Convergence clubs, the euro-area rank and the relationship between banking and real convergence

This paper analyses banking convergence, measured through the ratios of deposits and loans to GDP, across 65 countries, compares it with per capita income convergence, and tests its effect on real convergence. The focus of the paper is the group of countries that have adopted the euro as a single currency (euro area). It compares the degree of banking and real convergence among these countries with that reached by other 17 potential convergence clubs around the world (including the EU-27, the OECD, the G20, OPEC, and the Arab League). It employs a diversity of methods (ß- and s- analyses, stationarity tests, IV regressions) and finds three main results. First, the degree of convergence is higher within the clubs than in the entire sample, and it is diversified across the clubs. Second, all methodologies confirm euro-area banking convergence. Third, banking convergence has a positive and significant impact in fostering real convergence.convergence, comparing banking systems, euro area

Do interbank customer relationships exist? And how did they function in the crisis? Learning from Italy

Using 11 years of monthly Italian bank-by-bank data, this paper correlates the bilateral amounts and the identity of each interbank borrower and lender with a long list of explanatory variables. The results show that interbank customer relationships, i.e. stable and strong relationships between pairs of borrowing and lending banks, do exist in Italy, that they persist over time, and that they functioned well during the crisis, enabling the healthier banks to provide and the troubled ones to receive funds.interbank market, lending relationship, financial crisis

An empirical analysis of national differences in the retail bank interest rates of the euro area

The availability of new harmonized data on bank interest rates allows a rigorous assessment to be made of cross-country price homogeneity/heterogeneity in euro area retail credit markets. Econometric analysis shows that the banking market is still highly segmented and that the degree of integration in a single country (Italy, taken as a benchmark for integration) is greater than in the euro area. However, national differences can be partially explained by variables reflecting the characteristics of domestic depositors and borrowers (“demand side” regressors, such as risk exposure, disposable income, alternative financing sources, average firm size) and the characteristics of the banking systems (“supply side” regressors, such as banking market concentration, asset and liability structure). The euro area prices appear different because national banking products appear different or because they are differentiated by national factors. Once these factors have been controlled for, many differences disappear.bank interest rates, convergence, integration

What are borders made of? An analysis of barriers to European banking integration

Linguistic and cultural differences, different legal and supervisory frameworks, relationship lending have been repeatedly mentioned as barriers to European retail banking integration. We investigate whether these barriers have affected integration within national boundaries, using an index of localism of regional banking systems as a measure of market integration. If local banks are established and flourish because asymmetric information makes entry difficult for non-incumbents (DellÂ’Ariccia, 2001) or regulatory and governance rules prevent entry from outside (Berger et al., 1995), we should find a significant relationship between indicators of these barriers and measures of the localism of banking systems. Our results show that this is indeed the case for asymmetric information, while findings are more blurred for supervisory practices.banking integration, barriers, asymmetric information

Why do (or did?) banks securitize their loans? Evidence from Italy

This paper investigates the ex-ante determinants of bank loan securitization by using different econometric methods on Italian individual bank data from 2000 to 2006. Our results show that bank loan securitization is a composite decision. Banks that are less capitalized, less profitable, less liquid and burdened with troubled loans are more likely to perform securitization, for a larger amount and earlier.securitization, credit risk transfer, capital requirements, liquidity needs

The benefits and costs of adjusting bank capitalisation: evidence from Euro Area countries

El artículo propone un marco para evaluar el impacto de los colchones de capital a nivel de todo el sistema y a nivel bancario. La evaluación se basa en un modelo FAVAR (Factor-Augmented Vector Autoregression) que relaciona los ajustes bancarios individuales con la dinámica macroeconómica. El modelo FAVAR se estima individualmente para once economías de la zona del euro y se identifican impactos estructurales, lo que permite diagnosticar las principales vulnerabilidades de los sistemas bancarios nacionales y al mismo tiempo estimar los costes económicos a corto plazo del aumento de capital de los bancos. Sobre esta base, se realiza una evaluación completa de la relación coste-beneficio de un incremento en los colchones de capital. Los beneficios están relacionados con un aumento en la capacidad de resistencia de los bancos a perturbaciones adversas. Una mayor capitalización permite a los bancos hacer frente a impactos negativos y modera la reducción del crédito a economía real que se produce en circunstancias adversas. Los costes se relacionan con pérdidas transitorias de crédito y producción que son evaluadas tanto a nivel agregado como bancario. Se obtiene que un aumento en los ratios de capital tienen un impacto muy diferente en la actividad crediticia y económica, dependiendo de la forma en que los bancos se ajustan, es decir, bien a través de cambios en los activos o en capital.The paper proposes a framework for assessing the impact of system-wide and bank-level capital buffers. The assessment rests on a factor-augmented vector autoregression (FAVAR) model that relates individual bank adjustments to macroeconomic dynamics. We estimate FAVAR models individually for eleven euro area economies and identify structural shocks, which allow us to diagnose key vulnerabilities of national banking systems and estimate short-run economic costs of increasing banks’ capitalisation. On this basis, we run a fullyfledged cost-benefit assessment of an increase in capital buffers. The benefits are related to an increase in bank resilience to adverse shocks. Higher capitalisation allows banks to withstand negative shocks and moderates the reduction of credit to the real economy that ensues in adverse circumstances. The costs relate to transitory credit and output losses that are assessed both on an aggregate and bank level. An increase in capital ratios is shown to have a sharply different impact on credit and economic activity depending on the way banks adjust, i.e. via changes in assets or equity