How foreign participation and market concentration impact bank spreads : evidence from Latin America

Increasing foreign participation and high concentration levels characterize the recent evolution of banking sectors'market structures in developing countries. The authors analyze the impact of these factors on Latin American bank spreads during the late 1990s. Their results suggest that foreign banks were able to charge lower spreads relative to domestic banks. This was more so for de novo foreign banks than for those that entered through acquisitions. The overall level of foreign bank participation seemed to influence spreads indirectly, primarily through its effect on administrative costs. Bank concentration was positively and directly related to both higher spreads and costs.Payment Systems&Infrastructure,Banks&Banking Reform,Decentralization,Financial Intermediation,Banking Law,Financial Intermediation,Banking Law,Municipal Financial Management,Financial Crisis Management&Restructuring,Banks&Banking Reform

Services Trade in Developing Asia: A Case Study of the Banking and Insurance Sector in Bangladesh

This study assesses the strengths and weaknesses of reforms in the banking and insurance industries. Banking sector performance is analysed using various indicators as well as Principle Component Analysis techniques. A comparative case study of three banks with different ownership structures is presented. The study concludes with important conclusions and policy implications for future reforms based on the findings.Service Trade, Bangladesh

Globalization and european integration exigencies - new challenges for Romanian banks

Considering Romania’s integration in the European structures, as well as the new dimensions of the globalization phenomenon, we thought as adequate the presentation of the implications, in this context, on the Romanian banks. In the conditions of the economical globalization, the Romanian banking system is dealing with one of the problems which result especially from the transition character of the period the Romanian economy is skimming through. Let us also mention that, at the present time, when the financial civilisation goes through a real globalization, solving these problems and the Romanian banking system evolution must not be taken separately from the European and international context.globalization, financial system, banking integration

The role of external auditors in corporate governance: agency problems and the management of risk

This paper not only recommends means whereby principal-agent problems could be addressed, but also considers various ways in which the external auditor and audit committees contribute as corporate governance tools. The impact of bank regulations on risk taking and the need for a consideration of ownership structures are amongst other issues which are considered. In acknowledging the issues raised by ownership structures, it considers theories such as the banking theory and corporate governance theory. It also considers other alternatives whereby risk taking could be controlled. In recommending the external auditor’s expertise to address principal agent problems, it draws attention to the audit committee’s roles, both as a vital and complementary corporate governance tool, and also considers recurring problems which still persist with some financial reporting standards. It also highlights the importance of measures which need to be in place if the external auditor’s contribution to corporate governance is to be maximised.corporate governance; banking theory; risk; ownership structures; auditor; disclosure; principal; agent; regulation; moral hazard

Blockholdings and corporate governance in the EU banking sector

Ownership structures widely differ across the EU. While large blockholdings dominate in the banking sector in Continental Europe, ownership is widely dispersed in the United Kingdom. These differences have consequences for corporate governance in the EU banking sector. This paper analyzes the efficiency of shareholder control and hostile takeovers as corporate governance mechanisms in the EU banking sector against the background of the regulatory environment and differences in the ownership structure of banks. Particular attention is put on current trends in the ownership structure of banks (e. g. sovereign wealth funds). The paper is based on a new dataset on shareholdings in listed banks in the EU banking sector. The results indicate that EU regulations have not always improved corporate governance in the banking sector. While shareholder control has been improved by a better protection of minority shareholder rights, the efficiency of the takeover market has been reduced in Continental Europe. --Banks,blockholdings,corporate governance,hostile takeovers,takeover directive

Distances and Small Business Credit Constraints: the French case.

Deregulation and progress in information and communication technologies have increased the geographical expansion of banking structures and instruments. This makes banks operationally close to the borrowers. At the same time, banking industry consolidation have induced a geographical concentration of banking decision centers and strategic functions, leading to an increase of the functional distance that separates the decision center of a bank from its operational branches. The aim of this paper is to evaluate the impact of these two trends on SME lending. Our findings on French data show that increased functional distance and operational proximity are positively associated with the investment-cash flow sensitivity, considered as a measure of financing constraints. These adverse effects are particularly acute for small firms.Operational proximity; Investment-cash flow sensitivity; Financing constraints; SME lending; Functional distance;

Banking reforms, performance and risk in China

We investigate the impact of the banking reform started from 2005 on ownership structures in China on commercial banks’ profitability, efficiency and risk over the period 2000–2012, providing comprehensive evidence on the impact of banking reform in China. We find that banks on average tend to have higher profitability, lower risk and lower efficiency after the reforms, and the results are robust with our difference-in-difference approach. Our results also show that the Big 5 state-owned banks (SOCB) underperform banks with other types of ownership when risk is measured by non-performing loans (NPLs) over the entire study period but tend to have fewer NPLs than other banks during the post-reform period. Our results provide some supporting evidence on the ongoing banking reforms in China, suggesting that attracting strategic foreign investors and listing SOCBs on stock exchanges appear to be effective ways to help SOCBs deal with the problem of NPLs and manage their risk

Bank regulation and the network paradigm : policy implications for developing and transition economies

Current issues in banking policy range from the need to construct basic institutions and incentive structures in transition economies, to the challenges posed by the increasingly complex interactions involved in contemporary banking. The authors of this report outline the basic regulatory framework needed to reduce bank failures, as shown by recent experience. Theoreticians note that banking increasingly displays network characteristics that may call for corrective action but make policy intervention ineffective or counterproductive. Networks are susceptible to externalities, redundancy, (ensuring that flows cannot be obstructed by blocking just one path), and a tendency to adapt to disturbances in a complex manner. Regulation is justified, but the complexity of the network makes successful interventions hard to design. Supervision has a role, and the authors outline the basic regulatory measures needed, but the blurring of boundaries between banking and the rest of the financial network has placed an upper bound on the effectiveness of supervision. The authors conclude that although bank failures--mitigated by deposit insurance to protect small savers--must be put up with in designing banking policy, the social cost of bank failure is not as high as is sometimes thought.Payment Systems&Infrastructure,Economic Theory&Research,Banks&Banking Reform,Financial Intermediation,Financial Crisis Management&Restructuring,Banks&Banking Reform,Financial Intermediation,Financial Crisis Management&Restructuring,Economic Theory&Research,Environmental Economics&Policies

What drives bank competition? some international evidence

Using bank-level data, the authors apply the Panzar and Rosse (1987) methodology to estimate the extent to which changes in input prices are reflected in revenues earned by specific banks in 50 countries'banking systems. They then relate this competitiveness measure to indicators of countries'banking system structures and regulatory regimes. The authors find systems with greater foreign bank entry and fewer entry and activity restrictions to be more competitive. They find no evidence that the competitiveness measure negatively relates to banking system concentration. Their findings confirm that contestability determines effective competition, especially by allowing (foreign) bank entry and reducing activity restrictions on banks.Environmental Economics&Policies,Banks&Banking Reform,Payment Systems&Infrastructure,Economic Theory&Research,Labor Policies,Economic Theory&Research,Banks&Banking Reform,Environmental Economics&Policies,Financial Intermediation,Markets and Market Access

Decentralized credtor-led corporate restructuring - cross-country experience

Countries that have experienced banking crises have adopted oneof two distinct approaches toward the resolution of non-performing assets-a centralized or a decentralized solution. A centralized approach entails setting up a government agency-an asset management company-with the full responsibility for acquiring, restructuring, and selling of the assets. A decentralized approach relies on banks and other creditors to manage and resolve non-performing assets. The authors study banking crises where governments adopted a decentralized, creditor-led workout strategy following systemic crises. They use a case study approach and analyze seven banking crises in which governments mainly relied on banks to resolve non-performing assets. The study suggests that out of the seven cases, only Chile, Norway, and Poland successfully restructured their corporate sectors with companies attaining viable financial structures. The analysis underscores that as in the case of a centralized strategy the prerequisites for a successful decentralized restructuring strategy are manifold. The successful countries significantly improved the banking system's capital position, enabling banks to write down loan losses; banks as well as corporations had adequate incentives to engage in corporate restructuring; and ownership links between banks and corporations were limited or severed during crises.Financial Intermediation,Financial Crisis Management&Restructuring,Payment Systems&Infrastructure,Banks&Banking Reform,International Terrorism&Counterterrorism,Banks&Banking Reform,Financial Crisis Management&Restructuring,Financial Intermediation,International Terrorism&Counterterrorism,Banking Law