Increase Bank Stability Research Articles

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Bank regulators and academics have long conjectured the beneficial effects of counter-cyclical loan loss provisioning (i.e., making higher provisions during good times so as to avoid doing so during bad times) for bank lending and stability. In contrast, accounting regulators express concerns about its potential adverse impact on reporting transparency due to the ensuing income smoothing. Testing these opposing predictions of the dark versus bright sides of counter-cyclical provisioning requires a shock to capital supply that is not confounded by borrower demand for credit. Using the emerging market crisis of the late 1990s to identify an adverse supply-shock to bank capital, we show that the ensuing contractions in bank lending are weaker for banks that were provisioning counter-cyclically. These lending differences translate into positive real effects for the counter-cyclical banks’ small borrowers that have limited access to alternative funding sources. Our inferences are robust to addressing the endogeneity of counter-cyclical provisioning and to corroborating the emerging market crisis results with large-sample evidence based on Federal Reserve data on bank supply and borrower demand. Overall, our results highlight the tradeoff between bank stability and transparency inherent in counter-cyclical loan loss provisioning – while proactive recognition of unrealized loan losses reduces bank transparency, it increases bank stability during periods (if and) when these losses materialize.

Competition and Bank Stability

Does an increase in competition increase or decrease bank stability? I exploit how the state-specific process of interstate banking deregulation lowered barriers to entry into urban banking markets and find that greater competition significantly increases bank stability. This result is robust to the inclusion of additional fixed effects and other influences, such as merger and acquisitions or diversification. Moreover, I find that greater competition reduces banks' nonperforming loans and increases bank profitability. These findings suggest that competition increases stability as it improves bank profitability and asset quality.

Short-Selling Bans and Bank Stability

In both the 2008-09 subprime crisis and the 2011-12 euro debt crisis, security regulators imposed bans on short sales, designed mainly with financial institutions in mind. The motivation was that a collapse in a bank’s stock price could lead to funding problems, triggering further price drops: the ban on shorting bank stocks was supposed to break this loop, stabilizing banks and bolstering their solvency. We test this hypothesis against evidence from both crises, estimating panel data regressions for 13,473 stocks in 2008 and 16,424 stocks in 2011 in 25 countries, taking the endogeneity of short-selling bans into account. Contrary to the regulators’ intentions, in neither crisis were the bans associated with increased bank stability. Instead, when financial institutions were subjected to a short-selling ban, they displayed larger share price drops, greater return volatility and higher probability of default. And the effects were more pronounced for the more vulnerable banks. Nor did the ban in 2011 do anything to mitigate the “diabolic loop” between bank and sovereign insolvency risk during the euro-area sovereign debt crisis.

State-Aid, Stability and Competition in European Banking

What is the relationship between bank fragility and competition during a period of market turmoil? Does market power in European banking involve extra-gains after discounting for the cost of government intervention? We answer these questions in the context of Eurozone banking over 2005-2012 and show that greater market power increases bank stability implying aggregate extra-gains of 57% of EU12 gross domestic product for the banking sector after discounting for the costs associated with government intervention. The negative influence of competition on bank stability is non-monotonic and reverses for lower degrees of competition. Capital injections, guarantees and asset relief measures elicit greater bank soundness.

Market power and stability of CEE banks

Abstract Background: In spite of growing number of empirical studies, especially after the start of financial crisis, literature fails to provide conclusive answers on the relationship between bank competition and stability. Objective: We contribute to the existing literature by conducting a bank level analysis of market power implications on CEE bank stability and test weather bank market power increases bank stability. Approach: On the sample of 415 CEE banks from 1997-2012, we use Distribution free approach to generate bank specific market power and efficiency indicators and then run a fixed effects panel regression. Results: We find evidence supporting the Competition - fragility view; banks with more market power are more stable. Also, we find evidence that this stability is a result of lower portfolio risk supporting the franchise value channel. Conclusions: For banks in CEE countries where economic crisis increased risk materialization, increasing competition from the early 2000s, may have been a factor decreasing bank stability which may bear significant implications for upcoming years when competition is likely to increase further.

The Influence of Two‐Stage Ditches with Constructed Floodplains on Water Column Nutrients and Sediments in Agricultural Streams

AbstractThe two‐stage ditch is a novel management practice originally implemented to increase bank stability through floodplain restoration in channelized agricultural streams. To determine the effects of two‐stage construction on sediment and nutrient loads, we monitored turbidity, and also measured total suspended solids (TSS), dissolved inorganic nitrogen (N) species, and phosphorus (P) after two‐stage ditch construction in reference and manipulated reaches of four streams. Turbidity decreased during floodplain inundation at all sites, but TSS and P, soluble reactive phosphorus (SRP) and total phosphorus (TP) decreased only in the two‐stage ditches with longer duration of inundation. Both TSS and TP were positively correlated within individual streams, but neither were correlated with turbidity. Phosphorus was elevated in the stream to which manure was applied adjacent to the two‐stage reach, but not the reference reach, suggesting that landscape nutrient management plans could restrict nutrient transport to the stream, ultimately determining the efficacy of instream management practices. In addition, ammonium and nitrate decreased in two‐stage reaches with lower initial N concentrations. Overall, results suggest that turbidity, TSS, and TP were reduced during floodplain inundation, but the two‐stage alone may not be effective for managing high inorganic N loads.

Revisiting the Competition-Stability Nexus in the Euro Area in the Light of the Global Financial Crisis

The euro area, the countries that have adopted the euro, is converging some more towards a banking union. Starting from November 2014, the European Central Bank has become the single supervisor of euro zone banks calling for a more integrated supervision. Despite the on-going process, there are few studies that focus on the relationship between bank fragility and competition specifically for this economic block. Furthermore, it is not yet clear the extent of the relationship during a period of market turmoil and whether competition policies should account for the costs associated to systemic instability. We assess the relationship between market power and financial stability for the Eurozone banks over the period 2005-2012. We find that market power increases bank stability and it implies a net pecuniary cost after discounting for the cost of government intervention. We show that bank’s business model is significantly positively related to individual bank stability and that high market power is associated with lower stability during the recent market turmoil (2008-2012). Moreover, we advocate that capital injections and asset relief measures are effective and increase individual bank soundness.

Does a Leverage Ratio Requirement Increase Bank Stability?

Does a Leverage Ratio Requirement Increase Bank Stability?

Does a leverage ratio requirement increase bank stability?

Basel III has introduced a non-risk-weighted leverage ratio requirement (LRR) which complements the internal ratings based (IRB) capital requirements. It provides a backstop against model risk which arises if some loans get incorrectly rated and become toxic. We study the effects of the LRR on lending strategies and its implications for banks’ stability. We show that the LRR might induce banks with low-risk lending strategies to diversify their portfolios into high-risk loans until the LRR is no longer the binding capital constraint on them. If the LRR is lower than the average bank’s IRB requirement, the aggregate capital costs of banks do not increase. However, because the diversification makes banks’ portfolios more alike the banking sector as a whole may become more exposed to model risk in each loan category. This may undermine banking sector stability. On balance, our calibrated model motivates a significantly higher LRR than the current one.

The dynamic relationship between earnings volatility, concentration, stability and size in the Turkish banking sector

This article investigates the causal relationship between earnings volatility, concentration, stability and bank size in the Turkish banking sector in the period 2002 to 2011. A relatively new empirical methodology, dynamic panel Granger-causality test, is used to analyse the causal relationship between these variables. The empirical result shows that bank size and concentration negatively Granger-cause earnings volatility, suggesting that larger banks and more concentrated banking market decrease earnings volatility. Moreover, the result also indicates that concentration in the banking sector increases bank stability and supports the ‘concentration-stability’ hypothesis.

Formation of a cohesive floodplain in a dynamic experimental meandering river

ABSTRACTField studies suggest that a cohesive floodplain is a necessary condition for meandering in contrast to braided rivers. However, it is only partly understood how the balance between floodplain construction by overbank deposition and removal by bank erosion and chutes leads to meandering. This is needed because only then does a dynamic equilibrium exist and channels maintain meandering with low width–depth ratios. Our objective is to understand how different styles of floodplain formation such as overbank deposition and lateral accretion cause narrower channels and prevent chute cutoffs that lead to meandering. In this study we present two experiments with a self‐forming channel in identical conditions, but to one we added cohesive silt at the upstream boundary. The effect of cohesive silt on bank stability was tested in auxiliary bank erosion experiments and showed that an increase in silt reduced erosion rates by a factor of 2. The experiment without silt developed to a braided river by continuous and extensive shifting of multiple channels. In contrast, in the meandering river silt deposits increased bank stability of the cohesive floodplain and resulted in a reduction of chute cutoffs and increased sinuosity by continuous lateral migration of a single channel. Overbank flow led to deposition of the silt and two styles of cohesive floodplain were observed: first, overbank vertical‐accretion of silt, e.g. levee, overbank sedimentation or splays; and second, lateral point bar accretion with silt on the scrolls and in the swales. The first style led to a reduction in bank erosion, while the second style reduced excavation of chutes. We conclude that sedimentation of fine cohesive material on the floodplain by discharge exceeding bankfull is a necessary condition for meandering. Copyright © 2013 John Wiley & Sons, Ltd.

The potential of passive stream restoration to improve stream habitat and minimize the impact of fish disease: a short-term assessment

AbstractWe evaluated the potential of habitat restoration to improve stream and riparian habitat and to minimize the prevalence of whirling disease in a population of native cutthroat trout in northern Utah. We fenced 67 ha of riparian habitat to exclude livestock and measured key response variables at impact and control sites before and after the completion of the exclosure. Total N concentrations decreased in response to the exclusion. Over this short time period (1–2 y postrestoration), the combination of natural variability and exclusion of livestock grazing appeared to alter the vegetation and riparian conditions through increased bank stability and decreased % cover of exotic plant species. The effect of the exclosure on whirling disease was confounded by climatic variation. However, restoration appeared to reduce the prevalence of whirling disease during a nondrought year, but not during a drought year. Therefore, in the short term, these beneficial effects of restoration on trout appeared to hinge...

DEVELOPMENT OF ANALYTICAL MODEL ON DETERMINATION OF STABLE HYDRAULIC GEOMETRY OF ALLUVIAL GRAVEL BED RIVERS

Modeling the hydraulic geometry of Gravel Rivers is of intrest to hydraulic engineers, hydrologists and enviromental scientists who are engaged in predicting the adjustments of an alluvial channel to an altered upstream runoff or sediment supply. The widely used qualitative and regime models, while indicating the general direction of river adjustment, are not able to deal with river response at a quantitative level. On the other hand the existing analytical models do not predict channel geometry to the accuracy required for engineering applications. In this paper a bank stability analysis is incorporated into an analytical procedure for modeling the hydraulic geometry of an alluvial gravel-bed channel. The bank stability criterion accounts for the increased stability of the channel banks due to effect of the bank vegetation and binding of the sediment by root masses. The two key parameters in the bank stability analysis are the median grain diameter of the bank sediment, D50bank and the modified friction angle of the bank sediment, φ΄. A sensitivity analysis of the two parameters indicate that the bank stability can exert a larg influence on the channel geometry. This is supported by testing the theory on published field data.The bank sediment size was assumed to equal the bed sediment size, and the variation of the friction angle, φ΄ ,was investigated. The estimated φ΄ values are seen to increase systematically with the bank vegetation density. The results indicate that increased bank stability induced by the vegetation has a significant influence on channel geometry. The vegetated channels are narrower, deeper and less steep. For well developed bank vegetation, the channel width was found 0.6 time its unvegetated channel width.

Bank Competition, Diversification and Financial Stability

A tension exists in the current literature as to whether or not competition contributes to banking stability. On the one side, proponents of the so called ‘franchise value hypothesis’ argue that banks with greater market power are able to protect their franchise value because they are not income constrained. On the other side, are those who reject this hypothesis and hold the view that banks in uncompetitive markets are prone to originate riskier loans which are detrimental to their stability. We provide additional empirical insight into these conflicting views by arguing that competition affects bank solvency not only through the traditional channels, but also through banks’ decisions to diversify their business activities. We use the H-statistic, a non-structural methodology put forward by Panzar and Rosse (1987) to measure banking sector competition for 704 banks across 32 countries during the period 2000 - 2007. Our results show that competition increases bank stability because of the decisions banks make to diversify their activities. We also find that regulatory initiative which restricts banking activities imposes severe entry requirements, requires high regulatory capital and provides effective official supervisory power influences banks’ decision to diversify.

Temporal and spatial variability in root reinforcement of streambanks: Accounting for soil shear strength and moisture

Riparian vegetation exerts a number of mechanical and hydrologic controls on bank stability, which can affect the delivery of sediment to channels. Estimates of root reinforcement of soils have commonly been attained using perpendicular root models that simply sum root tensile strengths and consider these as an add-on factor to soil strength. A major limitation of such perpendicular models is that tensile strength and resistance is wrongly considered to be independent of soil type and moisture, and therefore variations according to these bank properties are omitted in conventional models. In reality, during mass failure of a streambank, some roots break, and some roots are pulled out of the soil intact; the relative proportions of roots that break or pull out are determined by a combination of soil moisture and shear strength. In this paper an equation to predict the frictional resistance of root–soil bonds was tested against field data collected at Long Creek, MS, under two soil moisture conditions. The root pullout equations were then included in the root-reinforcement model, RipRoot, and bank stability model runs for Goodwin Creek, MS, were carried out in order to examine the effects of spatial and temporal variations in soil shear strength and rooting density, on streambank factor of safety. Model results showed that at smaller root diameters breaking forces exceeded pullout forces, but at larger root diameters pullout forces exceed breaking forces. The threshold diameter between root pullout and root breaking varied with soil shear strength, with increasing soil shear strength leading to a greater proportion of roots failing by breaking instead of pullout. Root-reinforcement estimates were shown to reflect changes in soil shear strength, for example, brought about by variations in soil matric suction. Resulting Factor of safety ( F S) values for the bank during the period modeled ranged from 1.36 to 1.74 with 1000 grass roots/m 2, compared to a range of 0.97 to 1.37 for the non-vegetated bank. Root reinforcement was shown to increase bank stability under the entire range of soil moisture conditions modeled. However, the magnitude of root reinforcement varied in both space and time as determined by soil shear strength and soil moisture.

Bank stability and transparency

A number of recent policy initiatives have called for enhanced transparency of banking firms. While the hope is that enhanced transparency may improve incentives ex ante, it is less clear whether transparency is necessarily a good thing ex post, when a bank might have hit hard times and provision of information could have a destabilising effect. This paper provides a synopsis of these different effects and provides some new, bank-level evidence in an attempt to clarify empirically whether, taking ex ante and ex post effects together, transparency is likely to reduce or increase bank stability. The analysis suggests that, on balance, transparency reduces the chance of severe banking problems and thus enhances overall financial stability.

Riparian vegetation controls on braided stream dynamics

Riparian vegetation can significantly influence the morphology of a river, affecting channel geometry and flow dynamics. To examine the effects of riparian vegetation on gravel bed braided streams, we conducted a series of physical experiments at the St. Anthony Falls Laboratory with varying densities of bar and bank vegetation. Water discharge, sediment discharge, and grain size were held constant between runs. For each run, we allowed a braided system to develop, then seeded the flume with alfalfa (Medicago sativa), allowed the seeds to grow, and then continued the run. We collected data on water depth, surface velocity, and bed elevation throughout each run using image‐based techniques designed to collect data over a large spatial area with minimal disturbance to the flow. Our results show that the influence of vegetation on overall river patterns varied systematically with the spatial density of plant stems. Vegetation reduced the number of active channels and increased bank stability, leading to lower lateral migration rates, narrower and deeper channels, and increased channel relief. These effects increased with vegetation density. Vegetation influenced flow dynamics, increasing the variance of flow direction in vegetated runs and increasing scour depths through strong downwelling where the flow collided with relatively resistant banks. This oblique bank collision also provides a new mechanism for producing secondary flows. We found it to be more important than the classical curvature‐driven mechanism in vegetated runs.

Vegetation controls on channel stability in the Bell River, Eastern Cape, South Africa

Channel instability has occurred in the Bell River in the form of meander cutoffs, a number of which have occurred since 1952. Increased sediment loading from widespread gully erosion in the catchment has been proposed as the trigger for this instability. Willow species of the Salix family, in particular S. caprea, have been planted along the banks in an effort to prevent further channel shifting. This study reports the results of an investigation into the effect of vegetation on channel form and stability over a 17 km stretch of channel. Results indicate that riparian vegetation has significant effects on channel form which have implications for channel stability. Riparian vegetation increases bank stability and reduces channel cross-sectional area, thereby inducing stability at flows less than bankfull. Evidence indicates that narrow stable stretches are associated with relatively high levels of riparian vegetation. Wider, unstable channels are associated with relatively less riparian vegetation. The effectiveness of riparian vegetation relative to bank sediments was investigated. A dense growth of willows was found to have an equivalent effect to banks with a silt-clay ratio of about 70 per cent. The channel narrowing induced by vegetation may contribute to channel shifting at high flows. The reduced channel capacity is thought to result in more frequent overbank flooding which may ultimately lead to channel avulsion. Thus where increased sediment loading is pushing the channel towards instability, vegetation may be effective in imparting local stability, but it is unable to prevent long-term channel shifts, and may rather help to push the system towards more frequent avulsions. Copyright © 1999 John Wiley & Sons, Ltd.

CONTROLS ON CHANNEL FORM AND CHANNEL CHANGE IN THE BELL RIVER, EASTERN CAPE, SOUTH AFRICA

ABSTRACT Channel instability has occurred in the Bell River in the form of meander cutoffs, incipient meander cutoffs, and general channel instability. This paper examines the incidence of channel instability in relation to the spatial variability of factors controlling channel form. The locations of channel change were mapped from aerial photographs for a 40 year period. Channel form characteristics were measured over a 17 km stretch of channel. Data collected from this stretch included pattern, width, depth, form ratio, channel gradient, particle-size distribution of bed and bank materials and riparian vegetation. Results indicate that the two primary spatial controls on channel form and pattern are riparian vegetation and bed-material size. Evidence indicates that narrow stable stretches are associated with finer bed-material and relatively high levels of riparian vegetation. Riparian vegetation increases bank stability and reduces channel cross-section, thereby inducing stability at flows less than ba...

DESIGN FOR A STABLE CHANNEL IN COARSE ALLUVIUM FOR RIPARIAN ZONE RESTORATION1

ABSTRACTGeomorphic, hydraulic and hydrologic principles are applied in the design of a stable stream channel for a badly disturbed portion of Badger Creek, Colorado, and its associated riparian and meadow complexes. The objective is to shorten the period of time required for a channel in coarse alluvium to recover from an impacted morphologic state to a regime condition representative of current watershed conditions. Channel geometry measurements describe the stream channel and the normal bankfull stage in relatively stable reaches. Critical shear stress equations were used to design a stable channel in noncohesive materials with dimensions which approximate those of less disturbed reaches. Gabion controls, spaced at approximately 300 m intervals, are recommended to help reduce the chance of lateral migration of the newly constructed channel. Controls are designed to allow for some vertical adjustment of the channel bed following increased bank stability due to revegetation. The flood plain is designed to dissipate flood flow energy and discourage multiple flood channels. The channel has approximately a 90 percent chance of remaining stable the first two years following construction, the time estimated for increased stability to occur due to revegetation.