Macro-financial linkages and bank behaviour: evidence from the second-round effects of the global financial crisis on East Asia

This paper studies the link between macro-financial variability and bank behaviour, which justifies the second-round effects of the global financial crisis on East Asia. Following Gallego et al. (The impact of the global economic and financial crisis on Central Eastern and South Eastern Europe (CESEE) and Latin America, 2010), the second round effects are defined as the adverse feedback loop from the slumps in economic activities and sharp financial market deterioration, which may influence the financial performance of bank, inter alia via deteriorating credit quality, declining profitability and increasing problems in retaining necessary capitalization. Differentiating itself from other research, this study stresses adjustments in four dimensions of bank performance and behaviour: asset quality, profitability, capital adequacy, and lending behaviour, assuming that any change in a bank-specific characteristic is induced by endogenous adjustments of the others. The empirical results based on partial adjustment models and two-step system GMM estimation show that bank’s adjustment behaviour is subject to the variation in the macro-financial environment and the stress condition in the global financial market. There is no convincing evidence to support the effectiveness of policy rate cut to boots bank lending and to avoid a financial accelerator effect

Competitiveness and concentration of the banking sector as a measure of banks’ credit ratings

The aim of the paper is to verify the impact of the competitiveness of the banking sector and concentration on banks’ credit ratings. A literature review was carried out and as a result the following hypothesis was put forward: the bigger the banks from the countries where the banking sector is more concentrated and more competitive, the higher the banks’ credit ratings. The analysis was conducted using ordered panel data models on banks’ credit ratings with the use of quarterly data on a European banks’ sample. Long-term issuer credit ratings given to banks by the three largest credit rating agencies were used as a dependent variable