Does Interbank Borrowing Reduce Bank Risk?

In this paper we investigate whether banks that borrow from other banks have lower risk levels. We concentrate on a large sample of Central and Eastern European banks which allows us to explore the impact of interbank lending when exposures are long-term and interbank borrowers are small banks. The results of the empirical analysis generally confirm the hypothesis that long-term interbank exposures result in lower risk of the borrowing banks

Deposit Market Competition, Wholesale Funding, and Bank Risk

In this paper we revisit the long debate on the risk effects of bank competition and propose a new approach to the empirical estimation of the relation between deposit market competition and bank risk. Our approach accounts for the opportunity of banks to shift to wholesale funding when deposit market competition is intense. The analysis is based on a unique comprehensive dataset which combines retail deposit rates data with data on bank characteristics and with data on local deposit market features for a sample of 589 U.S. banks. Our results support the notion of a risk-enhancing effect of deposit market competition.bank competition;wholesale funding;bank risk;deposit rates

Bank mergers and the dynamics of deposit interest rates

Despite extensive research interest in the last decade, the banking literature has not reached a consensus on the impact of bank mergers on deposit rates. In particular, results on the dynamics of deposit rates surrounding bank mergers vary substantially across studies. In this paper, we aim for a comprehensive empirical analysis of a bank merger’s impact on deposit rate dynamics. We base the analysis on a unique dataset comprising deposit rates of 624 U.S. banks with a monthly frequency for the time period 1997–2006. These data are matched with individual bank and local market characteristics and the complete list of bank mergers in the United States. The data allow us to track the dynamics of bank mergers while controlling for the rigidity of the deposit rates and for a range of merger, bank, and local market features. An innovation of our work is the introduction of an econometric approach for estimating the change of the deposit rates given their rigidity.Bank mergers ; Bank deposits

A microeconometric investigation into bank interest rate rigidity

Using a unique dataset of interest rates offered by a large sample of U.S. banks on various retail deposit and loan products, we explore the rigidity of bank retail interest rates. We study periods over which retail interest rates remain fixed ("spells") and document a large degree of lumpiness of retail interest rate adjustments as well as substantial variation in the duration of these spells, both across and within different products. To explore the sources of this variation we apply duration analysis and calculate the probability that a bank will change a given deposit or loan rate under various conditions. Consistent with a nonconvex adjustment costs theory, we find that the probability of a bank changing its retail rate is initially increasing with time. Then as heterogeneity of the sample overwhelms this effect, the hazard rate decreases with time. The duration of the spells is significantly affected by the accumulated change in money market interest rates since the last retail rate change, the size of the bank and its geographical scope.Interest rates ; Bank deposits

The Risk Alleviating Role of Interbank Market Lending in Central and Eastern European Countries

The banking sectors in several Central and Eastern European countries are characterized by a two-tier structure, in which a few large banks dominate the deposit market but are very inactive in the loan market with private borrowers, while many small banks engage in lending but have only small shares of the deposit market. The large banks act as net lenders in the interbank market, while small banks are net borrowers in the market. Typically, the former banks are incumbent institutions from pre-transition times, while the later are new institutions. In this paper, we ask whether this two-tier structure and the resulting interbank trade has any important risk alleviating effects on the performance of the banking sector. Specifically, we consider the effects on the lending activities of the small banks. We present a model of the credit market based on asymmetric information and moral hazard. Assuming that large banks have monitoring costs benefits compared to depositors regarding the lending activities of the other banks, we show that the two-tier structure induces small banks to engage in less risky lending activities than small banks that finance themselves predominantly in the deposit market. We test this and related hypotheses using financial statement data from banks in 10 EU accession candidate countries. This allows us to compare the financial activities of banks in countries where a two-tier structure prevails with those of small banks in markets where such a pattern is not observed. The results generally confirm the main hypothesis of the model.interbank market, bank risk, bank specialisation, transition economies

Bank mergers and the dynamics of deposit interest rates

Despite extensive research interest in the last decade, the banking literature has not reached a consensus on the impact of bank mergers on deposit rates. In particular, results on the dynamics of deposit rates surrounding bank mergers vary substantially across studies. In this paper, we aim for a comprehensive empirical analysis of a bank merger's impact on deposit rate dynamics. We base the analysis on a unique dataset comprising deposit rates of 624 US banks with a monthly frequency for the time period 1997-2006. These data are matched with individual bank and local market characteristics and the complete list of bank mergers in the US. The data allow us to track the dynamics of bank mergers while controlling for the rigidity of the deposit rates and for a range of merger, bank and local market features. An innovation of our work is the introduction of an econometric approach of estimating the change of the deposit rates given their rigidity. --Deposit rate dynamics,bank mergers,deposit rate rigidity

Deposit market competition, costs of funding and bank risk

This paper presents an empirical examination of the effects of both deposit market competition and of wholesale funding on bank risk simultaneously. The traditional view of the relation between competition and risk has focused on the disciplining role of the charter value. In this project we argue that if the structure of bank liabilities and the costs of retail and wholesale funding are jointly determined with bank risk, the omission of wholesale funding in the empirical analysis of the relation between deposit market competition and risk may give rise to a substantial bias in the estimated results. This will be especially the case where wholesale lenders “screen” their borrowers’ risk as argued by the market discipline literature. We propose a new approach to the estimation of the relation between deposit market competition and bank risk which accounts for the opportunity of banks to shift to wholesale funding when deposit market competition is intense. The analysis is based on a unique comprehensive dataset which combines retail deposit rates data with data on bank characteristics and with data on local deposit market features for a sample of 589 US banks. Our results support the notion of a risk-enhancing effect of deposit market competition.Bank competition ; Bank deposits

Does Interbank Borrowing Reduce Bank Risk?

In this paper we investigate whether banks that borrow from other banks have lower risk levels. We concentrate on a large sample of Central and Eastern European banks which allows us to explore the impact of interbank lending when exposures are long-term and interbank borrowers are small banks. The results of the empirical analysis generally confirm the hypothesis that long-term interbank exposures result in lower risk of the borrowing banks.interbank market; bank risk; market discipline; transition countries

Understanding the Role of Embeddedness in Shaping IT Professional Behavior

This dissertation studies how information technology (IT) professionals become embedded and, in turn, how embeddedness influences organizational behaviors. Embeddedness refers to the extent to which an individual is attached to an organizational or professional setting. Traditionally, embeddedness is defined as having three components: social links, fit and sacrifice. We analyze the traditional conceptualization of embeddedness and identify weaknesses. As a result, we refine these three components to belongingness, fit and utility. To deepen our understanding of embeddedness and its influence on organizational behavior, we develop a theory of embeddedness. We propose that embeddedness grows over time. As embeddedness increases, we argue that professionals develop a desire to remain in a firm and to engage in higher levels of task and contextual performance. We suggest that this relationship is moderated by the presence of external job alternatives. Finally, we propose that embeddedness is directly impacted by technical and contextual skills. To develop our research model, we tailor this theory to the IT context. We hypothesize that firm-specific IT skills, managerial skills and growth opportunities contribute to embeddedness within organizational settings. We also propose that generic IT skills and systems skills positively influence embeddedness within IT professional settings. We suggest that embeddedness within the firm contributes to task performance, contextual performance and retention. We account for the effect of labor markets, and we argue that the presence of job alternatives directly decreases task performance, contextual performance and retention. We also hypothesize that these job alternatives weaken the connection between embeddedness and behavioral outcomes. We tested this research model on a sample of 195 IT professionals. Results find that firm-specific IT skills, managerial skills and growth opportunities contribute to embeddedness within the firm. Embeddedness within the firm positively impacts task performance and contextual performance, and it decreases turnover intention. Generic IT skills and systems skills contribute to embeddedness within IT settings. Perceptions of job alternatives directly decrease task performance and increase turnover intention. Also, perceptions of job alternatives moderate the relationship between embeddedness and behavior. Results show that highly embedded IT professionals are very desirable employees. These professionals engage in higher levels of task performance, more contextual performance behaviors, and have less intention to quit. Furthermore, highly embedded IT professionals are more resistant to the effects of the labor market. While weakly embedded IT professionals vary work efforts based on the strength of the labor market, highly embedded IT professionals do not reduce their level of performance when the IT labor market is strong. Further, we find that IT skills exhibit a significant impact on an IT professional\u27s connection to their job, the IT function, their organization and the IT profession. These results have implications for research and practice. For research, we refine the concept of embeddedness and propose a theory of embeddedness. We also integrate labor market forces into the nomological network surrounding embeddedness. For practice, we demonstrate that highly embedded IT professionals are particularly valuable employees, and we direct managers to the IT skills and growth opportunities that contribute to embeddedness