Small Local Banks Research Articles

Examination of the Mechanism of Fintech Empowerment in Commercial Banks Based on Text Mining

Against the backdrop of financial technology empowering the transformation of commercial banks, this paper uses panel data from 38 commercial banks in China between 2012 and 2020, and constructs a financial technology index using text mining techniques, to investigate the mechanism of fintech empowerment in commercial banks. The study found a significant positive "U" -shaped relationship between the level of bank fintech and profitability. The results of the examination indicate that fintech has a stronger positive impact on the profitability of small and medium-sized local state-owned banks, and that fintech affects bank profitability through risk-bearing, capital structure, and operational capabilities. This paper takes the risk-bearing ability, capital structure, and operational level of commercial banks as intermediate variables in the model, and controls for variables through macroeconomic environment and policy, and internal factors of commercial banks, to make the research results more convincing. This provides new research ideas for the study of systematic fintech theory and financial risk theory.

Does Bank Resolution Rule out the Use of Public Funds? The Case of the Podkarpacki Bank Spółdzielczy

On 15 January 2020 Polish resolution authority made a decision to launch the resolution of a regional cooperative bank. The aim of the resolution was to maintain the service of local government units, considered as the critical function of the bank. The tool used was a bridge bank combined with bail-in to subordinated bonds and unguaranteed deposits, including deposits from local government units. The author is of the opinion that the write-off deposits from public entities was a substitute of the insufficient amount of liabilities contractually eligible for bail-in, served as the instrument enhancing credibility of resolution as well as protecting other creditors from excessive losses (i.e. mitigating contagion risk). The presented case of bank resolution, has been assessed as an example of intentionally bending of the stiff BRRD rules to an unusual case to find the practical, socially acceptable solution. By comparing this case with resolution of other small banks in the EU, the author argues that national authorities seek to limit the scope for bail-in and try to use the financial arrangements within the resolution of small local banks as more secure for the banking sector and socially acceptable manner.

SMALL LOCAL BANKS IN SOCIAL MEDIA: CONVERTING SOCIAL RESPONSIBILITY INTO CONSUMER ATTENTION AND ECONOMIC OUTCOMES

This study investigates the thematic content of Facebook disclosures from small local banks (SLBs) in Poland, their impact on Facebook users’ attention, and the economic repercussions for SLBs’ growth and performance. Based on the specificity of SLBs and existing empirical evidence, it hypothesizes that disclosures on socially responsible issues increase customer attention and can be converted into economic outcomes. To verify the posed hypotheses, several data sources are employed, including a hand-collected dataset describing the specificity of Facebook activities from SLBs in Poland between 2010 and 2017, and a stepwise research strategy is implemented. First, models of SLBs’ Facebook disclosures are distinguished. Second, the kinds of social media activities that ensure SLBs’ popularity among Facebook users are determined. Third, the thematic content of SLBs’ Facebook disclosures is related to their growth or performance indicators. The collected evidence shows that SLBs, as expected, can garner attention if they concentrate their social media activities mainly on socially responsible or local issues. Moreover, socially responsible activities and economic outcomes are generally not opposed, but only a careful selection of specific social disclosures can effectively exploit social media to the economic advantage of SLBs.

Export Complexity and the Product Space: Any Role for Finance?

In this paper we compute economic complexity following Tacchella et al. (2012) for Italian provinces (NUTS 3) in the period 1998-2017 and test the impact of provincial financial structure on the former. We implement several dynamic panel models and tackle endogeneity issues and the persistence of dependent variable by estimating system GMM specifications. We find that non-bank financial sources have a positive role on complexity. Moreover, a greater importance of finance firms relative to banks increases complexity. Finally, a greater orientation towards small local banks is detrimental for production complexity. We show that such effects are heterogeneous from a temporal perspective and jointly interpret them as pointing to a positive role of financial development as a driver of complexity.

SMEs and their bank choices: trust-related factors or economic calculations?

PurposeThe authors investigate the factors affecting the decision of small and medium-sized enterprises (SMEs) to do business with either small local banks or large commercial banks.Design/methodology/approachWe combine various data sources on Polish SMEs, including their financial statements, county-level data on SMEs' local environment, information about bank branch locations, as well as a new survey on the specificity of bank–firm relationships. We employ the logit and Tobit models.FindingsSMEs' bank choices and the length of a bank–firm relationship are more strongly associated with trust-related factors, rather than transactional ones. SME managers motivated by trust-related factors are more likely to choose local lenders and maintain long-term relationships with them. However, as firms grow and mature, SME managers lean toward banks adopting transaction-oriented policies.Research limitations/implicationsWe could have drawn a more detailed picture of the bank selection process had we been able to compare the traits of a firm's current and previous banks.Practical implicationsThe study shows that the features of a bank's offer, including product prices, have limited potential in shaping long-term relationships between banks and SMEs.Originality/valueThe topic of bank selection by SMEs has not been thoroughly investigated in the case of Central European countries. We address this gap by comparing two types of potential drivers of bank selection: trust-related factors and a set of purely economic (transactional) motives.

Does bank resolution rule out the use of public funds? The case of the Podkarpacki Bank Spółdzielczy

On 15 January 2020 Polish resolution authority made a decision to launch the resolution of a regional cooperative bank. The aim of the resolution was to maintain the service of local government units, considered as the critical function of the bank. The tool used was a bridge bank combined with bail-in to subordinated bonds and unguaranteed deposits, including deposits from local government units. The author is of the opinion that the write-off deposits from public entities was a substitute of the insufficient amount of liabilities contractually eligible for bail-in, served as the instrument enhancing credibility of resolution as well as protecting other creditors from excessive losses (i.e. mitigating contagion risk). The presented case of bank resolution, has been assessed as an example of intentionally bending of the stiff BRRD rules to an unusual case to find the practical, socially acceptable solution. By comparing this case with resolution of other small banks in the EU, the author argues that national authorities seek to limit the scope for bail-in and try to use the financial arrangements within the resolution of small local banks as more secure for the banking sector and socially acceptable manner.

Foreign Shareholdings Impact on Banks Efficiency and Moderating Role of Corporate Governance

The research investigate the impact of foreign shareholding originated from developed and developing countries on the efficiency of acquired local banks in Indonesia during 2007-2017 by including Corporate Governance as a moderating variable. Methodology: Using the secondary aggregate data of 29 commercial banks acquired by foreign shareholders, a panel regression model using econometrics methods of GLS, and DEA were applied to examine the effects of percentage of foreign shareholdings on efficiency of the acquired local banks. The main findings; First, percentage of foreign shareholdings positively affecting efficiency of acquired local banks only if the foreign shareholders is originated from developed countries. Second, the level of economic advancement of the country of origin of foreign shareholders has significant effects on the efficiency of the acquired local banks. Third, the increase in the size of the Board of Directors tends to decrease the efficiency of the acquired local banks and fourth, the presence of Foreign Director has a positive moderating effect on strengthening the effect of percentage of foreign shareholdings on the efficiency of the acquired local banks. Overall, the originality of this studies is that the percentage of foreign shareholdings and its country of origin are two combined factors that cannot be separated in affecting the level of efficiency of its acquired local bank and the fact of significant positive moderating effect of Foreign Director. As policy consideration, monetary authority need to perform strict due diligence on prospective foreign shareholders specifically originated from developing countries, advise banks to maintain the existence of Foreign Director and to encourage small local banks to be merged prior to the acquisition by foreign shareholders.

Location, Location, … and Its Significance for Small Banks

ABSTRACTThis study investigates how local banking competition, local trust in the banking system, and local socioeconomic situations affect the performance of small banks. Using a comprehensive dataset of bank branches in Poland, bank financial results, and local market socioeconomic features for the period 2007–2015, we find that small local banks, thanks to the specificity of their business model, gain a competitive advantage over their opponents in a difficult local socioeconomic environment. Moreover, we find strong tail effects in the relationship between location and local bank performance.

A proposal designed for calibrating the liquidity coverage ratio for Islamic banks

PurposeThis paper aims to critically investigate the liquidity risk management of Islamic banks and develop an alternative regulatory framework appropriate for liquidity management of these banks.Design/methodology/approachThe specific risk profile of an Islamic bank requires developing a new and more efficient regulatory framework, which relies on risk- sharing and symmetric information among parties. The paper makes a differentiation between small local banks and internationally active Islamic banks and proposes to apply liquidity requirements only for internationally active Islamic banks.FindingsA new proposal for the liquidity coverage ratio (LCR) of Islamic banks is developed in this paper towards mitigating risks and concurrently protecting the interests of investment account holders. Minimum and maximum thresholds are proposed for each liquid asset in this new LCR framework. An alternative liquidity approach is discussed to complement the proposal and several policy options are suggested.Originality/valueAs participation banks are exposed to market liquidity and market risks, more high-quality liquid instruments within a risk-sharing regulatory framework may provide the inner adjustment process through which any mismatch regarding maturity, risk, value or linkage with the real economy is corrected systematically. It offers policy implications for regulators, supervisors and international organizations.

The banking-industry relationship in Italy: large national banks and small local banks compared (1913–1936)

Using a large dataset of Italian joint-stock companies, this article analyses the networks of corporate interlocks of the major universal banks and 20 most ‘central’ local banks in a critical period of Italian industrialisation. The networks of the two types of banks were largely independent, with universal banks being affiliated principally to larger concerns in electricity, transport and storage, and financials; and local banks to riskier, younger and smaller firms in light manufacturing. The article then explores whether the bank-industry relationship in Italy reflected the hegemony of banks and followed a bank-control model. Our analysis does not support that view. It rather indicates that interlocking directorates were driven principally by a convergence of interests between banks (monitoring customers) and industrial firms (interested in tapping capital and credit flows), with the latter exerting a slightly higher influence over the former. This significantly differentiates Italy from Germany and the USA, where banks had a more dominant position in the corporate system.

English

This study aims to identify a number of qualitative and quantitative elements that affect financial distress costs between Italian and German small and medium-sized enterprises (SMEs). We propose a model that interprets “expected costs” as the product between “expected financial distress likelihood” and “total amount of financial distress costs due to insolvency”. The model is estimated using panel data methodology on samples from two European countries (Italy and Germany). The results indicate that expected costs depend on the use of derivative financial instruments, use of intangible assets and the relation with local banks (small local banks rather than large banking groups); in particular, the results obtained from cross‐country comparison shows that German SMEs (or Mittelstand companies) have characteristics that limit financial distress costs. It should be emphasized that the present work limits its field of investigation to a few variables without fully addressing other elements of uncertainty which may adversely affect the expected cost of financial distress in SMEs. This work will be useful to stimulate debate on policies to support SMEs. The originality of this study is to focus on determinants of financial distress in SMEs using panel data methodology. Key words: Cross‐country comparison, derivative instrument, expected cost, financial distress, small and medium-sized enterprises (SME).

Foreign Banks’ Entry and Local Banks’ Strategies in China

The opening of the Chinese banking sector encourages the entry of foreign banks through greenfield investment or cooperation with local banks. The entry strategies of foreign banks are therefore influenced by the strategies of local banks. This paper examines the interaction between local and foreign banks. The results demonstrate that the superior capabilities of foreign banks to liquidate collateral facilitate their greenfield investment. Otherwise, foreign banks will cooperate with local banks, whose cooperation depends on local banks’ self-development capability. Our results suggest that foreign banks are more likely to cooperate with large local banks in China unless small local banks have greater self-development capabilities.

High-growth entrepreneurial firm funding: a qualitative study of native-born and immigrant entrepreneurs

This qualitative study explores the financing choices of high-growth entrepreneurial firms established by native-born and immigrant entrepreneurs. Native-born and immigrant entrepreneurs are shown to pursue different financing approaches and strategies. Native-born entrepreneurs pursue multiple sources of financing, while immigrant entrepreneurs tend to rely on a single source of funding. In contrast to immigrant entrepreneurs who suggest bootstrapping as their preferred choice of financing, native-born entrepreneurs recommend bootstrapping as an initial source of funding, to be supplemented later by other external financing sources (e.g. banks, VC funds, business angels). Furthermore, native-born entrepreneurs solicit loans from large banks, while immigrant entrepreneurs seek loans from small local (community) banks. Finally, native-born entrepreneurs actively seek equity-based financing such as venture capital and business angel financing, while immigrant entrepreneurs avoid equity financing.

Europe Goes ‘Countercyclical’: A Legal Assessment of the New Countercyclical Dimension of the CRR/CRD IV Package

One of the most innovative features of Basel III was the introduction of a new ‘countercyclical’ regulatory dimension for banks. In 2013, this dimension was operationalised in the European prudential framework included in the CRR/CRD IV package. Although the uniform implementation of these rules has been welcomed by the European legislator as creating a level playing field for banks and investment firms, this legal analysis reveals the existence of serious competitive disadvantages for small local and regional banks. While the largest entities are incentivised to exploit the arbitrage opportunities hidden in the CRR/CRD IV countercyclical provisions, such opportunities are not available to smaller entities. Thus, the unintended result of the new prudential framework seems to be not only a re-sizing of the banking balance sheets, but also a re-composition of the banking structures. In this paper, one of the building blocks of the Legal Theory of Finance, i.e., the construction of finance as a legal by-product is taken as a point of departure to show how the adoption of the new countercyclical rules paves the way for a new consolidation wave in the banking industry.

The Halo Effect in Banking? Evidence from Polish Local Markets

This study investigates depositors’ reactions to the performance of small local banks in Poland. I provide evidence that depositors respond reasonably to their banks’ performance, but at the same time, their predisposition toward their banks seems to improve with positive information about the performance of other local banks operating in the same neighborhood and using similar logotypes. On the other hand, indications of other local banks’ poor performance is much less likely to lower depositors’ opinion about their banks unless neighboring banks with similar logotypes generate extraordinary negative signals. Thus, I refer to the halo effect, that is, the phenomenon that knowledge with little analytical value for depositors’ decisions nevertheless affects them. It can be thus concluded that for an average small-sized bank, using a similar logotype as its neighbors is prudent, as a reputational gain is more probable than a reputational loss.

Spatial competition in the banking system: Alternative lending technologies and collateral assets

We design a geographical model of banking to examine the optimal use of alternative collateral types and lending technologies: transaction lending, asset-based lending and fixed asset lending. The optimal lending technology and collateral asset are shown to depend on the project quality and bank-borrower distance. Sometimes unsecured lending is optimal. Both loan interest and the share of secured loans may increase or decrease with the bank-borrower distance depending on the collateral type and lending technology. Finally we explore how credit scoring and deregulation intensify competition through distant multimarket banks. The change improves the welfare of borrowers. Asset-based lending with local firms offers a competitive advantage for small local banks.

The Influence of Social Media and Internet Presence on Small, Local Bankss Market Power: New Evidence from an Emerging Economy

We study the impact of late adoption of online banking and early presence on social media on the market power of small banks in Poland. We combine publicly available information with two unique, hand-collected datasets on the geo-location of all bank branches and on small banks’ Internet and social media presence. We find that late-adopting banks must forego some of their market power to reach new customers through Internet banking. The size of the necessary market-power sacrifice is smaller when small banks primarily compete against their peers within local banking markets than against larger commercial banks. Additionally, we observe that an early and aggressive embrace of Facebook as a method of communication was beneficial for small local banks in terms of interest income.

Contribution of Macroeconomic Factors to the Prediction of Small Bank Failures

Microprudential regulation is an integral part of the banking supervisory framework. By analysing the link between economic conditions and the survival of small cooperative banks, this study sheds some further light on the importance of the economic environment once we assess individual bank stability over time. The results show that bank failure is better captured when we account for the state of the economy both at the national and the regional level. Our findings have important policy implications. First, the usage of a wider spectrum of information in default predicting models lessens the dependency of off-site monitoring on accounting data. Second, capital requirements for small local banks should account for the overall risk in tune with the application of capital buffers. Third, adverse economic conditions may increase the likelihood of observing joint bank failures particularly in the cooperative banking sector.

Iceland's meltdown: the rise and fall of international banking in the North Atlantic

This paper shows how rapid privatization and liberalization of Iceland's small local banks around 2000, combined with well-developed crony relations among the elite, enabled a small group of financiers to leverage government-guaranteed deposits into a vast wave of mergers and acquisitions abroad, and redistribute enough of the profits back home to make the economy boom. Negative policy feedback loops were systematically undermined. The incoming left-wing government, with IMF support, has managed to protect the bulk of the population from the worst of the effects.

What Drives the Interest Rate Margin Decline in EU Banking – The Case of Small Local Banks

Summary/Zusammenfassung What Drives the Interest Rate Margin Decline in EU Banking – The Case of Small Local Banks Bank interest rate margins have been declining in most EU countries over the last decade. This paper investigates the determinants of bank interest rate margins drawing on a unique sample of small local banks in Austria. The reduction of small local banks interest rate margins is mainly driven by a combination of decreasing operating costs, enabling banks to charge lower margins, and increasing competition. In addition, there seems to be a tradeoff between small local banks margins and non-interest revenues. In contrast to findings in the literature we furthermore document a small, but significantly positive effect of relationship banking on interest rate margins. (JEL G21, E40, C33) Die Determinanten der Zinsspannenreduktion auf dem EU-Bankenmarkt am Beispiel kleiner Lokalbanken Im letzten Jahrzehnt sind die Zinsspannen von Banken in den meisten Markten der EU zuruckgegangen. Dieser Aufsatz ...