DO BANKING RELATIONSHIPS IMPROVE CREDIT CONDITIONS FOR SPANISH SMES?

Small and medium-sized companies are extremely important for the Spanish economy. However, they face difficulties when trying to obtain financing (credit rationing). As a result, and given their limited possibilities to obtain finance in the capital market, they turn to the credit market, which is the main provider of funds for such companies. The main aim of this study is to provide an insight into the banking relationships that are developed in this market and their impact on credit rationing. Previous literature has studied this situation by focusing on price rationing and quantity rationing. This study furthers research into banking relationships by examining the effects that these relationships may have on compensation demanded for debt and the relationship with long-term credit rationing. After studying 386 SMEs listed in the Spanish Guide of Exporting Companies, the main conclusions drawn were as follows: i) SMEs working with larger numbers of financial entities and with longer relationships with these entities enjoy better access to credit; ii) SMEs that develop banking relationships by contracting financial products manage to reduce their credit costs; iii) SMEs that have longer banking relationships with banking entities benefit from better long-term credit conditions; and iv) the maintenance of banking relationships through the rendering of services reduces bank requirements in terms of guarantees in credit applications.

Financial Intermediaries and Transaction Costs

We present an overlapping generations model with spatial separation and agents who face unsystematic liquidity risk. In a pure exchange economy, agents engage in life cycle portfolio rebalancing. In an intermediated economy, intergenerational banks or mutual funds cater to diversified clienteles so as to avoid rebalancing transactions. In equilibrium, these intermediaries pay redemptions with portfolio income and never sell secondary assets. We also find that the pure exchange economy has a downward sloping yield curve and is inherently cyclical.Financial Intermediation, Overlapping Generations, Liquidity.

Comment on “Bank runs, welfare and policy implications” by Haibin Zhu

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Financial intermediation and public intervention

dissertn: Diss. Doct

A Model for Financial Intermediation and Public Intervention

Based on Chari and Jagannathan (1988), this paper models information-induced and “pure-panic" runs in an environment of risk-averse agents. In this framework, deposits are needed to provide insurance against investors' unexpected demand for liquidity and therefore, a role for a financial intermediary is justified. Conditions to assure bank-runs as an equilibrium phenomenon are derived and a welfare analysis of two devices that have traditionally been used by banks in order to prevent runs (namely, suspension of convertibility versus deposit insurance), is presented.

Leaving the darkness: The emergence of shadow banks

This paper studies the interaction between bank capital regulation, moral hazard and co-existence of traditional and shadow banks. Bank managers can choose between traditional banking and off-balance sheet special purpose vehicles (SPV), in a setup with deposit insurance and moral hazard. We first show that in the absence of SPV intermediation, capital requirements are ineffective at preventing the moral hazard problem originated by deposit insurance. We find that shadow banks can improve financial stability, when there is full information sharing. Finally, we analyze the case of neglected tail risk. We find that under such circumstances, the SPV will increase financial risk by exposing the system to extreme events.This research is partially funded by the Spanish Ministry of Science and Innovation, project PID2020-114108GB-I00. We also thank the financial support from Comunidad de Madrid (Programa Excelencia para el Profesorado Universitario, convenio con Universidad Carlos III de Madrid, V Plan Regional de Investigacion Cientifica e Innovacion Tecnologica, EPUC3M12). Margarita Samartin would like to thank CORE for its hospitality during the summers 2018 and 2019, when this research started

Surety bonds and moral hazard in banking

We examine a policy in which owners of banks provide funds in the form of a surety bond in addition to equity capital. This policy would require banks to provide the regulator with funds that could be invested in marketable securities. Investors in the bank receive the income from the surety bond as long as the bank is in business. The capital value could be used by bank regulators to pay off the banks" liabilities in case of bank failure. After paying depositors, investors would receive the remaining funds, if any. Analytically, this instrument is a way of creating charter value but, as opposed to Keeley (1990) and Hellman, Murdock and Stiglitz (2000), restrictions on competition are not necessary to generate positive rents. We demonstrate that capital requirements alone cannot prevent the moral hazard problem arising from deposit insurance.This research is partially funded by the Spanish Ministry of Science and Innovation, project PID2020-114108GB-I00. We also thank the financial support from Comunidad de Madrid (Programa Excelencia para el Profesorado Universitario, convenio con Universidad Carlos III de Madrid, V Plan Regional de Investigación Científica e Innovación Tecnológica, EPUC3M12) and from project CODEM-UHU from HES-SO