful implementation to the process of financial intermediation which is a veritable instrument for the growth of any economy.

ANALYSIS OF THE FINANCIAL PERFORMANCE OF THE DEPOSIT BANKING SECTOR IN THE COVID-19 PERIOD WITH LMAW-DNMA METHODS

Banks, as one of the most important actors in the money and capital markets, play a critical role in the financial intermediation process for every country’s economy. The deposit banking sector is critical to the banking system’s effective and efficient operation. The goal of this research is to develop a multi-criteria model for measuring and assessing the performance of the deposit banking sector during the COVID-19 pandemic. In this context, an integrated model consisting of the Logarithm Methodology of Additive Weights (LMAW) and Double Normalization-based Multiple Aggregation (DNMA) methods is proposed. In the first stage of the proposed performance evaluation model, the performance indicators determined based on the previous literature were weighted with the LMAW method. In the second stage, the DNMA method was used to measure and evaluate the financial performance of the deposit banking sector during the COVID-19 pandemic period. In this context, an integrated model consisting of the Logarithm Methodology of Additive Weights (LMAW) and Double Normalization-based Multiple Aggregation (DNMA) methods are proposed. In the first stage of the proposed performance evaluation model, the performance indicators determined based on the previous literature were weighted with the LMAW method. In the second stage, the DNMA method was used to measure and evaluate the financial performance of the deposit banking sector during the COVID-19 pandemic period. When the DNMA ranking findings were analyzed generally, it was determined that the deposit banking sector was severely impacted by the COVID-19 pandemic. This suggests that the sector is inefficient at managing pandemic-related risks. This study’s findings may assist bank management, investors, and regulatory and supervisory agencies in making more accurate decisions regarding the stability of the banking system. Various sensitivity analyses were also utilized to verify the model’s dependability and robustness within the scope of the study. The results of sensitivity analyses indicate that the suggested methodology generates consistent and reliable sequencing outcomes.

TÜRK KATILIM BANKALARIN FİNANSAL PERFORMANSI ÜZERİNDE ETKİLİ OLAN FAKTÖRLERİN PANEL VERİ ANALİZİ İLE İNCELENMESİ

Finansal sistemin etkin bir şekilde işlemesinde bankalar önemli bir rol oynamaktadır. Son yıllarda bankacılık sektöründe önemi giderek artan katılım bankaları, finansal aracılık sürecinde İslami esaslara göre müşterilerine bankacılık hizmetleri sunarak ülke içindeki yatırım ve tüketim faaliyetlerinin desteklenmesine ve bunun sonucunda da bankacılık sisteminin etkin bir biçimde çalışmasına önemli katkılar sağlamaktadır. Bu çalışmada finansal performansı etkileyen bankaya özgü finansal değişkenlerin araştırılması amaçlanmaktadır. Bu amaçla çalışmada 6 katılım bankasına ilişkin 2015-2021 dönemi verileri kullanılmıştır. Panel veri regresyon analizlerinden elde edilen sonuçlar banka büyüklüğü ile karlılık performansı arasında doğrusal olmayan ters U şeklinde bir ilişki olduğuna işaret etmektedir. Ayrıca, bulgular banka sermayesi, takibe düşen krediler, kullandırılan fonlardaki büyüme ile kullandırılan fonların toplanan fonlara oranı gibi banka düzeyindeki değişkenlerin banka finansal performansındaki değişimi açıklamada anlamlı değişkenler olduğunu ortaya koymaktadır.

In search of a rational foundation for the massive IT boom in the Australian banking industry: Can the IT boom really drive relationship banking?

Information technology (IT) is meant to improve bank performance by lowering operational costs and improving the process of financial intermediation of banks. However, the empirical evidence has failed to reach a consensus on the precise effects of IT on bank performance as some find evidence to concur with the Solow Paradox, while others contradict this paradox. The heterogeneity in the quality of banking services is partly responsible for the inconsistency in the findings. To sidestep the issue of heterogeneity, we consider the top-tier Australian banks for which the quality of banking services is homogeneous. Applying the dynamic panel data methodology, i.e., panel autoregressive distributed lag (panel ARDL) and cross-sectionally augmented panel ARDL (CS-ARDL) models, we investigate the effect of IT on the cost and profit efficiency frontiers of the top-tier Australian banks during 2000–2019. We unequivocally establish that the frontiers of bank profits rise due to the adoption and diffusion of IT investment, contradicting the assumed failure of IT to adequately collect soft information in the banking industry. Furthermore, we find that the cost frontiers have risen, driven by the IT boom. Hence, there is evidence that despite increases in operational inefficiency, IT has shifted the profit frontiers up by enhancing relationship banking in Australia.

The Financial Accelerator, Wages, and Optimal Monetary Policy

This paper studies the effects of labor market outcomes on firms’ loan demand and on credit intermediation. In a first step, I investigate how wages in the production sector affect bank net worth and the process of financial intermediation in partial equilibrium. Second, the role of the identified channels are studied in general equilibrium using a new- Keynesian DSGE-model with financial frictions and an endogenous financial accelerator mechanism. Third, I investigate how perfect and imperfect labor markets, in a setting with interactions between production factor costs and the intermediation of credit, affect the transmission mechanism of monetary policy. The analysis reveals that financial frictions reduce the factor demand elasticity of capital to a change in wages. This finding is relevant for the determination of optimal monetary policy, both for financial shocks and supply shocks inflation stabilization imposes high welfare costs. At the same time, stabilizing nominal wages becomes welfare beneficial by reducing both the volatility of the credit spread and the output gap.

The effect of borrower country financial system and corporate governance system types on the spread of syndicated loans

PurposeThis study aims to analyse the effect of borrower’s countries on syndicated loan spreads, featuring countries according to institutional factors, namely, financial systems and corporate governance systems.Design/methodology/approachThis study is an empirical investigation based on a unique sample of more than 85,000 syndicated loans from 122 countries. The paper uses standard and two-stage least squares regression analysis to test whether the types of financial and corporate governance systems affect loan spreads.FindingsThe paper finds that borrowers from countries with financial systems oriented towards the banking-based paradigm pay lower interest rate spreads than those from countries with financial systems oriented towards the market-based paradigm. In addition, there is evidence that borrowers from countries with more developed financial systems pay lower spreads. The results also show that borrowers from countries with an Anglo-Saxon governance system pay higher spreads than borrowers from countries with a Continental governance system.Research limitations/implicationsThis study does not consider potential promiscuous relationships that can arise at the ownership structure and governance level between banks and borrowers and may affect loan spreads.Practical implicationsThis study suggests that financial and corporate governance systems are essential factors in the financial intermediation process. Furthermore, the evidence indicates that corporates with higher potential agency costs and higher potential information asymmetry are requested to pay higher spreads. Therefore, the opportunities to such corporates invest optimally tend to be scarcer.Originality/valueThe paper highlights the impact of institutional factors on the cost of financing, characterising the countries according to the type of financial system and the type of corporate governance system. The study finds that borrowers from countries with bank-based financial systems pay lower interest rate spreads than those from countries with market-based financial systems. The paper also highlights how the level of financial development affects the cost of financing. The paper focusses on non-financial firms, unlike financial firms, which have been the focus of several empirical studies on topics relating to the cost of funding and corporate governance.

OVERVIEW OF THE INTERMEDIARY ROLE OF BANKS: THE THREAT OF CRYPTOCURRENCY

Banks play a major role in all the economic and financial activities in modern society. Almost all forms of trade and commerce would slow down rapidly if banks were not there to handle financial transactions. The economic development of a modern society depends on industrial growth. Banks promote these activities by mobilizing small deposits from the public and providing financial resources to big industries. Thus, the major role played by banks is that of financial intermediation. The prevalence of cryptocurrency poses a competitive threat to banks due to its anonymity and the blockchain technology that drives it which offers a complete self-contained substitute to the traditional payment system. Cryptocurrencies and its underlying technology are transforming the global financial system by making it less centralized eliminating borders which continually diminish the dependence on traditional banks whose main function as financial intermediaries stands the risk of extinction. This article examines the concept of cryptocurrencies and how it poses a threat to the existing financial intermediation process in Nigeria. Article visualizations:

Metamorfosis Layanan Produk Lembaga Keuangan Mikro Syariah

Islamic microfinance institutions are one of the pillars in the financial intermediation process. Microfinance is needed by small and medium-sized groups of people for both consumption and production as well as saving their business results. The results of the study indicate that the development of LKMS products is through the company's planning process to find out market desires, make strategic decisions in product formation, improve products, and even make new product innovations as an effort to improve the quality of LKMS services and products. This is a form of improving managerial quality in LKMS. Abstract

Systematic Financial Intermediation and Business Cycles

Theory suggests that financial intermediation (FI) spurs economic growth by reducing investment frictions. Prior literature focuses on bank lending as a driver of economic growth, with limited success for US GDP. We augment bank balance sheet data with that from shadow banks, mutual and pension funds, insurers, and brokers, finding that aggregate FI assets lead GDP growth and forecast recessions up to three quarters in advance, although the weight of each FI group in the aggregate fluctuates. Aggregated FIs expand their total assets when the slope of the Treasury yield curve is upward sloping and the effective Federal funds rate is higher, thereby revealing the importance of monetary policy in the financial intermediation process. We further show that aggregate FI contains leading information about investment and consumption and predicts industrial production and unemployment.

The Financial Accelerator, Wages, and Optimal Monetary Policy

This paper studies the effects of labor market outcomes on firms’ loan demand and on credit intermediation. In a first step, I investigate how wages in the production sector affect bank net worth and the process of financial intermediation in partial equilibrium. Second, the role of the identified channels are studied in general equilibrium using a new- Keynesian DSGE-model with financial frictions and an endogenous financial accelerator mechanism. Third, I investigate how perfect and imperfect labor markets, in a setting with interactions between production factor costs and the intermediation of credit, affect the transmission mechanism of monetary policy. The analysis reveals that financial frictions reduce the factor demand elasticity of capital to a change in wages. This finding is relevant for the determination of optimal monetary policy, both for financial shocks and supply shocks inflation stabilization imposes high welfare costs. At the same time, stabilizing nominal wages becomes welfare beneficial by reducing both the volatility of the credit spread and the output gap.

Opacity and the comovement in the stock prices of banks

AbstractWe examine whether the stock prices of banks co‐move more than the stock prices of non‐banks, and whether that comovement is driven by informational opacity. Since the risks associated with the financial intermediation process are relatively opaque to outside investors, valuing banks can be difficult and information acquisition can be costly. We introduce a measure of comovement, denoted as beta dispersion, that identifies how closely a particular stock co‐moves with the average industry CAPM beta. We find that bank stock prices generally co‐move more than non‐bank stock prices, and that opacity is driving the higher levels of comovement.

INTERMEDIATION IN FINANCE

Financial institutions are financial intermediaries in the process of transferring financial funds between participants in the financial system. The key participants in the financial system are: individuals, businesses, financial intermediaries and the government.Money holders are interested in investing their savings in earning income. As compensation for this, they earn profits in various forms, such as interests, dividends, capital gains, etc. Also, borrowers need additional financial funds to finance their investment or consumption programs. They are obliged to borrow those funds from financial institutions. For lending funds they pay a certain lender's price.With the intermediation of financial institutions, it is possible to transfer financial funds from entities that have surplus to entities lacking financial funds and at the same time need to be provided from external investment or consumption sources, if the accumulation of sufficient financial resources from own resources.The essence of financial intermediation lies in the collection of financial funds from many individuals and businesses that own financial savings, and their investment in various forms. With the disclosure of the financial intermediation process, we note its multidimensional aspect, on the one hand, as a pool of financial funds in various forms and their concentration, while on the other hand, as investment of shelled funds through various forms of loans to borrowers who need funding.

Innovation, intermediation, and the nature of entrepreneurship: A historical perspective

Research SummaryWe consider two sources of innovation, technical and financial, and examine their separate and joint impacts, through the process of financial intermediation, on the nature of entrepreneurial opportunity. These impacts are time dependent and reflect the institutional context of entrepreneurship. As illustrations, we investigate three historical episodes, ranging from the product led innovations of the industrial revolution, to the closely aligned innovations of the buyout wave of the 1980s to the more recent effects of finance led innovation. We identify systematic underlying factors that can cause significant differences in the entrepreneurial opportunity set.Managerial SummaryWe provide lessons from three historical periods regarding how policy toward entrepreneurship might ensure technical and financial innovations are successfully intermediated. This implies an alliance‐based notion of entrepreneurship, underpinned by enabling systems of governance and suitable institutions reduced dependence on specific individuals or generations. A balance also should be struck to mitigate risky investment through sharing, and specifically equalizing rights and information between borrowers and lenders. Regulatory changes should discourage capital and information hoarding and support risky lending to asset‐backed, knowledge‐based industrial projects.

Non-performing loans and financial development: new evidence

PurposeThis paper aims to investigate the influence of financial development on non-performing loans (NPL).Design/methodology/approachThe model used in this study follows the NPL model of Louzis et al. (2012), Ozili (2015) and Beck et al. (2015).FindingsThe findings indicate that financial development, measured as foreign bank presence and financial intermediation, are positively associated with NPLs. Also, bank efficiency, loan loss coverage ratio, competition and banking system stability are inversely associated with NPLs, while NPLs are positively associated with banking crises and bank concentration. In the regional analysis, NPLs are negatively associated with regulatory capital and bank liquidity, implying that banking sectors with greater regulatory capital and liquidity experience fewer NPLs.Practical implicationsNational bank regulators/supervisor should not only consider the role that financial development structures play in influencing aggregate NPLs but also ensure that thorough supervision of the lending practices of banks is in place as well as the active monitoring of the financial intermediation process in the country.Originality/valueThe study is the first to use a global sample to examine the direct relationship between NPL and financial development.

Market integration, country institutions and IPO underpricing

We extend the IPO literature analysing the role of financial market integration in the development of IPO markets and the pricing of newly listed stocks. Using a hierarchical linear model, we show that differences in underpricing between markets with high and low financial integration levels are economically significant and may explain the choice of location in the listing process. Firstly, market integration negatively affects the level of IPO underpricing by increasing the importance and efficiency of the financial intermediation process via tradable securities. Secondly, the presence of a deeper market integration has a moderation effect, which weakens the explanatory power of country institutions in the cross-country variation of IPO underpricing. Finally, we suggest a hierarchical structure be assumed for the modelling of cross-country IPO studies with heterogeneous country characteristics. Our results are robust to alternative measures of financial integration and several model specifications.

Fair Value Accounting Practices and Efficiency of Banks: A Theoretical Perspective

This conceptual paper discusses the impact of fair value accounting practices on performance of commercial banks in relation to the established banking theories i.e. Credit creation, fractional reserve and financial intermediation theory. These theories are discussed in view of historical cost accounting principles and fair valued accounting principles considering the performance in terms of efficiency during different stages of economic conditions. The analysis shows that fair value accounting practices in banks create reserves in economic booms improving efficiency and deteriorate created reserves in economic downturns causing financial crises. Enhanced financial performance in terms of unrealized gains improves the overall efficiency of banks in view of the intermediation approach of the financial intermediation theory. Therefore, it can be interpreted that external factors such as accounting, infrastructure, and technology can influence efficiency of the financial intermediation process. This is the first study to discuss the implications of fair value accounting on banking theory in view of performance of banks and stability of financial system.

இஸ்லாமிய வங்கியியலுக்கான குறுகிய அறிமுகம் (A Brief Introduction to Islamic Banking)

Tamil Abstract: இஸலாததை பறறிய பலவாறான தவறான எணணஙகருககளும கருததுககளும நிலவிவரும இககாலகடடததில இஸலாமிய வஙகி முறைமை பறறி சுருககமாக சில தெளிவுகளை முனவைபபது இவவாககததின நோககமாகும. இவவாககததின கடடமைபபை பறறி சில வாரததைகள: நாம முதலில இஸலாமிய நிதியியலுககான வரலாறறு பினனணியை அறிமுகம செயது, இஸலாமிய வஙகி எனறால எனன எனற வரைவிலககணததை முனவைபபோம. நிதியியல தொடரபான சில எணணககருககளை கலநதுரையாடுவோம. அதன பின, சில இஸலாமிய கொளகைகள. நியமஙகளை பறறி கூறி, அவை மரபு ரதியான வஙகிகளுடன கொடுககல வாஙகலசெயயும போது எவவாறு மறபபடுகினறன எனபதையும மிக சுருககமாக ஆராயவோம. சமூக ஊடகஙகள வழியாக சிலர, இஸலாமிய வஙகிமுறை பறறி காரசாரமாக பேசுவதும, ஹலால ஹராம என பதவா கொடுபபதும மிக சகஜமாகிவிடடது. அககூடடததில மாரககததை படிததவரகளும, பாமரரகளும சில தொழிலநிபுணரகளும உளளடஙகுவர. கமபெடுததவன எலலாம சணடைககாரன எனபது போல சமூக ஊடகததில இணைநத எலலோரும முஃபதிகளாகவும, சிநதனைத தலைவரகளாகவும மாறிவருகினற காலம.இஸலாமிய நிதியியல தொடரபில மிக ஆழமான அறிவும அனுபவமும கொணட உலமாககள, பொருளியலாரகள, வஙகியாளரகளை நான சநதிதததுணடு. அவரகள தாம இனனும கறறுககொணடிருபபதாக கூறுவது எனது பாரவையில அவரகளுககு இடையே காணபபடும பொதுவான பணபு. English Abstract: This Paper is a note in Tamil language and is titled “A brief introduction to Islamic Banking”, written in the context of Sri Lanka. It defines Islamic Banking as a type of financial intermediation process within the principles of Sharia. After explaining briefly the financial intermediation process, it provides a brief description of some key sharia principles which needs to be maintained in the operations of an Islamic bank, compared to a conventional bank. The paper also distinguishes the operations from the conventional banking from that of an Islamic bank, especially from its approach by establishing links between real or external sector of the economy and the financial sector.