Essays In Bank Competition And Lending Behavior

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Essays in Bank Competition and Lending Behavior

Author : Genuine Martin
Publisher :
ISBN 13 : 9780355628401
Total Pages : 130 pages
Book Rating : 4.6/5 (284 download)

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Book Synopsis Essays in Bank Competition and Lending Behavior by : Genuine Martin

Download or read book Essays in Bank Competition and Lending Behavior written by Genuine Martin and published by . This book was released on 2017 with total page 130 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation assesses the competitiveness of Tanzania's banking sector using both structural and non-structural (industrial organization) approaches, assesses the predictors of banks' lending behavior, and investigates the bank lending channel of monetary policy transmission process. The first and the second essays utilize bank-level panel data of commercial banks whereas the third employs aggregate time series data. My work contributes to understanding the underlying factors and processes which explain the nature of competition in the banking sector and the conduct of monetary policy in Tanzania. In the first essay, I use the dynamic regression model to test the hypotheses that the market power of banks in Tanzania leads to higher bank profits, by including the lag of the dependent variable among regressors to test the tendency of profits to persist over time, using the market share of banks to test the relative-market-power (RMP) hypothesis, and using concentration ratios to test the structure-conduct-performance (SCP) hypothesis. Using data drawn from twenty-six commercial banks during the 1998-2015 period, I establish from the results that the lag of the dependent variable, market share of banks, and industry concentration ratios (HHIs) have a positive and statistically significant effect on bank profit. These results support moderate persistence of bank profits over time, RMP and SCP hypotheses, as potential explanations of high bank profits. In the second essay, I also use the dynamic regression model to assess potential predictors of commercial banks' lending behavior and the bank lending channel of monetary policy transmission process. Using quarterly panel data for thirty-one commercial banks for the 1998-2015 period, I establish from the results that bank lending persists significantly over time, hence suggesting that some degree of relationship banking and lock-in-effect for lenders and borrowers exists. Although bank size and capital, and inflation rate are associated with higher bank lending, credit risk, private and foreign bank ownership, market power of banks, and the square of inflation rate, have a negative effect on lending. Results for the bank lending channel show that contractionary monetary policy (higher monetary policy indicators) is associated with higher bank lending, and this positive effect of contractionary monetary policy on bank lending is more pronounced in samples of all the banks and medium-sized banks that are more capitalized, in a sample of large banks with more liquidity and capital but with less assets, and in a sample of small banks with less size and capital. By drawing on a country-specific case of Tanzania, this essay is illuminating because results of studies of this nature differ across countries and regions, depending on the structure of the economy, financial sector development, institutional and regulatory environment. In Amidu (2014), determinants of bank lending are different across economic integrations (Economic Community of West African States [ECOWAS], the East African Community [EAC] and the Southern Africa Development Community [SADC]. In the third essay, I use the dynamic regression model (autoregressive process of order one), which empirically applies the theoretical seminal work of Panzar and Rosse (1987) to estimate an index of banking sector contestability, the H statistic, which is the sum of factor price elasticities of the reduced form revenue equation. Using time series data for the 1998-2015 period, the estimated H statistic of 0.57, characterizes Tanzania's banking sector as monopolistic competitive, in which high industry concentration co-exists with considerable contestable pressure. Bank revenues persist moderately over time, whereby interest revenue generation is a key bank activity. Furthermore, the aftermath of the 2006 second-generation financial sector reforms is associated with improved banking industry competitiveness, based on the moving average estimates of the H statistics, and is associated with changes in the banks' production functions, whereby banks substitute less funds (deposits) and physical capital, with more labor. These results are consistent with the dramatic decline in the interest rate spread and an increase in the proportion of labor costs.

Bank Competition, Risk Taking, and their Consequences: Evidence from the U.S. Mortgage and Labor Markets

Author : Alan Xiaochen Feng
Publisher : International Monetary Fund
ISBN 13 : 1484364023
Total Pages : 46 pages
Book Rating : 4.4/5 (843 download)

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Book Synopsis Bank Competition, Risk Taking, and their Consequences: Evidence from the U.S. Mortgage and Labor Markets by : Alan Xiaochen Feng

Download or read book Bank Competition, Risk Taking, and their Consequences: Evidence from the U.S. Mortgage and Labor Markets written by Alan Xiaochen Feng and published by International Monetary Fund. This book was released on 2018-07-06 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: Bank competition can induce excessive risk taking due to risk shifting. This paper tests this hypothesis using micro-level U.S. mortgage data by exploiting the exogenous variation in local house price volatility. The paper finds that, in response to high expected house price volatility, banks in U.S. counties with a competitive mortgage market lowered lending standards by twice as much as those with concentrated markets between 2000 and 2005. Such risk taking pattern was associated with real economic outcomes during the financial crisis, including higher unemployment rates in local real sectors.

THE BANK LENDING CHANNEL

Author : Elisheva Stern
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (134 download)

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Book Synopsis THE BANK LENDING CHANNEL by : Elisheva Stern

Download or read book THE BANK LENDING CHANNEL written by Elisheva Stern and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation includes three chapters discussing the importance of bank heterogeneity in monetary policy implementation using tools such as changes in the interest on reserve and the discount window on bank lending. The first two chapters focus on the implications of differences in government regulation, while the third chapter focuses on market competition. The first chapter assesses the effects of a policy reform changing the relative return of holding reserves on the reserves held by U.S. branches of foreign banks compared to conventional domestic banks, using difference-in-differences regression analysis. The second chapter studies the implications of dispersion in the relative return of holding reserves using a liquidity mismatch banking model with different sectors that can trade reserves in an over-the-counter market for federal funds. The model is used to study the effects of changes to regulation, policy rates, and other market conditions on the distribution of reserves across sectors and the federal funds rate. The third chapter documents changes in competition in the loan and deposit market over the last two decades and considers the implications for monetary policy tools using regression analysis compared to simulations of a Dynamic Stochastic General Equilibrium model.Chapter 1, titled DEPOSIT INSURANCE AND PORTFOLIO DESIGN OF BANKS, reviews the distinct response of U.S. branches of foreign banks to the monetary policy of interest on reserve balances following a policy reform in 2011. The Federal Deposit Insurance Corporation (FDIC) reform changed the relative return of holding reserves for U.S. branches of foreign banks (foreign banks for short) compared to conventional domestic banks (domestic banks for short). The data show higher excess reserves held by foreign banks following this policy change. A fixed-effects model is used to measure the effect of a change in the FDIC policy on excess reserves held by each sector. A difference-in-difference comparison suggests a difference of 0.16 in reserves to assets of domestic banks compared to foreign banks following the policy change and a more considerable gap of around 0.25 for banks with average assets holdings in the top 15 percentile. Furthermore, the event study confirms that these larger banks widely capture the impact of policy. The next chapter, Chapter 2, titled BANK PORTFOLIO CHOICE AND MONETARY POLICY TRANSMISSION IN THE FACE OF A NEW FEDERAL FUNDS MARKET, studies the implications of differences in regulation of banks for monetary policy. The chapter presents an equilibrium model in the framework of Bianchi and Bigio (2022) to include two types of bank branches instead of one; domestic banks must hold deposit insurance, while U.S. branches of foreign banks cannot. Deposit insurance allows for a more stable funding source but attaches a higher balance-sheet cost. Calibration finds consistent predictions that explain the higher excess reserves and the sequential credit supply of foreign branches. Moreover, findings suggest that foreign branches are more responsive to monetary policy tools, such as interest on reserves, because their funding source is associated with higher volatility in deposit withdrawals. The monetary policy of changes to the corridor rates in the model is the same across all banks. Still, because U.S. branches of foreign banks face different tradeoffs than U.S domestic banks, monetary policy affects each sector differently. Chapter 3, titled CHANNELS OF MONETARY POLICY WITH IMPERFECT COMPETITION IN THE BANKING SECTOR, uses a relatively new measure of market power proposed by Boone (2008) to estimate the implications of market power on the pass-through of monetary policy for two monetary policy channels. The lending channel and the deposits channel. Data suggest that market power is high in the deposit market and somewhat high in the loan market, with an incline in competition in both sectors in the last two decades preceding 2001. The paper evaluates monetary policy pass-through to deposit and lending rates given the competition across banks using a Dynamic Stochastic General Equilibrium (DSGE) model with sticky prices. The central assumption of the model is that the pass-through depends on competition across banks. It includes banks with imperfectly competitive markups for loans to firms, markdowns of deposit rates to consumers, and a monetary policy authority that can either change the federal funds rate or the spread between the federal funds rate and the rate paid on excess reserves. The model estimations align with the empirical evidence suggesting banks will compensate on loan spreads to avoid the contraction in lending caused by higher policy rates, while deposits will fluctuate less, and therefore spreads may increase when market rates increase.

Essays on Banking and Financial Markets

Author : Björn Hilberg
Publisher :
ISBN 13 : 9783832533625
Total Pages : 0 pages
Book Rating : 4.5/5 (336 download)

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Book Synopsis Essays on Banking and Financial Markets by : Björn Hilberg

Download or read book Essays on Banking and Financial Markets written by Björn Hilberg and published by . This book was released on 2013 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this thesis the behavior of banks in financial markets which banks frequently use to obtain short-term as well as long-term financing is studied. In the first chapter we incorporate an interbank market for collateralized lending among banks into a dynamic, stochastic, general equilibrium (DSGE) framework to analyze the impact of variations in the expected value of the collateral on the interbank lending volume. We find that a central bank which decides to lower the haircut on eligible collateral in repurchase agreements is able to stimulate interbank markets. In the second chapter a microeconomic model of bank behavior on the interbank market is set up to analyze the impact of risk-taking behavior of interbank borrowing banks and uncertainty about their balance sheet quality on the lending behavior of interbank lending banks. It is found that the disruptions on the interbank market are the result of optimal behavior on the part of interbank lending banks in response to the uncertainty about the balance sheet quality of an interbank borrowing bank. In the third chapter we use monthly data on German bank bond spreads and regress it on bank-specific risk factors to assess the degree of market discipline in the German bank bond market. The regression results for the whole German bank bond market indicate that the bond spread does not show signs of market discipline. However, a structural break analysis uncovers that since the beginning of the financial crisis the German bank bond market exhibits at least a weak form of market discipline for bonds issued by medium-size and large banks.

Banking and Monetary Studies

Author : Deane Carson
Publisher : Homewood, Ill. : R.D. Irwin
ISBN 13 :
Total Pages : 464 pages
Book Rating : 4.F/5 ( download)

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Book Synopsis Banking and Monetary Studies by : Deane Carson

Download or read book Banking and Monetary Studies written by Deane Carson and published by Homewood, Ill. : R.D. Irwin. This book was released on 1963 with total page 464 pages. Available in PDF, EPUB and Kindle. Book excerpt: The collection of essays, written by 25 professional economists, deals with history, theory, policy and contemporary problems of US monetary and banking institutions.

Essays on Competition and Entry

Author : Lionel Kalish
Publisher :
ISBN 13 :
Total Pages : 178 pages
Book Rating : 4.:/5 (46 download)

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Book Synopsis Essays on Competition and Entry by : Lionel Kalish

Download or read book Essays on Competition and Entry written by Lionel Kalish and published by . This book was released on 1977 with total page 178 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Competition Policy for Modern Banks

Author : Mr.Lev Ratnovski
Publisher : International Monetary Fund
ISBN 13 : 1484366174
Total Pages : 20 pages
Book Rating : 4.4/5 (843 download)

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Book Synopsis Competition Policy for Modern Banks by : Mr.Lev Ratnovski

Download or read book Competition Policy for Modern Banks written by Mr.Lev Ratnovski and published by International Monetary Fund. This book was released on 2013-05-23 with total page 20 pages. Available in PDF, EPUB and Kindle. Book excerpt: Traditional bank competition policy seeks to balance efficiency with incentives to take risk. The main tools are rules guiding entry/exit and consolidation of banks. This paper seeks to refine this view in light of recent changes to financial services provision. Modern banking is largely market-based and contestable. Consequently, banks in advanced economies today have structurally low charter values and high incentives to take risk. In such an environment, traditional policies that seek to affect the degree of competition by focusing on market structure (i.e. concentration) may have limited effect. We argue that bank competition policy should be reoriented to deal with the too-big-to-fail (TBTF) problem. It should also focus on the permissible scope of activities rather than on market structure of banks. And following a crisis, competition policy should facilitate resolution by temporarily allowing higher concentration and government control of banks.

Banking Competition, Risk, and Regulation

Author : Alexander F. Tieman
Publisher : INTERNATIONAL MONETARY FUND
ISBN 13 : 9781451842814
Total Pages : 0 pages
Book Rating : 4.8/5 (428 download)

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Book Synopsis Banking Competition, Risk, and Regulation by : Alexander F. Tieman

Download or read book Banking Competition, Risk, and Regulation written by Alexander F. Tieman and published by INTERNATIONAL MONETARY FUND. This book was released on 2004-01-01 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In a dynamic theoretical framework, commercial banks compete for customers by setting acceptance criteria for granting loans, taking regulatory requirements into account. By easing its acceptance criteria a bank faces a trade-off between attracting more demand for loans, thus making higher per period profits, and a deterioration of the quality of its loan portfolio, thus tolerating a higher risk of failure. Our main results state that more stringent capital adequacy requirements lead banks to set stricter acceptance criteria, and that increased competition in the banking industry leads to riskier bank behavior. In an extension of our basic model, we show that it may be beneficial for a bank to hold more equity than prescribed by the regulator, even though holding equity is more expensive than attracting deposits.

Three Essays on International Banking

Author : Rong Ma
Publisher :
ISBN 13 :
Total Pages : 198 pages
Book Rating : 4.:/5 (794 download)

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Book Synopsis Three Essays on International Banking by : Rong Ma

Download or read book Three Essays on International Banking written by Rong Ma and published by . This book was released on 2012 with total page 198 pages. Available in PDF, EPUB and Kindle. Book excerpt: Without question, global financial integration has accelerated in the last two decades. This acceleration is due, in part, to the opening of developing countries' financial markets to foreign banks, prompting many changes to financial systems in developing countries. This dissertation consists of three essays focusing on the impacts and the determinants of international banks' participation in the financial markets of developing countries. The first essay investigates whether banks with foreign owners are more willing to provide loans in the host country possibly contributing toward greater financial stability for that county. Specifically, I test whether foreign banks' lending behavior is different from domestic banks' behavior. Using a panel dataset with 1,643 commercial banks in 35 Asian and Latin American countries from 2000 to 2008, estimation reveals that foreign banks have not been more generous with respect to extending loans relative to domestic banks. Additionally, when grouping foreign banks by their geographic origins, a home region preference is found. International banks appear more likely to extend loans in markets located in their geographic region relative to markets in other areas of the globe. The second essay questions whether foreign ownership positively impacts bank performance. In addition I seek to understand which host characteristics affect bank performance. Bank-level data for 1600 commercial banks from 2000 through 2008 are used in estimation. Results suggest host countries' characteristics do affect the relative performance of foreign banks. While foreign ownership does not positively impact bank performance, foreign banks tend to outperform domestic banks in countries that are relatively closed and less competitive. Also, foreign banks do perform differently depending on their geographic origin. The third essay examines the impact of host characteristics and economic linkages on foreign bank entry into 30 Asian and Latin American countries. Of particular note is whether international migration from the bank host country to bank origin country influences foreign bank entry due to the networks it promotes. Using panel Tobit estimation, this study finds that international migration from developing to industrialized economies significantly promotes foreign bank presence in developing nations.

Essays on Financial Stability and the Industrial Organization of the Banking System

Author : Jiahong Gao
Publisher :
ISBN 13 :
Total Pages : 209 pages
Book Rating : 4.:/5 (131 download)

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Book Synopsis Essays on Financial Stability and the Industrial Organization of the Banking System by : Jiahong Gao

Download or read book Essays on Financial Stability and the Industrial Organization of the Banking System written by Jiahong Gao and published by . This book was released on 2020 with total page 209 pages. Available in PDF, EPUB and Kindle. Book excerpt: The focus of my dissertation is to study how the industrial organization of the banking sector affects the risk-taking behavior of financial intermediaries and the degree of instability within the banking system. In the first chapter, I ask whether the notion that market concentration promotes stability survives when the government intervention during a crisis is properly taken into account. To this end, I study suspension policies in an environment without commitment, following Ennis and Keister (2009). When the BA only values the welfare of depositors, the degree of fragility is independent of the competitive structure of the banking system. However, having a BA that puts some weight on the monopolist's welfare can serve as a commitment device in suspending payments earlier to protect bank profits, which reduces fragility under a monopoly. The second chapter investigates how the industrial organization of the banking sector may be associated with different triggers for the system to be unstable. In particular, my analysis is based on a modern version of the Diamond and Dybvig (1983) framework in which a self-fulfilling run occurs at a non-trivial probability and banks lack commitment in determining the structure of liabilities as in Ennis and Keister (2010). I find that the possibility that the monopolistic bank may lose its rents in times of stress encourages it to be relatively illiquid. As a result, a monopoly is more stable (fragile) than perfect competition if the ex-ante probability of a financial crisis is below (above) some threshold. The last chapter examines the effects of bank failures and market concentration on credit market activity across United States. In particular, I employ a recent 17-year panel of all FDIC-insured commercial banks over the period 1994Q3 to 2010Q4 and construct state-specific measures of bank failures and deposit concentration. Using a seemingly unrelated regressions (SUR) model, I find that over the full sample, banks issued less loans if the likelihood of a bank failure in a given state increased. Further, banks in states with higher degrees of concentration also issued less loans. Interestingly, there appears evidence that market concentration serves as a buffer against instability.

Bank Competition and Corporate Finances

Author : Chongyang Chen
Publisher :
ISBN 13 :
Total Pages : 152 pages
Book Rating : 4.:/5 (969 download)

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Book Synopsis Bank Competition and Corporate Finances by : Chongyang Chen

Download or read book Bank Competition and Corporate Finances written by Chongyang Chen and published by . This book was released on 2014 with total page 152 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of two essays which investigate how bank competition affects firms' financial policy and bank contracts. In the first essay I investigate how an increase in bank competition, and thereby an expansion in the supply of bank credit, influences affected firms' cash holdings, their use of trade credit, short-term debt, and long-term debt. I find that bank competition leads to a reduction in affected firms' use of trade credit, short-term debt and cash holdings, and an increase in their use of long-term debt. Moreover, some of these effects are more pronounced for financially constrained firms. Consequently the evidence highlights the influence of bank competition on corporate financial policies, particularly for financially constrained firms. In the second essay I investigate the relation between bank competition and corporate loan contracts using an instrumental variables approach following the passage of interstate banking deregulation law in 1994. I find that loan size, number of covenants, and covenant slack increase with bank competition. However, although the number of covenants increases, loan size also decreases for financially constrained firms. The results highlight the influence of bank competition on corporate debt covenants and underscore the differential impacts of bank competition on financially-constrained versus non-constrained firms.

Essays in Financial Crisis and Capital Regulations

Author : Yi Liu
Publisher :
ISBN 13 : 9780355307955
Total Pages : 105 pages
Book Rating : 4.3/5 (79 download)

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Book Synopsis Essays in Financial Crisis and Capital Regulations by : Yi Liu

Download or read book Essays in Financial Crisis and Capital Regulations written by Yi Liu and published by . This book was released on 2017 with total page 105 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation studies the US housing market, banks' behavior under regulations and effects of bank capital constraint on the monetary transmission mechanism. It revolves around understanding the determination of the capital regulations on banks' optimal behavior, as well as quantifying the impact of these regulations on the effectiveness of the monetary policy.The first chapter, "The Impact of Local School Quality on Housing Price Volatility", studies the effects of local school quality on housing-price booms and busts under the impact of exogenous credit-supply shocks, using school-district-level data in California between 2000 and 2012. The analysis shows that school quality, as an important amenity and utility dividend, reduces the impact of the exogenous shocks and anchors local housing values. The empirical work verifies that better schools make housing prices less volatile. The findings match the analysis of previous research in financial markets, in which there is a similarly negative association between share prices volatility and dividend yields.The second chapter, "How Do the Minimum Capital Requirements Affect Banking Competition and Profitability?", examines the effect of the Minimum Capital Requirements (MCR) on banks' competition and profitability. The theoretical model shows that, in competitive market, banks trade off the costs and benefits of capital to maximize their profits. The MCR are thus likely to be an important factor on the bank's optimal choice and the target ratios increase with the MCR and decrease with banks' size. This paper also adopts the Industrial Organization (IO) approach to analyze the competitive effects of MCR on the oligopolistic market. Banks may collude to hold even higher capital ratios in the oligopolistic market since the capacity constraints caused by MCR reduce the competition. Using a sample of US banks from 2002 to 2015, the empirical works reveals that the relation between capital and profitability is nonlinear; it is depicted an inverted U shape.The third chapter, "The Effects of Capital Constraints on the Transmission of Monetary Policy: Fama-MacBeth Test", analyzes the effects of bank capital constraint on the monetary transmission mechanism. The model demonstrates that the monetary transmission is stronger (loan supplies are more sensitive to changes in the monetary policy) if banks are well capitalized. The empirical Fama-MacBeth 2-step test reaffirms that (1) changes in monetary policy matter more for the lending of those banks with higher capital ratios; (2) The capital constraints are intensified during the period of tight money. Both effects are largely attributable to the smaller banks.

Market Structure, Screening Activity, and Bank Lending Behavior

Author : Nikolaos I. Papanikolaou
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (137 download)

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Book Synopsis Market Structure, Screening Activity, and Bank Lending Behavior by : Nikolaos I. Papanikolaou

Download or read book Market Structure, Screening Activity, and Bank Lending Behavior written by Nikolaos I. Papanikolaou and published by . This book was released on 2013 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we construct a spatial model of banking competition that considers the differential information among banks and potential borrowers to investigate how the market structure affects the lending behavior of banks and their incentives to invest in screening technology. Consistent with the prevailing view, our results show that a larger number of banks reduce lending cost, which, in turn, encourages the entry of new customers in the loan market. Also, that market structure has an important impact on banks' incentives to screen loan applicants. In particular, we find that banks invest more in screening as a result of higher competition. This is largely explained by the fact that the number of bad credit applicants increases due to intensified competition. Consequently, banks resort to screening in order to efficiently protect themselves against excessive credit risk-taking. Overall, the paper provides support to a rather close relationship between the industry structure, the lending activity of banks, and bank investment in screening technology.

Essays on Banking and Credit

Author : Kejia Wu
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (14 download)

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Book Synopsis Essays on Banking and Credit by : Kejia Wu

Download or read book Essays on Banking and Credit written by Kejia Wu and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In a broader sense, this thesis aims to contribute to understanding the credit market regarding the roles of consumers, institutions, and regulators. It is divided into three chapters. The first chapter (jointly with Dr. Kostantinos Serfes, Dr. Panos Avramidis, and Dr. George Pennacchi) analyzes how regulation that promotes greater access to bank credit, such as the Community Reinvestment Act (CRA), impacts the financing of small firms. It finds that when areas become CRA-eligible, the likelihood of bank lending to local small firms increases and firms reduce late trade credit payments, consistent with loans allowing small firms to pay trade credit more promptly and avoid late payment fees. The effect is more profound in low- and moderate-income areas where financial constraints are tighter due to low bank competition. The effect is also larger for small firms that operate in trade credit-dependent industries. The second chapter (jointly with Dr. Kostantinos Serfes and Dr. Panos Avramidis) addresses the question of whether the recent proliferation of technology in the lending process has an impact on business loan market competition. Using a theoretical model that assumes heterogeneity in lenders' screening ability and borrowers' investment horizon, we show that FinTech (traditional) lenders primarily supply unsecured (asset-backed) loans to borrowers with short-term (long-term) projects. The model builds on the interplay between screening ability and collateral requirements to characterize the competition between two ex-ante symmetric lenders. Lenders use screening technology and collateral requirements to mitigate competition and restrict the supply of credit through an endogenous segmentation of markets with different maturities. As information technology improves, the effect on credit supply and equilibrium interest rates is more nuanced and depends on the maturity of the market. The results offer a supply-side explanation for the growth of unsecured lending. The final chapter aims to understand how the credit terms of auto loan contracts affect new car transac- tions. Using a national sample of new car transactions in the United States, I estimate a random coefficient discrete choice model that explicitly incorporates credit terms such as interest rate and maturity to drive consumer preference for the combined car and car loan product in addition to traditional car characteristics. Including credit terms significantly increases estimated price elasticity, indicating that credit terms have a large effect on consumers' price sensitivity for the car. Moreover, buyers of the less premium car models are more likely to substitute across car models and maturity segments than across car models. Lastly, although U.S. auto dealerships have the discretion to mark up auto loans like cars, the result of the firm conduct test does not reject separate pricing or joint pricing of cars and car loans by auto sellers.

Banking Competition, Risk, and Regulation

Author : Wilko Bolt
Publisher :
ISBN 13 :
Total Pages : 26 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Banking Competition, Risk, and Regulation by : Wilko Bolt

Download or read book Banking Competition, Risk, and Regulation written by Wilko Bolt and published by . This book was released on 2011 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: In a dynamic theoretical framework, commercial banks compete for customers by setting acceptance criteria for granting loans, taking regulatory requirements into account. By easing its acceptance criteria a bank faces a trade-off between attracting more demand for loans, thus making higher per period profits, and a deterioration of the quality of its loan portfolio, thus tolerating a higher risk of failure. Our main results state that more stringent capital adequacy requirements lead banks to set stricter acceptance criteria, and that increased competition in the banking industry leads to riskier bank behavior. In an extension of our basic model, we show that it may be beneficial for a bank to hold more equity than prescribed by the regulator, even though holding equity is more expensive than attracting deposits.

Essays on Spatial Competition and Collusion in the Bank Deposit Market

Author : Yoon Hae Oh
Publisher :
ISBN 13 :
Total Pages : 102 pages
Book Rating : 4.:/5 (815 download)

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Book Synopsis Essays on Spatial Competition and Collusion in the Bank Deposit Market by : Yoon Hae Oh

Download or read book Essays on Spatial Competition and Collusion in the Bank Deposit Market written by Yoon Hae Oh and published by . This book was released on 2012 with total page 102 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: The market structure in the U.S. banking industry has continuously changed with several events such as the removal of regulation, appearance of multi-state bank, entry of newly chartered banks, and various branching activities of banks. This dissertation examines how the changes in the market structure alter the spatial competition and collusion amongst banks in setting deposit interest rates. The first essay investigates the impact of the deregulation of branching activities on the degree of tacit collusion among the local banks. The empirical framework adapts a theoretical model of oligopolistic spatial competition in the bank deposit market proposed by Barros (1999). In this model, the degree of cooperation among local competing banks is represented by the spatial interdependency in deposit pricing. The essay proposes a general framework for identifying differences in collusive behavior between markets using a higher order spatial autoregressive model. With this approach, the regression results show that when states allow intrastate branching only by means of mergers, the collusive behavior of local banks rises significantly. Meanwhile, after the deregulation allowing full statewide branching and after the passage of the Riegle-Neal Interstate Banking and Branch Efficiency Act in 1994, the collusive behavior diminishes in the short run but returns to its previous level in the long-run. The second essay focuses on the two main events as a consequence of the Riegle-Neal Act: the appearance of large multi-state banks and the entry of newly chartered banks. The paper examines the response of small incumbent banks to these events. Specific samples from 1996 to 2004 were selected as such events occurred actively in this period. The empirical framework is similar to that used in the first essay. The appearance of large multi-state firms has negative effect on local bank's collusion behavior, both in the short-run and long-run. Similarly, the entry of newly chartered banks has competitive effect. The incumbent banks react competitively rather than cooperatively on the entry of a new bank. The third essay examines small banks' response in deposit interest rates and service fees on deposit accounts to the branching activities of other banks. The existing literature has faced difficulties in predicting how mergers and branching activity by large multi-market banks impact the deposit prices of competing banks. In this study, small banks' deposit interest rates and service fees in U.S. metropolitan areas from 2004 to 2006 are examined using an unbalanced panel regression analysis. Banks respond to competitors' branching activities differently according to the types of merger and the types of rival banks. The regression results show that a branch opening by an acquiring multi-market bank after a merger has negative impact on the deposit interest rates of neighboring single-market banks. Single-market banks set higher deposit rates after a merger between other single market banks.

Essays on Macroeconomics and Banking

Author : Joshua James Bosshardt
Publisher :
ISBN 13 :
Total Pages : 184 pages
Book Rating : 4.:/5 (133 download)

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Book Synopsis Essays on Macroeconomics and Banking by : Joshua James Bosshardt

Download or read book Essays on Macroeconomics and Banking written by Joshua James Bosshardt and published by . This book was released on 2021 with total page 184 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis contains three papers related to measures for improving the stability of the banking system, including regulations and public ownership. The first chapter shows using a difference-in-differences strategy that the introduction of the U.S. bank stress tests led small businesses to concentrate their debt within a smaller number of banks. I explain this using a model of bank competition in which creditworthy but informationally opaque firms have an incentive to establish a small number of concentrated lending relationships to facilitate information acquisition by their lenders. Tightening credit standards reduces the rate of non-performing loans, but it also decreases the availability of credit. In response, firms strengthen their lending relationships by concentrating in a smaller number of lenders. When the model is calibrated to match the empirical estimates, tightening credit standards has zero net effect on efficiency, but it shifts the surplus from firms to banks because firms have fewer informed lenders with which to bargain over prices. The second chapter, joint with Ali Kakhbod, illustrates channels by which regulations that require banks to hold liquid assets can either increase or decrease a bank's incentive to take risk with its remaining ineligible assets. A greater capacity to respond to liquidity stress increases the potential profits a bank would put at stake by making risky investments, but it also mitigates the illiquidity disadvantages of holding risky assets. We do not find evidence that the reserve requirement or the liquidity coverage ratio significantly affected measures of risk-taking such as non-performing loan ratios or credit default swap spreads. The third chapter, joint with Eugenio Cerutti, shows that state-owned or public banks lent relatively more than domestic private banks during the Global Financial Crisis (GFC). Using a novel bank-level dataset covering 25 emerging market economies, we provide evidence that this was because they pursued an objective of helping to stabilize the economy, rather than because they had superior fundamentals or access to public or depositors' funding. Nonetheless, their countercyclical behavior seems unique to the GFC rather than a regular characteristic of public banks before and after the GFC. JEL Codes: G21, G28, G01