Credit and information in universal banking : a clinical study

We studied information and interaction processes in six lending relationships between a universal bank and medium sized firms. The study is based on the credit files of the respective firms. If no problems occur in these lending relationships, bank monitoring is based mainly on cheap, retrospective and internal data. In case of distress, more expensive, prospective and external information is used. The level of monitoring and the willingness to renegotiate the lending relationship depends on what the lending officers can learn about the future prospects of the firm from the behaviour of the debtors. We identify both signalling and bonding activities. Such learning from past behaviour seems to allow monitoring at low cost, whereas the direct observation of the firm's investment outlook seems to be very costly. Also, too much knowledge about the firm's investments might leave the bank in a very strong bargaining position and distort investment incentives. Therefore, the traditional view of credit assessment as observation of the quality of a borrower's investment programme needs to be reconsidered

Credit securitization and credit derivatives : financial instruments and the credit risk management of middle market commercial loan portfolios

Banks increasingly recognize the need to measure and manage the credit risk of their loans on a portfolio basis. We address the subportfolio "middle market". Due to their specific lending policy for this market segment it is an important task for banks to systematically identify regional and industrial credit concentrations and reduce the detected concentrations through diversification. In recent years, the development of markets for credit securitization and credit derivatives has provided new credit risk management tools. However, in the addressed market segment adverse selection and moral hazard problems are quite severe. A potential successful application of credit securitization and credit derivatives for managing credit risk of middle market commercial loan portfolios depends on the development of incentive-compatible structures which solve or at least mitigate the adverse selection and moral hazard problems. In this paper we identify a number of general requirements and describe two possible solution concepts

Competition, Resilience, and Stability – Implications for Institutional Protection Schemes and Systemic Risk in the European Banking Union

The finalization of the European Banking Union (EBU) requires the completion of the third pillar, the system of depositor protection. However, whereas the two first pillars, while set-ting common standards, allow for elements of decentralization and institutional diversity, some authors claim that the third pillar is only established with a single and joint deposit guarantee scheme (DSG) for all countries in the Monetary Union. Limits to joint liability, or alternative concepts like the existing institutional protection schemes (IPS) in some member states, are seen as imperfections that can only be temporarily accepted for political reasons. According to this view, such elements of compromise and differentiation should be over-come. In our paper, we argue that neither the DGS nor the IPS is always efficient. Choosing an IPS is a response to a special way to organize banking business. It contains no element of regulato-ry arbitrage, as it represents a cost-efficient mean to protect depositors in decentralized banking networks marked by a larger number of regional banks and by a business model with a strong focus on long-term client relationships. Making decentralized banking and rela-tionship banking costlier through discriminating regulations (like the non-recognition of IPS) would thus have a negative impact on the common market, as it distorts the competition between different organizational concepts of banking

Comparison Of Efficiency And Productivity Changes Of Islamic And Conventional Banks: Evidence From Europe And Muslim-Majority Countries?

This paper examines the efficiency performance of Bosna Bank International (BBI) in Bosnia-Herzegovina and Islamic Bank of Britain (IBB) in the UK, against small conventional banks in each country and also against small and large Islamic banks from Muslim-majority countries. This paper also estimates the productivity changes of IBB and BBI relative to small Islamic banks, within and outside Europe, and relative to small conventional banks in the UK and Bosnia respectively. Finally, this paper utilizes OLS regression analysis to check the robustness of the overall data envelopment analysis (DEA) results, as well as to determine the impact of internal and external factors on bank's efficiency. The analysis covers the 4-year period from 2005 through 2008. The findings suggest that IBB and BBI are technically inefficient. In comparison with small banks, inefficiency is largely due to mismanagement. Inefficiency becomes scale in nature relative to large Islamic banks. As compared to Islamic banks, BBI yields higher pure technical efficiency than IBB, but IBB records higher positive growth in estimated efficiency. IBB and BBI yield upward growth in total factor productivity and technical efficiency but record negative growth in technology innovations. Results also suggest that the IBB and BBI lag relatively behind their conventional peer banks in terms of efficiency and productivity performance. BBI shows much better efficiency performance relative to conventional banks than IBB. Overall, a bank that is more efficient is found to be larger, more profitable, acquire less debt, invest more in skills, and operates in countries with a higher GDP per capita

The Volatility of Housing Prices: Do Different Types of Financial Intermediaries Affect Housing Market Cycles Differently?

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Islamic Commercial Banking In Europe: A Cross-Country And Inter-Bank Analysis Of Efficiency Performance

We examine the relative efficiency performance of the Islamic Bank of Britain (IBB), the first stand-alone full-fledged Islamic commercial bank in the Western world, against conventional banks in the UK, and also against Islamic banks from Muslim-majority countries. We also apply a two-stage Data Envelopment Analysis (DEA) model to determine the impact of internal and external factors on bank's efficiency. In order to investigate the association of the DEA-efficiency scores with the traditional accounting ratios, we estimate the correlation coefficients between the two variables. The efficiency-profitability matrix is used to enable the characterization of the banks' performance profile. Our analysis covers the period from 2005 to 2008. Our results show that the IBB is technically inefficient. It also has relatively a poor financial performance. The bank‘s inefficiency stems from both scale (size) and management issues. IBB exhibits, however, an upward trend in efficiency and profitability, particularly in adverse market conditions. Thus, it has a great prospect to increase efficiency and strong potential for further growth in the UK. Additionally, results suggest that the technically more efficient banks are larger, have greater profitability and loans intensity, acquire less debt, and on average have a lower market share. IBB is relatively superior in terms of lending intensity and capital adequacy. Findings further illustrate that the DEA measures can be used separately or concurrently with standard accounting measures in determining Islamic banks performance

Krise des Bankensystems: zu viel Finanzinnovationen, zu wenig Regulierung?

Hat die heutige Finanzmarktkrise instabile Marktmechanismen oder mangelnde Regulierung als Ursache? Christoph Kaserer, Technische Universität München, sieht in einer Kombination aus einem Regulierungsversagen und einem ungelösten Moral-Hazard-Konflikt bei Finanzinstitutionen den Grund für diese Entwicklung. Hans-Peter Burghof und Felix Prothmann, Universität Hohenheim, warnen vor der Gefahr einer »rückgewandten Innovationsfeindlichkeit«. Der Fehler liege nicht in den neuen Produkten, sondern eher im Umgang mit diesen. Deshalb sollten sowohl die Institution der Ratingagentur als auch die Finanzaufsicht für eine neue, sicherere Finanzmarktordnung umgestaltet wer-den. Nach Ansicht von Dirk Schiereck, Technische Universität Darmstadt, hat die Politik die aufkommenden Probleme weitestgehend ganz einfach ignoriert, und die meisten Banken haben die Reaktionslosigkeit der Politik fälschlich als beruhigendes Signal interpretiert und sorglos weiter investiert. Höhere Stabilität sei nur mittels Regulierung, Transparenz und Limitierung durch verstärkte Eigenkapitalunterlegungen zu erreichen. Roman Inderst, Universität Frankfurt, unterstreicht, dass die Diskussion über die Ursachen der Finanzkrise vom »Wholesale«-Bereich dominiert werde und der »Retail«-Bereich, d.h. der Vertrieb von Anlage- und Kreditprodukten an Privathaushalte, hierbei völlig ins Hintertreffen gerate.Bankensystem, Bankenkrise, Regulierung, Finanzinnovation, Finanzmarktkrise, Risiko, Bankenliquidität

Drohende Kreditklemme : sollten die Basel-II-Regeln überholt oder zeitweise ausgesetzt werden?

Im Gefolge der Finanzkrise werden Forderungen nach einer Reform oder sogar einer zeitlichen Aussetzung von Basel II laut. Kritisiert wird vor allem die systemimmanente Prozyklizität. Ist dieser Mechanismus mitverantwortlich für die bestehende oder vermeintliche Kreditklemme? Martin Hellwig vermisst bei dem derzeit praktizierten System der Eigenkapitalregulierung von Banken die konzeptionelle Grundlage. Die intendierte Wirkungsweise sei nie dargelegt worden. Tatsächlich habe die Eigenkapitalregulierung in der Krise als »Brandbeschleuniger und nicht als Feuerlöscher« gewirkt und sollte »grundlegend umgebaut oder abmontiert« werden. Für Martin Faust sind Basel I und Basel II nicht die alleinige Ursache für eine Kreditklemme, sie haben jedoch die Entwicklung, die dazu geführt hat, begünstigt. Die Antwort auf die aktuelle Krise solle daher nicht die Aufweichung der Basel-II-Regeln, z.B. bei der Akzeptanz von Eigenkapitalbestandteilen, sein, sondern eine grundlegende Reform. Auch Hans-Peter Burghof sieht viele Gründe, die Baseler Regeln zu überarbeiten. Denn diese Regeln seien »ein höchst unvollkommener Kompromiss zwischen dem aus Sicht der Theorie Erstrebenswerten und dem in der Praxis Machbaren«. Aussetzen solle man die Baseler Normen aber nicht, da eine unzureichende Eigenkapitalregulierung gefährlich sei und Banken ohne ausreichende Eigenkapitalausstattung ein Systemrisiko darstellen. Mario Ohoven führt die Kreditklemme auf ein Regulierungsversagen zurück. Basel II verzerre die Kreditmärkte, weil es Kredite und Verbriefungen ungleich behandle. Das Regelwerk müsse durch Basel III ersetzt werden, damit sich die Kreditversorgung des Mittelstands nicht weiter verschlechtere. Christoph Schalast findet derzeit kaum überzeugende Argumente für ein Aussetzen von Basel II. Vielmehr könnte eine solche Maßnahme das gerade wieder entstehende Vertrauen in die und in der Finanzindustrie erschüttern.