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

Credit Information Sharing and Loan Default in Developing Countries: The Moderating Effect of Banking Market Concentration and National Governance Quality

Departing from the existing literature, which associates credit information sharing with improved access to credit in advanced economies, we examine whether credit information sharing can also reduce loan default rate for banks domiciled in developing countries. Using a large dataset covering 879 unique banks from 87 developing countries from every continent, over a nine-year period (i.e., over 6,300 observations), we uncover three new findings. First, we find that credit information sharing reduces loan default rate. Second, we show that the relationship between credit information sharing and loan default rate is conditional on banking market concentration. Third, our findings suggest that governance quality at the country level does not have a strong moderating role on the effect of credit information sharing on loan default rate