Individual Bank Data Research Articles

Acceleration of the Banking Sector and Economic Growth: Effectiveness of Economic Recovery Strategies Post-Covid-19

The banking sector around the world is under great pressure due to the current state of the Covid-19. This study investigates how Covid-19 impacts systemic risk in the banking sector across all types of banking lines affected by Covid-19. This study found that all banking lines experienced a significant increase in systemic risk among the types of banking that were sampled initially. By using spillover policies, it is also possible to identify institutions that are systemically important. The analysis was performed using Panel Data Regression, SVAR, and FEVD on individual bank data and macroeconomic data. The findings proved that government policies to drive the business cycle and MSME actors in the context of overcoming the impact of Covid-19, have not shown their effectiveness. This is indicated by the negative response of economic growth to the policies that have been issued. On the other hand, the performance of banking financial institutions also contributes to national economic growth. This is indicated by the sensitivity of the bank's internal variables in responding to national economic growth. Likewise, with the response to government policies and macroeconomic conditions. Therefore, there is a need for an acceleration policy in handling the current national economic recovery.Originality/Value: This paper focus on systematic risk in banking during COVID-19, use of advanced econometric techniques, evaluation of government policies, integration of bank performance and macroeconomic growth, and its assessment of policy effectiveness, and its implications for future economic recovery efforts.

Heterogeneity effect of prudential regulation on the stability of banks: evidence from WAEMU banks using quantile regression with fixed effects

PurposeThis paper aims to analyze the heterogeneous effect of prudential regulation on the stability of banks in the West African Economic and Monetary Union (WAEMU).Design/methodology/approachThe author uses in this study individual bank data from balance sheets, income statements of banks in the WAEMU space and annual reports of the banking commission formed into a three-year panel from the period 2017 to 2019. First, this study uses hierarchical clustering based on specific banking characteristics to determine whether the WAEMU region’s banking markets are heterogeneous or not. Second, this study uses quantile regression approach with fixed effects to explore how that prudential regulation affects the conditional distribution of WAEMU bank stability.FindingsThe analysis reveals heterogeneity resulting in two distinct groups. Using the quantile regression approach, this study demonstrates that prudential regulation has a significantly more substantial and positive effect on the upper quantiles than on the lower quantiles of the conditional distribution of WAEMU bank stability. Furthermore, the effect of banking regulation also varies among pan-African cross-border banks, national banks and foreign banks. Among these types of banks, pan-African cross-border banks remain the most stable by adopting prudential regulation. The results remain robust and vary across different WAEMU countries.Originality/valueThe contribution of this study to the literature is multifaceted. First, this study uses individual bank-level constituted in panel data from the WAEMU region to assess the effect of prudential regulation on the stability of the WAEMU’s banking sector. This approach allows for a more granular analysis as this study considers individual regional banks’ specific characteristics and behaviors. Second, this study considers the heterogeneous effect of regulation on the stability of banks within the WAEMU space. This means that this study acknowledges that not all banks are affected similarly by prudential regulations, and this research aims to identify and quantify these differences.

Is the Bank Lending Channel of Monetary Policy Evident in the Philippines? A Dynamic Panel Data Approach*

The paper examines the bank lending channel of the monetary transmission mechanism in the Philippines. Using the dynamic panel generalized method of moments (GMM) model on quarterly individual bank data from Q1:2006 to Q4:2017, the study finds that the bank lending channel of monetary policy in the Philippines is rather weak as highly liquid banks tend to react more to monetary tightening than less liquid banks. More liquid banks would rather hold their stock of liquid assets as buffers against crises than sustain or expand their lending activity amid monetary tightening. Banks are also risk‐sensitive in their lending behavior as the increase in the cost of borrowing following tighter monetary policy could increase the likelihood of loan default. The banks' cautious lending behavior supports the policy stance of the Bangko Sentral ng Pilipinas in terms of prudent regulatory standards to maintain the resilience of the Philippine financial system.

Shadow banking from China's perspective: an empirical analysis of bank-issued wealth management products

PurposeWealth Management Products (WMPs) are the largest and most crucial component of China's Shadow banking, which are off the balance sheet and considered as a substitute for deposits. Commercial banks in China are involved in the issuance of WMPs mainly to; evade the regulatory restrictions, move non-performing loans away from the balance sheet, chase the profits and take advantage of yield spread (the difference between WMPs yield and deposit rate).Design/methodology/approachIn this study, the authors investigate what bank related characteristics and needs; influenced and prompted the issuance of WMPs. By using a quarterly panel data from 2010 to 2019, this study performed the fixed effects approach favored by the Hausman specification test, and a feasible generalized least square (FGLS) estimation method is employed to deal with any issues of heteroscedasticity and auto-correlation.FindingsThis study found that there is a positive and significant association between the non-performing loan ratio and the issuance of WMPs. Moreover, profitability and spread were found to play an essential role in the issuance of WMPs. The findings of this study suggest that WMPs are issued for multi-purpose, and off the balance sheet status of these products makes them very lucrative for regulated Chinese commercial banks.Research limitations/implicationsNon-guaranteed WMPs are considered as an item of shadow banking in China, as banks do not consolidate this type of WMPs into their balance sheet; due to that reason, there is no individual bank data available for the amount of WMPs. The authors use the number of WMPs issued by banks as a proxy for the bank's exposure to the WMPs business.Practical implicationsFrom a regulatory perspective, this study helps regulators to understand the risk associated with the issuance of WMPs; by providing empirical evidence that Chinese banks issue WMPs to hide the actual risk of non-performing loans, and this practice could mislead the regulators to evaluate the bank credit risk and loan quality. This study also identifies that Chinese banks issue WMPs for multi-purpose; this can help potential investors to understand the dynamics of WMPs issuance.Originality/valueThis research is innovative in its orientation because it is designed to investigate the less explored wealth management products (WMPs) issued by Chinese banks. This study's content includes not only innovation but also contributes to the existing literature on the shadow banking sector in terms of regulatory arbitrage. Moreover, the inclusion of FGLS estimation models, ten years of quarterly data, and the top 30 Chinese banks (covers 70% of the total Chinese commercial banking system's assets) make this research more comprehensive and significant.

Bank regulation and risk in Europe and Central Asia since the global financial crisis

This paper examines changes in bank capital and capital regulations since the global financial crisis, in the Europe and Central Asia region. It shows that banks in Europe and Central Asia are better capitalized, as measured by regulatory capital ratios, than they were prior to the crisis. However, the increase in simple equity ratios for the same banks has been smaller over the past 10 years. The increases in regulatory capital ratios have coincided with a reduction in the stringency of the definition of Tier 1 capital and reduction in risk-weights. We further analyze the relationship between bank capital and bank risk using individual bank data. We show that bank risk in Europe and Central Asia is more sensitive to changes in simple leverage ratios than changes in regulatory capital ratios, consistent with the notion that equity ratios only include high-quality capital and do not rely on internal risk models to compute risk-weights. Although there has been some effort to increase capital and liquidity requirements for institutions deemed systemically important, the region has been lagging in addressing the resolution of these institutions. In line with Demirguc-Kunt, Detragiache, and Merrouche (2013), our findings show the importance of the definition of bank capital to assure bank financial stability in Europe and Central Asia.

ANALISIS PENGELOLAAN DANA TERHADAP LIKUIDITAS BANK DI INDONESIA

ABSTRACT This study analyzes bank liquidity, both precautionary and involuntary liquidity. This study uses dynamic panel estimation on individual bank data covering 2002 to 2011. The results show that preventive liquidity is more determined by the operation of the bank. On the other hand, involuntary liquidity is more influenced by the condition of the financial system. Regarding size, the effect of financial and macroeconomic system conditions is greater for small banks. In addition, monetary policy in the form of minimum reserve requirements affects precautionary liquidity from small banks; while the central bank's interest rates have less influence on bank liquidity. Keywords: bank liquidity, monetary policy, financial system

Interest rate pass-through since the euro area crisis

Abstract The financial crisis has been characterised by fragmentation in the transmission of monetary policy, as reflected in the high dispersion in interest rates on bank loans to euro area firms. Heterogeneity in interest rate pricing also emerged within countries, suggesting that macroeconomic differences were not the only driver of dispersion. Using individual bank data for twelve euro area countries covering almost a decade since the start of the crisis, we identify the balance sheet characteristics that contributed to this fragmentation and document the share of the deviation in interest rates from policy rates that is accounted for by each characteristic. Interest rate pass-through heterogeneity is estimated using an error correction framework that accounts for macroeconomic variation and market structure, and includes standard bank characteristics, such as size, capital and liquidity, as well as variables that capture banks’ funding access, risk and asset quality. Results show incomplete pass-through of changes in money market rates targeted by the central bank to firms’ lending rates. Sovereign bond yields are shown to affect the cost of finance for firms, particularly in stressed countries and market concentration is associated with smaller reductions in lending rates. With regard to bank characteristics, asset impairment leads to a significant decrease in pass-though. Bank size, as a proxy for market power, and reliance on central bank funding affect pass-through for smaller loans, while capital is more significant for larger loans.

Uticaj vlasništva banaka (stranih ili domaćih) na njihove performanse - studija slučaja kod balkanskih zemalja

The purpose of this paper is to investigate the relationship between bank ownership (foreign vs. domestic) and bank profitability in three South-Eastern European countries, Bulgaria, Macedonia and Serbia using individual bank data. There are a lot empirical evidences that banks with foreign ownership have better performance. This is due on the better corporate governance in those banks that is manifest with better risk management system. In micromanagement, better risk management system is depicted in better granting criteria, more strict and unbiased process, better monitoring system and more proactive strategy. This leads to better quality of the credit portfolio and better performance indicators. This paper will explore this hypothesis on basis of a sample of 24 banks from the three sample countries through a data series of ROE for the period 2008-2016.

The Relevance of Currency-Denomination for the Cross-Border Effects of Monetary Policy

We analyze how a change in ECB monetary policy affects lending of internationally active banks, depending on whether the currency of the claim is the one of the counterparty country, using Spanish individual bank data. We analyse the transmission from an outward perspective, exploring how banks adjust their foreign lending denominated in local and in foreign currency to changes in monetary policy, both cross-border and also through their affiliates located in other countries. We find that non-bank private claims in local currency respond much less to the ECB monetary policy stance than claims in foreign currency. We also find that the spillover effects on cross-border lending denominated in foreign currency depend on banks’ characteristics. When we broaden the analysis to include claims to the public and the financial sector, the transmission of monetary policy is mainly through foreign currency loans, but bank heterogeneity plays a role in the transmission to local currency loans. In general, a tightening of the ECB monetary policy results in an increase in lending abroad. Exchange rate changes only affect foreign currency-denominated lending.

Commentaire ‒ Politiques monétaires et crise financière : vers un nouveau central banking

Three articles of this special issue evaluate the effects of unconventional monetary policies and the relationships between new capital requirements and bank profitability. These articles present several similarities: two of them draw on individual bank data and not on aggregated data; they highlight the combined consequences of several shocks, by introducing an interaction term between several variables; they conclude to a strong heterogeneity or a heightened magnitude of the effects brought on credit or bank profitability. That comment will underline that if policies of liquidity injections at a time of stress are especially efficient as they draw on widened collaterals, then it is important to keep certain unconventional instruments in the central banks’ toolbox, including outside times of crisis. And if the transmission channels from these policies to lending rates demand close coordination with the fixing of short term interest rates and turn out to have heterogeneous effects due to each banking intermediary’s specific situation, then rates policy must be closely correlated to both microprudential and macroprudential policies.

NEXUS OF COMPETITION AND STABILITY: CASE OF BANKING IN INDONESIA

This paper analyzes the relationship between banking competition and banking stability in Indonesia, where the bank lending is the major source of funding on this country with a series of structural changes including deregulation, economic crisis, and consolidation. We apply generalized method of moment approach on individual bank data, and the result shows that competitive banking will increase the economic stability. Under a competitive industry, banks must improve their efficiency, increase their loans disbursement, diversify their business, boost their assets and enhance their capitalization. This paper emphasize that the efficiency is a critical to reduce risk, both for large and small banks. Furthermore, regardless their size, an adequate capital is an important factor for the bank to cope with shocks in the market

Cost Efficiency of Banks in Croatia

Abstract Foreign and larger banks in Croatia are generally considered to be more cost efficient compared with domestic and smaller banks. However, those views are often based on data from financial statements that can be misleading due to simultaneous consolidation process on the market and the existence of economies of scale. To contribute to the Croatian banking efficiency literature, we construct a panel of individual bank data for 1994-2014 period and conduct a frontier analysis to calculate bank specific X-efficiency. Our results suggest that efficiency scores depend on the cost definition as domestic and smaller banks are more efficient in managing administrative costs compared with foreign and larger banks but equally efficient in managing total costs. Results indicate that average bank relative efficiency increased on two occasions: one in the late 90s in the period of banking crisis and subsequent “market cleansing” and to a lesser extent in the period marked with financial crisis. Although the differences between bank cost efficiencies seem small, we conclude that the area is worth further research as significant gains in bank earnings could be achieved by increasing efficiency.

Interest Rate Pass-Through in Poland. Evidence from Individual Bank Data

This paper employs individual bank data to analyze interest rate pass-through from money market rates to bank deposit and lending rates. First the speed and completeness of interest rate adjustment is assessed. As the sample covers the period prior to and after the outbreak of the financial crisis, some comparisons of the interest rate transmission process in these periods are made. The influence of individual bank characteristics (e.g., size, liquidity, strength of deposit base, quality of credit portfolio) on features of the interest rate transmission is also examined.

Interest Rate Pass-Through in Poland: Evidence from Individual Bank Data

This paper employs individual bank data to analyze interest rate pass-through from money market rates to bank deposit and lending rates. First the speed and completeness of interest rate adjustment is assessed. As the sample covers the period prior to and after the outbreak of the financial crisis, some comparisons of the interest rate transmission process in these periods are made. The influence of individual bank characteristics (e.g., size, liquidity, strength of deposit base, quality of credit portfolio) on features of the interest rate transmission is also examined.

Does Banking Union Worsen theEU's Democratic Deficit? The Need for Greater Supervisory Data Transparency

AbstractDoes banking union exacerbate the European Union's democratic deficit? Using Scharpf's ‘input’ and ‘output’ legitimacy concepts, it is argued in this article that its design does worsen the democratic deficit. There are good reasons to limit ‘input legitimacy’ for politically independent institutions. ‘Output legitimacy’ is then even more relevant. Transparency is a key part of ‘output legitimacy’. It enables actors to judge whether the regulator is acting in the public's interest and can improve their outputs. This article focuses on the banking data that the supervisors collect. Data available to the European public is evaluated and compared toAmerica's banking union. European practices are not comparable in terms of availability or detail. An original survey of relevant officials is conducted, which results in the finding that only 11 of 28 Member States release any information on the banks they supervise. BothEUand national supervisors should provide publicly available, timely and consistent individual bank data.

PENGELOLAAN DANA DAN LIKUIDITAS BANK

This paper analyzes the liquidity of banks, both precautionary and involuntary liquidity. We apply dynamic panel estimation on individual bank data covering the period of Januari 2002 to November 2011. The result shows that precautionary liquidity is more determined by the operation of the bank. On the other hand, the involuntary liquidity is more affected by the financial system condition. Related to the size, the effect of the financial system condition and the macroeconomy is larger for the small banks. Moreover, the monetary policy in the form minimum reserve requirement affects the precautionary liquidity of the small banks; while the central bank rate is less influential to the bank liquidity. Keywords: Banking, Liquidity, General Method of Moment JEL classification: G21, G11, C33

Fund Management And the Liquidity of The Bank

This paper analyzes the liquidity of banks, both precautionary and involuntary liquidity. We apply dynamic panel estimation on individual bank data covering the period of Januari 2002 to November 2011. The result shows that precautionary liquidity is more determined by the operation of the bank. On the other hand, the involuntary liquidity is more affected by the financial system condition. Related to the size, the effect of the financial system condition and the macroeconomy is larger for the small banks. Moreover, the monetary policy in the form minimum reserve requirement affects the precautionary liquidity of the small banks; while the central bank rate is less influential to the bank liquidity. Keywords: Banking, Liquidity, General Method of MomentJEL classification: G21, G11, C33

The impact of competition on bank performance in Bangladesh: an empirical study

This paper attempts to assess bank performance, competition and their relationship empirically by using banking sector data (1983–2011) and individual bank data (2001–2011) from Bangladesh. Return on assets and data envelopment analysis grounded bank efficiency are used as bank performance measures, whereas eight structural measures are employed for assessing competition followed by the adoption of regression analysis for identifying its impact. The findings report an improvement of bank performance with a few fluctuations in between the sample periods under study. On the other hand, the level of competition has been consistently increasing in the banking sector, as pointed out by all structural measures. The regression result shows evidence of a negative relationship between competition and bank performance. It is required to revisit the structural changes of the banking sector. In particular, the regulatory authorities need to ensure necessary incentives for banks, particularly for private banks, to improve their performance in terms of profitability and efficiency.

The Influence of Regulatory and Institutional Framework and Shareholder Structure Upon Risk of Financial Institutions in Central Europe

We study the effects of broadening the safety net on bank risk taking in Central Europe, using individual bank data and time-varying regulatory data. Further, we analyse the shareholder structure and its links with risk, as well as possible modifications it may introduce to the moral hazard incentives produced by the financial safety net. We find that more extensive deposit insurance schemes and state aid granted to the financial sector induce higher levels of risk in individual banks. The shareholder structure does not significantly influence the risk levels, although some evidence for higher risk of government-owned institutions is identified. Majority ownership in the form of other financial institutions not only does not alleviate the moral hazard, but makes it more acute, at least in some risk specifications.

Bank profitability during recessions

This paper contributes to the literature on the relation between bank profitability and economic activity. When allowing for stronger co-movement of bank profit with economic activity during deep recessions, we find a much larger impact of output growth on bank profitability than commonly found in the literature. Among the different components of bank profit, loan losses are the main driver of this result. We also find long-term interest rates in previous years to be important determinants of bank profit in times of high economic growth. Our findings are robust to the use of aggregate or individual bank data.