Are Banks Too Big to Fail or Too Big to Save? International Evidence from Equity Prices and CDS Spreads

Deteriorating public finances around the world raise doubts about countries’ abilities to bail out their largest banks. For an international sample of banks, this paper investigates the impact of government indebtedness and deficits on bank stock prices and CDS spreads. Overall, bank stock prices reflect a negative capitalization of government debt and they respond negatively to deficits. We present evidence that in 2008 systemically large banks saw a reduction in their market valuation in countries running large fiscal deficits. Furthermore, the change in bank CDS spreads in 2008 relative to 2007 reflects countries’ deterioration of public deficits. Our results suggest that some systemically important banks can increase their value by downsizing or splitting up, as they have become too big to save, potentially reversing the trend to ever larger banks. We also document that a smaller proportion of banks are systemically important - relative to GDP - in 2008 than in the two previous years, which could reflect these private incentives to downsize.Banking;Financial crisis;Credit default swap;Too big to fail;Too big to save

Barriers to portfolio investments in emerging stock markets (Revised)

Portfolio Investment;Capital Movements;Capital Gains Tax

Do We need Big Banks? Evidence on Performance, Strategy and Market Discipline

For an international sample of banks, we construct measures of a bank’s absolute size and its systemic size defined as size relative to the national economy. We then examine how a bank’s risk and return, its activity mix and funding strategy, and the extent to which it faces market discipline depend on both size measures. While absolute size presents banks with a trade-off between risk and return, systemic size is an unmitigated bad, reducing return without a reduction in risk. Despite too-big-to-fail subsidies, we find that systemically large banks are subject to greater market discipline as evidenced by a higher sensitivity of their funding costs to risk proxies, suggesting that they are often too big to save. The finding that a bank’s interest cost tends to rise with its systemic size can also in part explain why a bank’s rate of return on assets tends to decline with systemic size. Overall, our results cast doubt on the need to have systemically large banks. Bank growth has not been in the interest of bank shareholders in small countries, and it is not clear whether those in larger countries have benefited. While market discipline through increasing funding costs should keep systemic size in check, clearly it has not been effective in preventing the emergence of such banks in the first place. Inadequate corporate governance structures at banks seem to have enabled managers to pursue high-growth strategies at the expense of shareholders, providing support for greater government regulation.Bank size;systemic risk;market discipline

Bank Activity and Funding Strategies: The Impact on Risk and Return

This paper examines the implications of bank activity and short-term funding strategies for bank risk and return using an international sample of 1334 banks in 101 countries leading up to the 2007 financial crisis. Expansion into non-interest income generating activities such as trading increases the rate of return on assets, and it may offer some risk diversification benefits at very low levels. Non-deposit, wholesale funding in contrast lowers the rate of return on assets, while it can offer some risk reduction at commonly observed low levels of non-deposit funding. A sizeable proportion of banks, however, attract most of their short-term funding in the form of non-deposits at a cost of enhanced bank fragility. Overall, banking strategies that rely prominently on generating non-interest income or attracting non-deposit funding are very risky, consistent with the demise of the U.S. investment banking sector.non-interest income share;wholesale funding;diversification;universal banking;bank fragility;financial crisis

All Men Are Created Equal.

"Reprinted from The open court of June 1918."Caption title.Mode of access: Internet

Intestinal colonization due to Escherichia coli ST131: Risk factors and prevalence

Background Escherichia coli sequence type 131 (ST131) is a successful clonal group that has dramatically spread during the last decades and is considered an important driver for the rapid increase of quinolone resistance in E. coli. Methods Risk factors for rectal colonization by ST131 Escherichia coli (irrespective of ESBL production) were investigated in 64 household members (18 were colonized) and 54 hospital contacts (HC; 10 colonized) of 34 and 30 index patients with community and nosocomial infection due to these organisms, respectively, using multilevel analysis with a p limit of < 0.1. Result Colonization among household members was associated with the use of proton-pump inhibitors (PPI) by the household member (OR = 3.08; 95% CI: 0.88–10.8) and higher age of index patients (OR = 1.05; 95% CI; 1.01–1.10), and among HC, with being bed-ridden (OR = 21.1; 95% CI: 3.61–160.0) and having a urinary catheter (OR = 8.4; 95% CI: 0.87–76.9). Conclusion Use of PPI and variables associated with higher need of person-to-person contact are associated with increased risk of rectal colonization by ST131. These results should be considered for infection control purposes.Plan Nacional de I + D + i 2013-2016Ministerio de Economía y Competitividad (España)European Development Regional Fund REIPI RD12/0015/0010 REIPI RD16/0016/0001Instituto de Salud Carlos III 070190 AC16/000076-MODERN AC16/AC16/00072-ST131TSJunta de Andalucía CTS5259 CTS21

LXIX. Discours

In an approach analogous to Rajan and Zingales (1998), we examine how the ability to access long-term debt affects firm-level growth volatility. We find that firms in industries with stronger preference to use long-term finance relative to short-term finance experience lower growth volatility in countries with better-developed financial systems, as these firms may benefit from reduced refinancing risk. Institutions that facilitate the availability of credit information and contract enforcement mitigate refinancing risk and therefore growth volatility associated with short-term financing. Increased availability of long-term finance reduces growth volatility in crisis as well as non-crisis periods