Loan Expansion Research Articles

The politics of student loan in Turkey: regimenting the youth through authoritarian debtfarism

ABSTRACT The mass-scale expansion of student loan schemes in Turkey over the last two decades has been accomplished by a governance technique which the article defines as authoritarian debtfarism. By restructuring the Credit and Dormitories Institution (KYK) as subordinated to the executive and insulated from democratic intervention, the authoritarian neoliberal state in Turkey has sought to fulfil its new economic function, i.e. enabling the societal reproduction of the youth by increasing their financial dependency on credit money. The state-led student loan expansion in Turkey emerged in a tuition-free higher education setting without a sophisticated financial infrastructure and in an economic environment marked with perpetual graduate unemployment as well as inflationary pressures on repayment amounts. Based on a detailed interrogation of the official documents and in-depth interviews with defaulters, this article argues that authoritarian debtfarism has imposed a rigid market discipline over the university youth by using non-transparency and arbitrariness as its governance mechanisms. Consequently, future labour of the graduates is put on hold through a long-term debt relation, compelling them to integrate into labour market precariously as a new segment of the relative surplus population.

Technical inefficiency and output scale in banking and industry

According to this paper, technical inefficiency unrelated to problem loans on the part of banks, would result in loan expansion, inducing, in turn, firms that rely heavily on bank borrowing, to expand their production accordingly as they can benefit from higher lending. Increased scale of production fosters economies of scale, which can compensate for the adverse effects of technical inefficiency on cost, reinforcing at the same time sales. Production can expand even further if firms maximize their profit by acknowledging their own technical inefficiency in the form of scale inefficiency.

The Spillover Effects of Prudential Regulation on Banking Competition

Summary: European supervisors aggressively requested more capital at large banks. That may cut credit to the economy. We confirm that especially larger banks cut loans while less-significant banks partly offset that credit drop. Moreover, we identify nasty spillovers from that interaction. Specifically, larger banks’ deleveraging was associated with significant portfolio worsening for mid-sized banks. We conjecture that while small banks’ loan expansion was somewhat shielded by superior soft-information-based technologies, medium-sized banks were fully exposed to lending to bad borrowers as they boosted loans by relying on credit scoring and Internal Rating Based models. That is proving tricky through the prolonged European dip.

Geographic loan diversification and bank risk: A cross-country analysis

This study investigates the geographic loan expansion on bank risk using the aggregate data of 53 countries from 2005 to 2016 using the system generalized method of moments. Our findings show that ...

Banks’ loan growth, loan quality, and social capital

Using a sample of public and private banks in the U.S. and two measures of social capital, we study how social capital relates to banks’ loan expansion strategies and loan quality. A higher loan growth rate in the banking industry usually implies lower loan standards and a higher percentage of future nonperforming loans. We find that social capital is negatively associated with banks’ loan expansion strategy (proxied by banks’ loan growth). We also document that social capital is negatively associated with growth in risky loans (proxied by real estate loans, construction loans, and commercial and industrial loans). Finally, we find that social capital is negatively associated with bank loan loss provisions, change in loan loss allowance, and change in nonperforming loans. These findings are consistent with the notion that social capital is associated with higher loan quality.

HEDGING OF CREDIT DERIVATIVES, SYSTEMATIC FLUCTUATION AND BANKING STABILITY IN CHINA

The objective of this paper is to theoretically and empirically identify the effects of hedging and systematic fluctuation on banking stability in China. First, theoretical propositions indicate that the impact of credit derivative hedging and systematic fluctuation on banking stability in China is derived on the basis of a newly established theoretical model. Then, empirical research based on one-stage and two-stage GMM methods suggests that ascending hedging degrees leads to a linearly improving condition for banking stability with respect to overnight lending swap hedging, an improving-then-worsening condition for compensation swaps and an improving–worsening–improving condition for deposit swap hedging; at the same time, the ascending level of systematic fluctuation associated with hedging improves banking stability. Moreover, the trade-off between loan expansion and the stability maintenance of banking sectors can be managed by hedging compensation swaps and overnight lending swaps. In general, the empirical results support the applicability of the theoretical model, and the hedging of certain swaps can be used as a tool for stability maintenance purposes.

Gross Loan Flows, Financial Crises, and Banking Sector Reforms: Evidence from Korea

AbstractThis paper explores gross loan flows in Korea from 1984 to 2014 focusing on how gross loan flows differ before and after the 1997 global financial crisis and how they respond to the crisis and the associated banking sector reforms. The paper shows that sizable loan expansion and contraction, measured as deviations from the industry loan growth trend, coexist over time, indicating intense heterogeneity in bank lending. Also, the crisis and the reforms and restructuring of the banking sector are largely attributable to changes in gross loan flows in the post‐crisis period. Particularly, banks' asset portfolio reallocation occurs from the commercial sector to individual customers after the crisis.

The Effect of Loan Expansion on Bank Profitability and Risk: Evidence from Bankscope Database

The Effect of Loan Expansion on Bank Profitability and Risk: Evidence from Bankscope Database

Are Weak Banks Leading Credit Booms? Evidence from Emerging Europe

This paper examines the behaviour of weak banks during episodes of brisk loan growth, using bank-level data for central and Eastern Europe and controlling for the feedback effect of credit growth on bank soundness. No evidence is found that rapid loan expansion has weakened banks during the last decade, but over time weak banks seem to have started to expand at least as fast as, and in some markets faster than, sound banks. These findings suggest that during credit booms supervisors need to carefully monitor the soundness of rapidly expanding banks and stand ready to take action to limit the expansion of weak banks.

Too Big to Fail? The Newfoundland Bank Crash of 1894

Summary/Zusammenfassung Too Big to Fail? The Newfoundland Bank Crash of 1894 In the Newfoundland Bank Crash of 1894, the commercial banks in a duopolistic loan market both went under simultaneously. The banking system was “free”, as central bank, deposit insurance, and lender of last resort were all absent. The objective of this study is to shed light on our understanding of the working of a duopolistic bank loan market and to provide lessons for banking regulation and policies, the too-big-to-fail doctrine in particular. Our regression results suggest a price leader-follower relationship before 1887, and a drastic decline in exports that year triggered a regime change into simultaneous loan expansion that ultimately precipitated a systemic banking failure. The short-lived liquidity crisis, however, was alleviated by entries of Canadian banks. More important, results of intervention analysis suggest that the Crash did not have any significant adverse impact on the fishery sector, the pillar of the single-...

Are Weak Banks Leading Credit Booms? Evidence From Emerging Europe

This paper examines the behavior of bank soundness indicators during episodes of brisk loan growth, using bank-level data for central and eastern Europe and controlling for the feedback effect of credit growth on bank soundness. No evidence is found that rapid loan expansion has weakened banks during the last decade, but over time weaker banks seem to have started to expand at least as fast as, and in some markets faster than, stronger banks. These findings suggest that during credit booms supervisors need to carefully monitor the soundness of rapidly expanding banks and stand ready to take action to limit the expansion of weak banks.

Are Weak Banks Leading Credit Booms? Evidence from Emerging Europe

This paper examines the behavior of bank soundness indicators during episodes of brisk loan growth, using bank-level data for central and eastern Europe and controlling for the feedback effect of credit growth on bank soundness. No evidence is found that rapid loan expansion has weakened banks during the last decade, but over time weaker banks seem to have started to expand at least as fast as, and in some markets faster than, stronger banks. These findings suggest that during credit booms supervisors need to carefully monitor the soundness of rapidly expanding banks and stand ready to take action to limit the expansion of weak banks.

Development of financial intermediation and economic growth: The Chinese experience

Abstract Using Chinese provincial data from 1985 to 1999 and applying recent GMM techniques developed for dynamic panels, this paper examines how the development of financial intermediation influences China's economic growth during the post-1978 reform period. Our econometric results show that China's financial intermediation development contributes to its rapid economic growth through two channels: first, the substitution of loans for state budget appropriation and second, the mobilization of household savings. Loan expansion, however, does not contribute to growth since loan distribution by financial intermediaries is inefficient. Deep financial sector reform aimed at correcting this inefficiency is desirable, and is expected to sustain China's economic development in the future.

A model of the monetary sector with and without binding capital requirements

Bank equity is exogenous in the standard deposit-and-loan-expansion multiplier model, so that model is inappropriate for analyzing the interaction between monetary and bank regulatory policies. This paper examines the effect of a binding capital requirement on the loan expansion process. We evaluate how the conflict between the monetary and regulatory authorities evolves when bank equity adjusts to a binding capital requirement. We find that capital requirements are not innocuous for monetary policy. Nevertheless, the monetary authority can assert control over the loan expansion process in the long run, although multiplier values will differ considerably from those in the standard multiplier model.

FEDERAL RESERVE SYSTEM POLICIES AND THEIR EFFECTS ON THE BANKING SYSTEM*

IN RECENT YEARS Federal Reserve policies have aimed primarily at keeping the net reserve position of the banking system within a range considered suitable to the degree of credit restraint or ease desired by the Federal Open Market Committee. The managers of the open-market account maintain estimates of the effect non-managed factors will have on bank reserves, and then, taking these factors into account, aim at a predetermined level of free reserves. A model is developed to explain Federal Reserve behavior in setting target levels of free reserves. Free reserves are made a function of five indicators observed by the Federal Reserve. These variables representing the broad aims of the monetary authorities include measures of the growth in output, level of unemployment, price changes, and short-term capital outflow. Movements in these variables are able to explain almost 91 per cent of the variation in free reserves. Tradeoffs between different variables are considered by examining their impact on the target level of free reserves. Although each is important, the coefficients indicate the Federal Reserve has been particularly sensitive to increases in the wholesale price index for industrial products. The model suggests that there may be a sizable lag between changes in the economic indicators and a shift in Federal Reserve policies. If the Federal Reserve aims at target levels of free reserves, the effectiveness of monetary policies will depend on the reaction of the banking system to variations in free reserves. To test this reaction, an excess-demand model for free reserves is developed to explain the growth in member-bank loans and investments. The growth in member-bank credit is made proportional to the difference between the actual level of free reserves and the level desired by the banking system. Actual free reserves are taken to be the level desired by the Fed. The level of free reserves banks are willing to hold is a function of several variables, but during normal times the most important appears to be variations in the demand for loans. Interest and discount rates, surprisingly, have little influence that is not already explained by variations in loan demands. Within the range of variation permitted between the bill and discount rates during the postwar period, the desired level of free reserves appears quite interestinelastic. The regressions indicate that variations in free reserves have a pronounced effect on loan and investment expansion. In the same quarter, loans and investments will increase or decrease by over three times the initial change in actual or desired free reserves. If free reserves are maintained at this new level, the growth will be repeated each quarter. The level and direction of movements in free reserves are often taken as indicators of Federal Reserve policies. Since the desired level of free reserves will change with variations in the intensity of loan demands, a given level of free reserves will not always be associated with the same degree of credit expansion or contraction. The amplitude of cyclical fluctuations in desired free reserves has, however, been con-