Bank capital and profitability:Evidence from a global sample

This study employs bank-level data for a global sample to examine the relationship between capital and profitability over 2000-2013. Our evidence suggests that bank capital is positively related to bank profitability, although the estimated impact is relatively marginal. However, more capitalised banks that are more profitable appear to have a higher traditional risk, a greater proportion of non-traditional activities in their balance sheets and they tend to be more effective at controlling their costs. The relationship depends on environmental conditions as well and bank size. It is typically stronger in crisis periods, in lower and middle income countries and for larger banks (but not for Global Systemically Important Banks, or GSIBs). Finally, for banks operating in less restricted, more unstable and corrupt environments, the same increase in capital is associated with more profitable institutions than banks operating in countries with lower corruption levels. Our findings are robust to different specifications and robustness tests, and carry important implications for policy reforms aimed at ensuring stability to the banking sector globally

Competition and risk-taking in investment banking

How does competition affect the investment banking business and the risks individual institutions are exposed to? Using a large sample of investment banks operating in seven developed economies over 1997-2014, we apply a panel VAR model to examine the relationships between competition and risk without assuming any a priori restrictions. Our main finding is that investment banks’ higher risk exposure, measured as a long-term capital-at-risk and return volatility, was facilitated by greater competitive pressures for both boutique investment banks and full service investment banks. Overall, we find some evidence that more competition leads to more fragility before and during the recent financial crisis

Integration, productivity and technological spillovers: Evidence for eurozone banking industries

In the context of the current debate on increased integration of eurozone banking markets following the global financial and sovereign debt crises, this paper evaluates the impact of regulatory reform, starting from the inception of the Single Market in 1992, on bank productivity and assesses the cross-border benefits of integration in terms of technological spillovers. We utilise a parametric meta-frontier Divisia index to estimate productivity change and identify technological gaps. We then assess the extent to which productivity converges within and across banking industries as a result of technological spillovers. Our results suggest that productivity growth has occurred for eurozone countries, driven by technological progress, both at the country and the supra-country level, although the latter slows or in some cases reverses since the onset of the crisis. Technological spillovers do exist, and have led to progression toward the best technology. However, convergence is not complete and significant long run differences in productivity persist. Improvements in technology are increasingly concentrated in fewer banking industries

Efficiency, ownership and financial structure in European banking

Purpose – This paper aims to compare the cost efficiencies across bank-and market-based EU countries for the different groups of commercial, savings and co-operative banks; and between listed and non-listed banking institutions. In addition, it attempts to determine any potential implications for bank efficiency originating from differences in financial structure. Design/methodology/approach – Efficiency scores are estimated using the Battese and Coelli's time-varying stochastic frontier approach. The classification of bank- and market-based financial systems is based on the World Bank's Financial Structure Database. Findings – On the whole the results reject the agency theory hypothesis that managers of privately-owned banks are more cost efficient than those of mutual banking institutions because of capital market devices as it is found that mutual banks operating in EU-15 countries are significantly more cost efficient than commercial banks. Furthermore, results are mixed concerning the financial structure hypothesis that in developed financial systems bank efficiency should not be statistically different across bank-vs market-based economies. Research limitations/implications – The analysis suggests that differences in cost efficiency across bank types can often be explained by the prevailing financial system in each economy. Practical implications – The evidence illustrates the national diversity of corporate governance systems in Europe and can be important to policy makers who are concerned with the full integration of the European financial system. Originality/value – To the best of the authors’ knowledge, there are no previous similar empirical works for the EU banking sector. Such a study has important policy implications especially due to the fact that the EU banking sector is experiencing profound structural changes and a full integration has not yet been achieved

Financial fragmentation and SMEs’ access to finance

This paper focuses on the impact of financial fragmentation on small and medium enterprises (SMEs)’ access to finance. We combine country-level data on financial fragmentation and the ECB’s SAFE (Survey on the Access to Finance of Enterprises) data for 12 European Union (EU) countries over 2009-2016. Our findings indicate that an increase in financial fragmentation not only raises the probability of all firms to be rationed but also to be charged higher loan rates; in addition, it increases the likelihood of borrower discouragement and it impairs firms’ perceptions of the future availability of bank funds. Less creditworthy firms are even more likely to become credit rationed, suggesting a flight to quality effect in lending. However, our study also documents a potential adverse effect of increasing bank market power resulting from greater integration. This suggests that financial integration could impair firms’ financing, if not accompanied by policy initiatives aimed at maintaining an optimal level of competition in the banking sector

Analysing the determinants of bank efficiency The case of Italian banks

SIGLEAvailable from British Library Document Supply Centre-DSC:DXN036385 / BLDSC - British Library Document Supply CentreGBUnited Kingdo

Do ESG strategies enhance bank stability during financial turmoil? Evidence from Europe

This paper investigates the joint and separate effects of Environmental (E), Social (S), and Governance (G) scores on bank stability. Using a sample of European banks operating in 21 countries over 2005–2017, we find that the total ESG score, as well as its sub-pillars, reduces bank fragility during periods of financial distress. This stabilizing effect holds strongly for banks with higher ESG ratings. These results are confirmed by a differences-in-differences (DID) analysis built around the introduction of the EU 2014 Non-Financial Reporting Directive (NFRD). Our evidence also reveals that, in times of financial turmoil, the longer the duration of ESG disclosures, the greater the benefits on stability. Finally, we show that the ESG–bank stability linkages vary significantly across banks’ characteristics and operating environments. Our findings are robust to selection bias and endogeneity concerns. Overall, they support the regulatory effort in requiring an enhanced disclosure of non–financial information