Deposit insurance, moral hazard and market monitoring

The paper analyses the relationship between deposit insurance, debt-holder monitoring, and risk taking. In a stylised banking model we show that deposit insurance may reduce moral hazard, if deposit insurance credibly leaves out non-deposit creditors. Testing the model using EU bank level data yields evidence consistent with the model, suggesting that explicit deposit insurance may serve as a commitment device to limit the safety net and permit monitoring by uninsured subordinated debt holders. We further find that credible limits to the safety net reduce risk taking of smaller banks with low charter values and sizeable subordinated debt shares only. However, we also find that the introduction of explicit deposit insurance tends to increase the share of insured deposits in banks’ liabilities. JEL Classification: G21, G28banking, Deposit Insurance, Market Monitoring, Moral Hazard

Forecasting the Electronification of Payments with Learning Curves: The Case of Finland

This paper examines the electronification of noncash payments in Finland and the extent to which noncash payment means are used as substitutes for cash. We model the processes of cash substitution and electronification of payments as 'S'-shaped learning curves and generate forecasts by extrapolating these curves. The 'S'-shaped learning curves fit the data well. Our results indicate that in Finland the cash substitution process as a whole is approaching the saturation point. Although the electronification process is clearly ongoing as regards larger-value bill payments, for small-value point-of-sale payments we seem to have reached saturation. Electronification of payments, having progressed swiftly and extensively in Finland, is already beginning to slow down. We conclude the paper with a discussion of the reasons for this turn of events and of the different factors that affect the speed of diffusion of new means of payment.payments; electronification; learning curves

Finnish Deposit Banks 1980–1993: Years of Rapid Growth and Crisis

This study investigates the growth of Finnish deposit banks over the period 1980–1993. We examine the growth in balance sheets, lending and deposits of the public as well as major changes in the balance sheet structure. The focus of the study is first on the overall banking industry and second on the commercial, savings and cooperative banks as groups, including a separate treatment of the largest commercial banks. The study ends with a brief comparison of the Nordic countries. Also included is a discussion of changes that have occurred in the banking environment, but the emphasis is on the effects of bank-specific microeconomic factors on the rapid acceleration in the growth of bank lending and on the heating up of competition for market share, which took place after lending rates were deregulated and foreign exchange regulations eased. The micro factors examined are the change in banks' risk profile during the period of rapid growth as well as the various incentives behind the growth and competition for market share. To be sure, changes in the banking environment and macroeconomic developments have played a role in fomenting the banks' profitability crisis in the beginning of the 1990s, but the main reasons for the crisis can be found in the banks' strategic choices.deposit banks; banking crisis; financial deregulation

Palveluntarjoajan tuntihinnan rakenne : Palvelun tilaajan näkökulma

Opinnäytetyöni tilaajaorganisaationa on nykyinen työnantajani Stora Enso Sourcing Finland / Efora Oy, jossa työskentelen ostopäällikkönä Stora Enson Veitsiluodon tehtailla. Opinnäytetyöni aiheen taustalla oli tarve kuvata palveluyrityksen opinnäytetyöni tilaajaorganisaatiolle tarjoaman palvelutyön tuntihinnan rakenne. Opinnäytetyöni kehitystehtävän tavoitteena on luoda opinnäytetyön tilaajaorganisaation käyttöön seurantatiedosto, jota yrityksen hankintaorganisaatio voi hyödyntää palveluntarjoajien sopimushintojen seurannassa. Tässä palveluntarjoajien tuntihintojen seurantatiedostossa palveluntarjoajan sopimushinta paikkakunnalla puretaan osiin, sisältäen työntekijälle maksettavan työehtosopimuksen mukaisen tuntipalkan, työnantajan maksamat pakolliset työnantajamaksut sekä vakuutusmaksut. Lisäksi seurantatiedostossa huomioidaan työntekijälle maksettavat verottomat matka-, päiväraha- tai ateriakustannukset sekä työntekijän työssä tarvitsemien henkilökohtaisten työ- ja turvavälineiden kustannus. Opinnäytetyöni seurantatiedostossa näihin työnantajan työsuorituksista maksamiin kokonaiskustannuksiin lisätään työnantajayrityksen vuoden 2015 tilinpäätöstietojen avulla laskettu yrityksen käyttökate ja saadun tuloksen pohjalta arvioidaan työnantajayrityksen voimassa olevan sopimushinnan katetasoa. Opinnäytetyössäni olen soveltanut Oulun ammattikorkeakoulun liiketalouden tradenomin tutkinnon opintomateriaalia opinnäytetyöni tietoperustan rakentamisessa. Opinnäytetyöni tutkimusmenetelmäksi valikoitui selvityksellinen tutkimus, jossa selvitetään sekä kuvataan varsinaisen tutkimusongelman teoriatausta sekä mallinnetaan ratkaisu tähän tutkimusongelmaan. Työssäni hyödynsin myös eri ammattiyhdistysliikkeiden julkaisemia työehtosopimusten tietoja sekä verohallinnon ja lainsäätäjän virallisilla internet-sivustoilla tarjoamia työnantajamaksuihin liittyviä tietoja. Tässä opinnäytetyössäni tutkimusongelman ratkaisuna luotu palveluntarjoajan tuntihinnan rakenteen ja tuntihinnan sisältämien palkan eri osien muutosten seurantaan valmistunut seurantatiedosto on käyttökelpoinen työkalu tilaajayrityksen hankintatoimessa. Seurantatiedoston ylläpito vaatii vuotuisia päivityksiä, mutta lopputulos on kaikkien hankinnoista vastaavien hyödynnettävissä sopimusalueensa hankintaneuvotteluissa.This thesis is commissioned by the organization I currently work for. The organization is called Stora Enso Sourcing Finland where the author acts in purchasing manager´s role in the Mills located in Veitsiluoto, Kemi. The need for the thesis came from my own personal need to open and formalize the structure of hourly price offered by service providers working for the organization. The purpose of this thesis was to open and describe the hourly price of the service provider, what fundaments are behind the suppliers provided hourly rate and further create a follow up template for these fundaments. The fundaments behind the service provider hourly rate can be divided into three categories. At first the employer must pay to its employees a salary based on agreed collective agreement, the employee´s experience and working conditions the employee mainly works in. The second and significant fundament and cost for employer are mandatory employer fees ja insurance fees. The third fundament behind hourly rate is circumstantial factors. Further in this thesis companies sales margins and operating margins are calculated based on year 2015 financial statement and a balance sheet. These sales and operating margins are added to service provider´s costs and result is compared with current agreement price, if there can be found any great deltas between valid contract price and thesis findings. Theoretical background of this thesis is based on the lecture material and professional literature used in Bachelor of Business Administration education in Oulu University of Applied Sciences. Furthermore, information on union website together with information provided by authorities on tax.fi and finlex.fi were utilized for the theoretical framework. The thesis problem was to describe the service provider´s hourly fee in theory. Furthermore the purpose in the thesis was to create a follow-up template for these hourly rates and describe all the annual changes to employer´s mandatory fees and possible changes due the collective agreements. The result of the thesis is follow-up table that is available in the organization for the employees who does contract negotiations and delivery agreements for the company

Substitution of noncash payment instruments for cash in Europe

The substitution of noncash (check, giro, and credit and debit card) payments for cash transactions is difficult to gauge because there are no data series on the actual value or volume of cash transactions in any country. However, determining the degree of cash substitution is important because it will negatively affect government seigniorage revenue and, if cash use falls fast enough, may require tax revenues to redeem excess currency holdings. We utilise a novel method for approximating the volume of cash transactions using public information on currency stocks and noncash payments. Applying this method, we estimate how cash has been substituted by other payment instruments in 10 European countries. We also provide a forecast of future cash use by country. We find that the trend in cash substitution across countries is quite similar. However, the countries themselves are at significantly different stages of this substitution process. The spread of debit and credit card payments has been the key factor behind the substitution away from cash as use of e-cash innovation is still in its infancy. Country-specific differences in the substitution process are largely explained by differences in the level of implementation of each country’s card payment technology.cash substitution; learning curves; seigniorage

Market Indicators, Bank Fragility, and Indirect Market Discipline

We examine whether two commonly used indicators of bank fragility, the subordinated debt spread and KMV’s distance to default, yield signals in line with supervisors’ interests. We argue that supervisors would prefer indicators that are strictly increasing in earnings, and decreasing in leverage and earnings volatility. Using standard option pricing, we show that the two indicators do indeed satisfy these properties if the firm is still solvent. We also summarise the results from a test of these properties in a sample of EU banks during the 1990s. The results suggest that the distance to default signals bank fragility earlier than the subordinated debt spread. Also, the spread is affected by the implicit safety net of the bank. Finally, the results suggest that the indicators may add marginal value to accounting information through a reduction in Type II (“false positive”) errors.Banking; Bank fragility; Market indicators; Market discipline; Bankruptcy predictors

Equity and bond market signals as leading indicators of bank fragility

We analyse the ability of the distance-to-default and bond spreads to signal bank fragility. We show that both indicators are complete and unbiased and that spreads are non-linear in the probability of bank default. We empirically test these properties in a sample of EU banks. We find leading properties for both indicators. The distance-to-default exhibits lead times of 6 to 18 months. Spreads have signal value close to default only, in line with the theory. We also find that implicit safety nets weaken the predictive power of spreads. Further, the results suggest complementarity between both indicators, reducing type I errors. We also examine the interaction of the indicators with other bank information. JEL Classification: G21, G12Bank fragility, banking, Market Indicators

Market indicators, bank fragility, and indirect market discipline

As a theoretical matter, signals from the bond and equity markets satisfy minimal requirements for a useful indicator. Using option pricing formulas, it is shown that a distance to default measure, based on equity market value and equity volatility, increases with the market value of bank assets and decreases with bank leverage and equity volatility.Bank supervision ; Banks and banking - Accounting ; Bank stocks ; Bank profits

Cross-border bank contagion in Europe

This paper analyses cross-border contagion in a sample of European banks from January 1994 to January 2003. We use a multinomial logit model to estimate the number of banks in a given country that experience a large shock on the same day (“coexceedances”) as a function of variables measuring common shocks and coexceedances in other countries. Large shocks are measured by the bottom 95th percentile of the distribution of the first difference in the daily distance to default of the bank. We find evidence in favour of significant cross-border contagion. We also find some evidence that since the introduction of the euro cross-border contagion may have increased. The results seem to be very robust to changes in the specification

Banking integration in the euro area

This paper provides an assessment of the degree of integration in banking services in the euro area. It diverges from the typical analysis on integration in the financial sector by focusing on the main financial products and services provided by banks to corporate and personal clients rather than on financial markets. As the “law-of-one-price” concept is often not applicable to banking products and services, a wide range of quantitative and qualitative indicators of integration is used in the analysis. Indicators of integration are reviewed for three product areas: wholesale (unsecured interbank loans and deposits, repo market) capital market-related (corporate finance services, asset management and trading) and retail (directed to households and small firms). The main conclusions are that while the market on wholesale banking services is strongly integrated and integration is advancing at a fast pace in capital market-related activities, market segmentation is still significant at the retail level.