Service provision and loans : Price and risk implications

Deregulation of the banking system has increased competition and prompted wide changes in the activities of banks. As revenue from intermediation activities of banks has decreased, banks have broadened the range of products they offer to their clients, which generate revenue other than interest margin. This paper offers a complementary explanation of the link between intermediation activities and service provision. We show that banks may be willing to decrease their lending rate, using loans as loss leader, and take on higher credit risk, in order to capture clients to whom they can sell services.La déréglementation du système bancaire a eu pour conséquence une augmentation de la concurrence entre banques. Les banques, face une diminution de leur revenu d'intérêt, ont cherché d'autres sources de revenu, en modifiant notamment l'offre de services à leurs clients. Ce papier a pour objectif de compléter l'analyse du lien entre activités d'intermédiation et production de services bancaires. Nous montrons que les banques, pour attirer des clients à qui elles vendront des services, sont susceptibles de diminuer leur taux débiteur, utilisant les prêts comme produit d'appel, prenant ainsi plus de risque

L'impact de la concurrence bancaire sur l'efficience des banques : le cas des Pays d'Europe Centrale et Orientale

International audienceDans ce papier nous analysons l'influence de la concurrence bancaire sur l'efficience des banques dans les PECO. L'intuition de notre démarche consiste dans le fait que pour éviter ou diminuer les effets négatifs engendrés par l'asymétrie de l'information, présente sur le marché bancaire, les banques doivent fournir plus d'efforts, qui sont coûteux, pour améliorer la qualité du portefeuille de crédits, par exemple. Or, les dépenses supplémentaires ne sont possibles qu'en l'absence de la contrainte concurrentielle. A l'aide de l'approche de Panzar et Rosse, nous avons donc d'abord déterminer le niveau de concurrence sur le marché bancaire de ces pays. Ensuite, en utilisant les deux méthodes, paramétrique et non paramétrique, nous avons estimé le niveau d'efficience des banques. Dans la dernière étape, nous avons régressé le niveau d'efficience sur le niveau de concurrence. Les résultats montrent que ces deux indicateurs sont positivement corrélés pour les scores d'efficience de coût et de profit, et négativement corrélés pour le score d'efficience de revenu d'intérêt

Political Connections, Bank Deposits, and Formal Deposit Insurance: Evidence from an Emerging Economy

This paper investigates the impact of banks' political connections on their ability to collect deposits under two different deposit insurance regimes (blanket guarantee and limited guarantee). We estimate a simultaneous equations model of supply and demand for funds using quarterly data for Indonesian banks from 2002 to 2008. We find that, regardless of their type (state-owned or private entities), politically connected banks are able to attract deposits more easily than their non-connected counterparts. We also show that this effect is more pronounced after the implementation of formal deposit insurance with limited coverage. Our findings have various policy implications. Formal deposit insurance might have improved market discipline, as highlighted by earlier studies, but it has also exacerbated the issue of political connections in the banking sector

The Provision of Services, Interest Margins and Loan Pricing in European Banking

This paper assesses the implications on bank interest margins of the expansion into non- traditional fee-based activities in European banking. We use a sample of 602 European commercial and cooperative banks from 1996 to 2002 and consider the total income shares of trading income and commission and fee income as measures of product diversification to explore loan pricing. Our results show that a higher income share from commission and fee activities is associated with lower margins and lower lending rates but that there is no link with trading activities. For banks exhibiting a higher share of commission and fee income there is a weaker link between the rate they charge on loans and borrower default risk. The hypothesis that banks use loans as a loss leader altering default screening and monitoring activities and consequently risk pricing cannot be rejected

Product Diversification in the European Banking Industry: Risk and Loan Pricing Implications

The purpose of this paper is to investigate the relationship between bank risk and product diversification in the changing structure of the European banking industry. Based on a broad set of European banks for the period 1996-2002, our study shows that banks expanding into non-interest income activities present higher risk than banks which mainly supply loans. Whereas previous studies (mainly on U.S. banks) focused on portfolio diversification effects we explore risk implications of cross-selling determinants of loan pricing as an alternative explanation. Our results show that higher income from other activities is associated with lower lending rates which suggests that banks may actually use loans as a loss leader altering default screening and monitoring activities and consequently risk pricing

Banking industry structure and economics activities: A regional approach for the Philippines

International audienceThis paper examines the link between banking industry structure and economic activity at the regional level in the Philippines. We apply a principal component analysis on regional banking and economic data for the period 1993 to 2005. We ranked the sixteen regions in three different groups depending on their average economic development. Our results show globally a positive link between regional indicators of economic development and banking development with a specific influence of rural banking mainly in the intermediate-developed regions, which is reinforced after the 1997 financial crisis. For the less developed regions, the more rural in the Philippines, commercial, thrift or rural banks do not seem to provide any significant contribution to economic development

Service provision and bank interest margins : an adverse selection approach and risk implications for E.U. banks

EThOS - Electronic Theses Online ServiceGBUnited Kingdo

Service provision and loans : Price and risk implications

Deregulation of the banking system has increased competition and prompted wide changes in the activities of banks. As revenue from intermediation activities of banks has decreased, banks have broadened the range of products they offer to their clients, which generate revenue other than interest margin. This paper offers a complementary explanation of the link between intermediation activities and service provision. We show that banks may be willing to decrease their lending rate, using loans as loss leader, and take on higher credit risk, in order to capture clients to whom they can sell services.bank interest margins, fee, based activities, asymmetric information

Do CDS maturities matter in the evaluation of the information content of regulatory banking stress tests? Evidence from European and US stress tests

This paper questions the relevance of using only the 5-year maturity CDS spreads to examine the CDSmarket response to the disclosure of a regulatory stress test results. Since the stress testing exercises areperformed on short-term forward-looking stressed scenarios (1 to 3 years), we assume that short-termCDS maturities (from 6-month to 3-year) should better reflect the CDS market response compared tothe 5-year maturity. Based on ten regulatory stress tests carried out in Europe and in the US in the timeperiod from 2009 to 2017, we analyze the CDS market response by investigating its reaction throughall the different CDS maturities. Our results show that after the results’ disclosure, the CDS marketreacts by correcting the CDS spreads of tested banks (upward or downward correction), at the level of allmaturities. More precisely, we evidence that for a given stress test, the nature of the correction (upwardor downward) is the same for all CDS maturities while the extent of the correction differs between shortterm maturities (from 6-month to 3-year) and the 5-year maturity or more. Indeed, we find that theextent is higher on short-term maturities and in most cases, the lower the maturity of the CDS, thehigher the extent of the correction (i.e. the stronger the market reaction). We therefore argue that theonly use of the 5-year maturity is not suitable. Short-term CDS maturities matter since they better reflectthe CDS market response. Also, the use of these short-term maturities show that the informationcontent of the different stress tests is more diverse than what is highlighted in the existing literature

Political Connections, Bank Deposits, and Formal Deposit Insurance: Evidence from an Emerging Economy

This paper investigates the impact of banks' political connections on their ability to collect deposits under two different deposit insurance regimes (blanket guarantee and limited guarantee). We estimate a simultaneous equations model of supply and demand for funds using quarterly data for Indonesian banks from 2002 to 2008. We find that, regardless of their type (state-owned or private entities), politically connected banks are able to attract deposits more easily than their non-connected counterparts. We also show that this effect is more pronounced after the implementation of formal deposit insurance with limited coverage. Our findings have various policy implications. Formal deposit insurance might have improved market discipline, as highlighted by earlier studies, but it has also exacerbated the issue of political connections in the banking sector