Stable Banks Research Articles

Liquidity injection, bank lending, and security holdings: The asymmetric effects in Vietnam

The study examines how banks rebalance their lending and security holdings in response to the monetary policy adjustments by the central bank's liquidity injection. It is concerned that banks may not use the additional liquidity to loan out to the economy, but they instead get more involved in security holdings. Using a sample of Vietnamese banks during 2007–2018, we find an asymmetric portfolio expansion strategy indicating that banks increase the purchases of securities far more rapidly than they treat their loan portfolio. Further analyzing the compositions of security holdings, we document that banks favorite government and financial bonds, as opposed to corporate bonds. This pattern implies that some capital flows seem not to reach the borrowers in the real sectors. Most prominently, we corroborate banks' asymmetric reactions according to the level of financial soundness. Concretely, less (compared to more) stable banks take more risks amid the monetary policy easing in the sense that their loan portfolio grows faster while their security holdings spread slower. All of our findings are robust across (i) changes in econometric techniques of static and dynamic panels, (ii) alternative indicators of monetary policy, (iii) different measures for bank soundness by the Z-score index and credit risk by non-performing loans, and (iv) multiple modified sets of control factors. Consequently, the securities preference over credit in the sound time may worry the regulatory authorities. This study feeds into the hot debate in Vietnam and other emerging countries as well, on the restriction of security trading and credit growth, and the scale of the central bank's asset purchases to avoid excessive liquidity.

Estimating probability of banking crises using random forest

<span id="docs-internal-guid-4935b5ce-7fff-d9fa-75c7-0c6a5aa1f9a6"><span>Banks have a crucial role in the financial system. When many banks suffer from the crisis, it can lead to financial instability. According to the impact of the crises, the banking crisis can be divided into two categories, namely systemic and non-systemic crisis. When systemic crises happen, it may cause even stable banks bankrupt. Hence, this paper proposed a random forest for estimating the probability of banking crises as prevention action. Random forest is well-known as a robust technique both in classification and regression, which is far from the intervention of outliers and overfitting. The experiments were then constructed using the financial crisis database, containing a sample of 79 countries in the period 1981-1999 (annual data). This dataset has 521 samples consisting of 164 crisis samples and 357 non-crisis cases. From the experiments, it was concluded that utilizing 90 percent of training data would deliver 0.98 accuracy, 0.92 sensitivity, 1.00 precision, and 0.96 F1-Score as the highest score than other percentages of training data. These results are also better than state-of-the-art methods used in the same dataset. Therefore, the proposed method is shown promising results to predict the probability of banking crises.</span></span>

Controlling systemic risk: Network structures that minimize it and node properties to calculate it.

Evaluation of systemic risk in networks of financial institutions in general requires information of interinstitution financial exposures. In the framework of the DebtRank algorithm, we introduce an approximate method of systemic risk evaluation which requires only node properties, such as total assets and liabilities, as inputs. We demonstrate that this approximation captures a large portion of systemic risk measured by DebtRank. Furthermore, using Monte Carlo simulations, we investigate network structures that can amplify systemic risk. Indeed, while no topology in general sense is a priori more stable if the market is liquid (i.e., the price of transaction creation is small) [T. Roukny etal., Sci. Rep. 3, 2759 (2013)10.1038/srep02759], a larger complexity is detrimental for the overall stability [M. Bardoscia etal., Nat. Commun. 8, 14416 (2017)10.1038/ncomms14416]. Here we find that the measure of scalar assortativity correlates well with level of systemic risk. In particular, network structures with high systemic risk are scalar assortative, meaning that risky banks are mostly exposed to other risky banks. Network structures with low systemic risk are scalar disassortative, with interactions of risky banks with stable banks.

SMEs' line of credit under the COVID-19: evidence from China.

How does the COVID-19 affect SMEs’ financing in emerging markets? In this paper, we investigate the impact of the COVID-induced shock on Chinese SMEs’ line of credit (LOC) using deal-level data. As Hubei province was mostly affected, we employ a difference-in-differences approach with the propensity score matching (PSM-DID) and compare Hubei SMEs’ credit responses before and after the outbreak relative to those of non-Hubei SMEs. Our results suggest that Hubei SMEs’ credit demand reduced significantly compared to that of non-Hubei SMEs, and the adverse effects were more pronounced for the non-state-owned enterprises (non-SOEs) and the SMEs without prior bank relationships. Moreover, we show a negative impact on non-Hubei SMEs having supply chain relationships with Hubei province. Such effects rippled through the supply chain and exerted an intensified strike on the SMEs with Hubei customers. Finally, we find the state-owned banks eased the LOC to Hubei SMEs during the pandemic outbreak.Plain English Summary Chinese SMEs’ credit demand deteriorated after the COVID-19 outbreak, though supported by the state-owned banks. How does the COVID-19 affect SMEs’ financing in emerging markets? In this paper, we investigate the impact of the COVID-induced shock on Chinese SMEs’ line of credit (LOC) using deal-level data. As Hubei province was mostly affected, our results suggest that Hubei SMEs’ credit demand reduced significantly compared to that of non-Hubei SMEs, and the adverse effects were more pronounced for the non-state-owned enterprises (non-SOEs) and the SMEs without prior bank relationships. Moreover, we show a negative impact on non-Hubei SMEs having supply chain relationships with Hubei province. Such effects rippled through the supply chain and exerted an intensified strike on the SMEs with Hubei customers. Finally, we find the state-owned banks eased the LOC to Hubei SMEs during the pandemic outbreak. According to our study, government COVID-supportive policies should target the SME subgroups such as non-SOEs, firms that heavily rely on supply chain, and those without stable bank relationships.

Measuring the competition and banking efficiency level: a study at four commercial banks in Indonesia

The banking sector plays a vital role in the economy of each country. Banks are required to operate in a sound, efficient, and reliable manner in order to stimulate economic growth. To achieve that, a basic framework for the Indonesian banking system has been developed, known as the Indonesian Banking Architecture (IBA) aimed at strengthening the structure and enhancing the competitiveness of the banking industry. This study aimed to analyze the level of competition, the ability, and influence of the competition on banks efficiency, so banks can maintain the performance level and provide economic growth. This study used a quantitative approach with a panel regression analysis model. The results have shown that the banking industry in Indonesia tends to be monopolistic. The character of many sellers, differentiated products, sellers freely entering and leaving the market, as well as the presence of advertisement and product quality competitions were examined. Bank competition that leads to a monopolistic market structure stimulated banks to achieve higher profits and put bank projects and financing at high risk. Competition had a negative correlation with bank efficiency because competition encourages banks to focus on profit rather than efficiency, engage in risky financing/projects, and undertake high lending activities. Moreover, four big banks in Indonesia are in the “too big to fail” position. Banking regulators in Indonesia must maintain and produce reliable and stable banks to compete globally. AcknowledgementThe authors would like to thank all those who have contributed to the completion of this article, especially the leadership of the Department of Economics and the Faculty of Economics and Business, Brawijaya University, who provided facilitation for publication in reputable international journals.

ДОСЛІДЖЕННЯ ВПЛИВУ ПАНДЕМІЧНОЇ КРИЗИ COVID-19 НА ДІЯЛЬНІСТЬ УКРАЇНСЬКИХ БАНКІВ

The COVID-19 pandemic crisis impact has become an integral part of changes in the economy in general and businesses entities’ activities in particular. Banks are no exception. The article examines the impact of the pandemic crisis on the dynamics of Ukrainian banks’ indices. Maintaining stable banks’ activity during the crisis is a necessary condition for financial stability in the country. The results of the analysis of the scientific literature showed that the spread of the COVID-19 pandemic has a statistically significant negative impact on the credit risk of the banking sector, profitability, and solvency of banks. Banks have enough funds to support a sustainable economy but do not want to take credit risk. The study results also showed a reduction in lending to the economy, despite a set of measures to stimulate lending implemented by the state. The analysis of theoretical approaches to identifying the impact of the COVID-19 pandemic crisis on the activities of Ukrainian banks has shown that there is no single understanding and interpretation of such impact in the scientific literature. It is recommended to distinguish between the positive and negative impacts of the pandemic crisis on the banks’ activities. The study results made it possible to identify the negative impact of COVID-19 on the activities of Ukrainian banks in terms of efficiency indicators and the positive impact – in terms of capitalization and business organization. The main advantage for banks was their need as participants in the financial market, which led to the rapid development of tools for remote customer service and digitalization of individual business processes. Given the virtually unchanged number of banks operating in Ukraine during 2020–2021, COVID-19 was not the reason for their refusal to work and exit the market. Maintaining the positive dynamics of most performance indicators by Ukrainian banks became possible due to the significant financial strength formed in the pre-crisis year. Given the low inflation and a significant reduction in interest rates on loans, the COVID-19 pandemic did not significantly negatively impact Ukrainian banks. Banks, in general, have proved to be quite resilient to this crisis.

The leverage ratio, risk-taking and bank stability

This paper analyses the trade-off between additional loss-absorbing capacity and potentially higher bank risk-taking associated with the introduction of the Basel III Leverage Ratio. This is addressed in both a theoretical and empirical setting. Using a theoretical micro model, we show that a leverage ratio requirement can incentivise banks that are bound by it to increase their risk-taking. This increase in risk-taking however, should be outweighed by the benefits of higher capital, thereby leading to more stable banks. These theoretical predictions are tested and confirmed in an empirical analysis on a large sample of EU banks. Our baseline empirical model suggests that a leverage ratio requirement leads to a significant decline in the distress probability of highly leveraged banks.

Determinants of Banks’ Financial Stability in Kenya Commercial Banks

Introduction: The collapse of several banks in Kenya followed by a possibility of acquisition of struggling banks led to bank runs in Kenya causing customers to withdraw their deposits from stressed banks and taking them to financially stable banks.
 Aim of the Research: The paper investigated the determinants of Bank’s stability as proxied by asset quality in the Kenyan banking sector.
 Data Collection: Monthly secondary data spanning from the period January 2015 to December 2019 was collected from central Bank of Kenya and Kenya National Bureau of Statistics.
 Methodology: A multiple regression model with the help of SPSS statistical software was employed to address the objective of this study.
 Main Results: The multiple regression model results indicated that liquidity ratio; inflation rate and lending rate results presented a negative but statistically significant relationship with banking stability indicating that a decrease in liquidity ratio, inflation rate and lending rates affect banking stability respectively. The results for loan growth and return on equity exhibited a positive but statistically significant relationship with banking stability indicating that an increase in growth of loans and returns on equity diminishes and enhances banking stability in Kenya respectively. Exchange rate results had a positive and statistically insignificant relationship with banking stability implying that exchange rate does not affect banking stability. Return on assets and public debt results indicated a negative and statistically insignificant relationship with banking stability implying that return on assets and a country’s public debt has no effect on banking stability respectively.
 Recommendation: Banking financial stability is fundamental in reducing the far-reaching social and economic effect that could occur due to challenges facing the banking industry. The study recommends adoption of policies that minimize the negative effect of microeconomic and macroeconomic factors in the banking industry in Kenya.

Determinants and convergence of income diversification in Ghanaian banks

The study explores the determinants of income diversification, as well as, test for the existence of beta-convergence and sigma-convergence among Ghanaian banks. The study utilizes a dataset of 32 banks covering the periods 2000 to 2017. The panel corrected standard error ordinary least squares, fixed effects and system generalized methods of moments have been used. Both beta-convergence and sigma-convergence exist among Ghanaian banks; suggesting the presence of the catch-up effect and similarity of strategy over time. The risk profile and risk portfolio of banks affect their diversification strategy. Banks that are faced with high insolvency risk and liquidity risk tend to diversify while banks that are faced with low credit risk tend to diversify. Stable banks tend to adopt a diversification strategy even when they are exposed to credit risk. Network embeddedness drives diversification strategy. The implications of the study for practice, policy, and future research have been discussed.

Bank ownership type and temporal evolution of long‐term bank funding in the period 2005–2017

AbstractThis study uses a large panel dataset of Western European banks to examine the determinants of bank funding stability. Banks are divided into three categories by bank ownership type; the ownership types in this study are commercial banks, cooperative banks and savings banks. Three sources of stable bank funding are investigated: customer deposits, equity, and long‐term liabilities. Furthermore, the sum of these funding components is used as a proxy variable for a bank's total available stable funding (ASF). A special focus is on the temporal evolution of these funding types. The regression results show that commercial banks’ funding became much more stable in the period 2005–2017. However, that funding remains, on average, less stable than does cooperative and savings banks’ funding. In addition, funding stability has remained at the pre‐crisis level in cooperative and savings banks, despite a steep dip in cooperative banks’ ASF during the sovereign debt crisis. Furthermore, banks substantially decreased financing from long‐term liabilities after the financial crisis, replacing it with customer deposits and equity.

How Do Markets React to Tighter Bank Capital Requirements?

We use hikes in the countercyclical capital buffer [CCyB] to measure how tighter bank capital requirements affect their solvency and value, according to market participants. Two features of the CCyB in Europe allow for a unique identification strategy of the effect of such requirements. First, national authorities make quarterly announcements of CCyB rates. Second, these hikes affect all European banks proportionally to their exposure to the country of activation. We show that CCyB hikes translate in lower CDS spreads for affected banks, indicating that markets perceive higher solvency. On the other hand, bank valuations do not react. Markets therefore consider that higher capital requirements translate into more stable banks at no material cost for shareholders. We claim that these effects relate to the capital constraint itself, as opposed to the potential signal conveyed on the state of the financial cycle.

Do bankruptcy profiles of Islamic banks differ across organizational structure? evidence from Malaysia

Malaysian Islamic banks operate in different organizational structures, namely domestic, locally foreign incorporated, and development financial institutions which may have an influence on their stability. This research evaluates the bankruptcy profiles of 19 selected Malaysian Islamic banks from 2010 to 2017 and analyses the insolvency risk associated with the three different organizational structures. Using the Altman’s Z-Score Model (2000), a stability test was conducted. Finding s /Originality: the paper finds that, on average, the development financial institutions were the most stable banks, followed by foreign Islamic banks. It also finds that bigger domestic Islamic banks were situated in the safe zone as they had high Z-score values. Furthermore, asset quality ratio contributed to higher Z-score values. An appropriate asset-liability management therefore helps ensure the stability of Islamic banks in Malaysia. An effective macroprudential supervisory regime must also be in place to increase the resilience of the financial system.

The Study on Relationship between Economic Policy Uncertainty and Fluctuation of Bank Profitability

본 연구는 정부의 잦은 경제정책기조 변화로 인한 불확실성 증대가 은행 수익성 변동에 미치는 영향력을 실증적으로 분석했다. Baker, Bloom, Davis(2016)가 개발한 경제정책의 불확실성 지수(economic policy uncertainty index)를 도입하여, 해당 지수 변화율과 국내 은행권 수익성 지표의 변동간 관련성을 살펴보았다. 본 연구를 통해 확인한 주요 연구결과는 다음과 같다. 첫째, 정부의 경제정책 불확실성 증가는 은행 수익성 변동을 가져오는 것으로 나타났다. 즉, 총자산이익률과 위험가중자산대비 이익률 변동이 경제정책 불확실성 증가에 따라 증대되는 결과를 보였다. 이로써, 해당 연구결과는 Pasiouras, Kosmidou(2007), Jin, Kanagaretnam, Liu, Lobo(2019)의 결과와 부합하는 것으로 확인되었다. 둘째, 은행 수익성 변동에 영향을 미치는 은행 특성변수들은 자기자본비율, 순고정이하여신비율로서 높은 자본적정성, 여신건전성은 은행의 수익성 변동을 증가시켰다. 셋째, 시장이자율과 은행 이익 변동간에는 부(-)의 관련성이 존재하였다. 결론적으로 정부의 일관된 경제정책 기조는 은행의 수익성 안정화에 도움이 될 것이다. 또한, 자본적정성과 여신건전성 강화도 은행의 이익 안정성에 도움이 될 수 있다는 판단이다.This study examines empirically on the effect of increase of uncertainty attributed to frequent change of economic policy trend on fluctuation of bank profitability. Adopting the index of economic policy uncertainty developed by Baker, Bloom, Davis (2016), this study confirms the relationship between the change rate of the index and Korean banks’ fluctuation of profitability indicator. Through the test, main results are as follows. First, the increase of uncertainty of economic policy leads to expanding fluctuation of bank profitability. Thus, return on asset and return on risk weighted asset tend to increase depending on the increase of economic policy uncertainty. This evidence is line with the results of Pasiouras, Kosmidou (2007) and Jin, Kanagaretnam, Liu, Lobo (2019). Second, the bank characteristics associated with fluctuation of bank profitability are capital ratio and net non performing loan ratio, and high capital adequacy and loan soundness result in reducing fluctuation of bank profitability. Third, the relationship between market interest rate and fluctuation of bank profitability is negative. Finally, consistent economic policy can lead to stability of profitability in bank, and enhancing capital adequacy and loan soundness is helpful in maintaining stable bank profit.

Fair premium rate of the deposit insurance system based on banks’ creditworthiness

PurposeDeposit insurance is a key element in modern banking, as it guarantees the financial safety of deposits at depository financial institutions. It is necessary to have at least a dual fair premium rate system based on creditworthiness of financial institutions, as considering singular premium system for all banks will have moral hazard. This paper aims to develop theoretical and empirical model for calculating dual fair premium rates.Design/methodology/approachThe definition of a fair premium rate in this paper is a rate that covers the operational expenditures of the deposit insuring organization, provides it with sufficient funds to enable it to pay a certain percentage share of deposit amounts to depositors in case of bank default and provides it with sufficient funds as precautionary reserves. To identify and classify healthier and more stable banks, the authors use credit rating methods that use two major dimensional reduction techniques. For forecasting nonperforming loans (NPLs), the authors develop a model that can capture both macro shocks and idiosyncratic shocks to financial institutions in a vector error correction model.FindingsThe response of NPLs/loans to macro shocks and idiosyncratic innovations shows that using a model with macro variables only is insufficient, as it is possible that under favorable economic conditions, some banks show negative performance due to bank level reasons such as mismanagement or vice versa. The final results show that deposit insurance premium rate needs to be vary based on banks’ creditworthiness.Originality/valueThe results provide interesting insight for financial authorities to set fair deposit insurance premium rate. A high premium rate reduces the capital adequacy of individual financial institutions, which endangers the stability of the financial system; a low premium rate will reduce the security of the financial system.

Credit Cycles, Securitization, and Credit Default Swaps

We present a limits-to-arbitrage model to study the impact of securitization, leverage and credit risk protection on the cyclicity of bank credit. In a stable bank credit situation, no cycles of credit expansion or contraction appear. Unlevered securitization together with mis-pricing of securitized assets increases lending cyclicality, favoring credit booms and busts. Leverage changes the state of affairs with respect to the simple securitization. First, the volume of real activity and banking profits increases. Second, banks sell securities when markets decline. This selling puts further pressure on falling prices. The mis-pricing of credit risk protection or securitized assets influences the real economy. Trading in these contracts reduces the amount of funding available to entrepreneurs, particularly to high-credit-risk borrowers. This trading decreases the liquidity of the securitized assets, and especially those based on investments with high credit risk.

Pengaruh Faktor Internal dan Eksternal Terhadap Tingkat Kesehatan Bank

This search has a purpose to provide emperical evidence about factors that affect health of banks. The examine factors internal on this research are CAMELS and the examine factor external on this research is Gross Domestic Product (GDP). The sample consist of 29 banks.Object of this study is the commercial banks operating in Indonesia in 2012-2015. Determination of sampling technique using purposive sampling method in which the sample is taken with certain criteria. Because the data is used are secondary datawith a quantitative approach, it is necessary to determine the accuracy of the model on some assumption of hypothesis testing using Stata tools. The result showed a partial variable NPL and IER are significant effect on the level of health. While variable CAR, NPM, ROA, LDR, and GDP insignificant effect of the health of the bank. During the period 2012-2015 there were more than 50% showed a stable bank or banks that are in the tittle of “Fit”. Although they are some banks that have increased and decreased to earn the tittle of “unhealthy” for 4 periods.

Plant Community Influences on Intermittent Stream Stability in the Great Plains

The composition of the greenline plant community is linked to the stability of riparian ecosystems. Cool season exotic grasses are invading native plant communities across the northern Great Plains, potentially compromising streambank stability and increasing the risk of erosion within riparian ecosystems. To determine how the species composition of the greenline community impacts stream type and the risk of streambank erosion, thirty five reaches across five watersheds were sampled to determine the dominant greenline vegetation. At each reach, a cross-section was sampled to determine stream type, greenline vegetation, and risk of streambank erosion. Channel types were delineated using Rosgen’s classification of natural rivers. Canopy cover and composition was assessed using the line point intercept method along a 30.5 m transect in the greenline community. Plants recorded were grouped by their wetland indicator status for the central Great Plains. The Bank Erosion Hazard Index (BEHI) was used to assess the streams risk of erosion by calculating the difference between the bank height and bank full height, average plant rooting depth and density, bank angle degree, and the dominant texture of the bank material. Bank height ratio (BHR) was assessed as a measure of streambank stability and floodplain connectivity. A Nonmetric Multidimensional Scaling ordination was performed to analyze plant community influences. Analysis of the data determined that the most stable stream types (E and C channels), lower BEHI scores, and stable bank height ratios were associated with high amounts of litter and facultative wet species. In comparison, unstable F channels were associated with early successional species and bare ground. Sites with the higher BEHI scores were associated with greenlines comprised of upland and facultative upland and saline tolerant species. Late successional facultative wetland species were found to provide the most protection to intermittent streambanks.

Audit Committee and Banking System Stability: A Conceptual Framework

The functioning of board committees in Nigerian banks has generated interests in recent times. Concerns have been raised on the effectiveness of these committees especially their roles in the promotion of stable banks. One of the committees which attracted both research and regulatory interests is the audit. The efficiency of audit committees in the Nigerian banking system has been questioned. This is a proposed framework aimed at studying the roles of audit committees in the Nigerian banking system especially the impact on bank stability. The framework is focused on the attributes of the committee which include the frequency of meetings, expertise, independence and the size. The study proposed that these attributes could influence the stability of the banking system. The key attributes of the audit committee and how they impact bank stability have been reviewed. It is shown in the review that the audit committee is a vital element in bank stability which demands that more attention should be paid to the behaviour of its characteristics in ensuring bank soundness. The outcome of the research is expected to impact policy formulation on the functioning of the audit committee and equally have implications on bank risk governance structure. It would also be relevant to other researchers undertaking studies relating to board committee functioning in banks, risk governance and bank stability. This study is unique in that previous studies on audit committee did not focus on its roles in banking system stability.

Coordinated Effects in Monetary Policy

Monetary policy affects the cost of capital, and thereby conditions for collusion in loan markets - which in turn influence the transmission of policy rates. Stronger countercyclical interest rate policy responses increase the scope for bank cartels on loan markets by decreasing the critical discount factor. At the same time, they affect the actual discount factor by (partial) pass-through of the marginal cost of banking in loan market rates. When down-turns occur sufficiently often, the combined effect is to increase the space for stable bank cartels. Monetary policy can instead constrain collusion in money markets if crises are infrequent, so that it increases the expected cost of capital. With a short-run policy rate decrease in down-turns that in size relative to the increase in up-turns is inversely related to the frequency of crises occurring, central banks can neutralize their policy's stimulus to bank cartels. Overshooting the mark in crises leaves countercyclical monetary policy conducive to collusion.

Impact of flow variability and sediment characteristics on channel width evolution in laboratory streams

ABSTRACTAlluvial rivers are shaped by sequences of water flows excavating their channels. Observations show that besides the magnitude, the frequency and duration of streamflow oscillations might also be important for the river channel formation. In addition, the river morphology appears influenced by both size and degree of uniformity of the sediment. Nevertheless, many morphodynamic studies still represent the flow regime with a single value of the discharge, often corresponding to the bankfull condition, and the sediment with its median grain size. This work investigates the effects of streamflow variability and sediment characteristics on channel width formation, analysing the evolution of experimental streams with different sediments and discharge hydrographs. Results show that the formative condition of the channel width is not the geometric bankfull flow but a rather frequent peak flow. Remarkably different channel configurations arise from different sediment characteristics in the laboratory, where sediment non-uniformity produces more stable banks.