A more complete conceptual framework for financing of small and medium enterprises

The authors propose a more complete conceptual framework for analysis of credit availability for small and medium enterprises (SMEs). In this framework, lending technologies are the key conduit through which government policies and national financial structures affect credit availability. They emphasize a causal chain from policy to financial structures which affect the feasibility and profitability of different lending technologies. These technologies, in turn, have important effects on SME credit availability. Financial structures include the presence of different financial institution types and the conditions under which they operate. Lending technologies include several transactions technologies, plus relationship lending. The authors argue that the framework implicit in most of the literature is oversimplified, neglects key elements of the chain, and often yields misleading conclusions. A common oversimplification is the treatment of transactions technologies as a homogeneous group, unsuitable for serving informationally opaque SMEs, and a frequent misleading conclusion is that large institutions are disadvantaged in lending to opaque SMEs.Banks&Banking Reform,Financial Intermediation,Investment and Investment Climate,Economic Theory&Research,Financial Crisis Management&Restructuring

Efficiency of Financial Institutions: International Survey and Directions for Future Research

This paper surveys 130 studies that apply frontier efficiency analysis to financial institutions in 21 countries. The primary goals are to summarize and critically review empirical estimates of financial institution efficiency and to attempt to arrive at a consensus view. We find that the various efficiency methods do not necessarily yield consistent results and suggest some ways that these methods might be improved to bring about findings that are more consistent, accurate, and useful. Secondary goals are to address the implications of efficiency results for financial institutions in the areas of government policy, research, and managerial performance. Areas needing additional research are also outlined.

Bank ownership type and banking relationships

The authors formulate and test hypotheses about the role of bank ownership types-foreign, state-owned, and private domestic banks-in banking relationships, using data from India. The empirical results are consistent with all of their hypotheses with regard to foreign banks. These banks tend to serve as the main bank for transparent firms, and firms with foreign main banks are most likely to have multiple banking relationships, have the most relationships, and diversify relationships across bank ownership types. The data are also consistent with the hypothesis that firms with state-owned main banks are relatively unlikely to diversify across bank ownership types. However, state-owned banks often do not provide the main relationship for firms they are mandated to serve (for example, small, opaque firms), and the predictions of negative effects on multiple banking and number of relationships hold for only one type of state-owned bank.Banks&Banking Reform,Financial Intermediation,Financial Crisis Management&Restructuring,Banking Law,Economic Theory&Research

Consistency conditions for regulatory analysis of financial institutions: a comparison of frontier efficiency methods

We propose a set of consistency conditions that frontier efficiency measures should meet to be most useful for regulatory analysis or other purposes. The efficiency estimates should be consistent in their efficiency levels, rankings, and identification of best and worst firms, consistent over time and with competitive conditions in the market, and consistent with standard nonfrontier measures of performance. We provide evidence on these conditions by evaluating and comparing efficiency estimates on U.S. bank efficiency from variants of all four of the major approaches -- DEA, SFA, TFA, and DFA -- and find mixed results.Financial institutions ; Bank supervision

Banking reforms, performance and risk in China

We investigate the impact of the banking reform started from 2005 on ownership structures in China on commercial banks’ profitability, efficiency and risk over the period 2000–2012, providing comprehensive evidence on the impact of banking reform in China. We find that banks on average tend to have higher profitability, lower risk and lower efficiency after the reforms, and the results are robust with our difference-in-difference approach. Our results also show that the Big 5 state-owned banks (SOCB) underperform banks with other types of ownership when risk is measured by non-performing loans (NPLs) over the entire study period but tend to have fewer NPLs than other banks during the post-reform period. Our results provide some supporting evidence on the ongoing banking reforms in China, suggesting that attracting strategic foreign investors and listing SOCBs on stock exchanges appear to be effective ways to help SOCBs deal with the problem of NPLs and manage their risk

Cost and profit efficiency of french commercial banks

The purpose is to investigate the efficiency levels of commercial domestic versus foreign banks in France by comparing the use of basic accounting ratios and the stochastic cost and profit frontier analysis (SFA). We analyze the profit and cost efficiency of domestic and foreign banks operating in France using unbalanced sample, including 62 domestic and 40 foreign banks over the period 2000-2007. We show that foreign banks exhibit higher cost and profit efficiency than domestic banks. This finding goes against previous empirical literature, concluding on advantage of cost efficiency for domestic banks in developed countries such as France (Berger et al. (2000)). However, the comparison between the cost efficiency and the profit efficiency scores, suggests that foreign banks are better managed in terms of profit efficiency mainly due to higher cost efficiency. On the other side, profit efficiency of domestic banks, was due to higher revenue efficiency. This suggests that French domestic banks operate with excessive margins.efficiency, domestic banks, foreign banks

Deregulation, Entry of Foreign Banks and Bank Efficiency in Australia

This study considers the efficiency of banking in Australia during the post-deregulation period 1988-2001. Since 1986 restrictions upon foreign bank entry and foreign ownership have been affectively abolished. Using Data Envelopment Analysis (DEA) and Malmquist Indices, we find that the new foreign banks are more (input) efficient than domestic banks, mainly due to their superior scale efficiency. However, this superior efficiency did not necessarily result in superior profits. Our results are consistent with the limited global advantage hypothesis of Berger et al (2000). We argue that the major Australian banks have used size as a barrier to entry to the new entrants in the post-deregulation period. Furthermore, bank efficiency seems to have increased post-deregulation and the competition resulting from diversity in bank types was important to prompt improvements in efficiency. Finally, the recession of the early 1990s resulted in a distinct shift in the process of efficiency changes.foreign banks, deregulation, data envelopment analysis, Malmquist indices

The impact of regulatory reforms on cost structure, ownership and competition in Indian banking

This paper evaluates the impact of financial sector reforms on the cost structure characteristics and on the ownership–cost efficiency relationship in Indian banking. It also examines the impact of reforms on the dynamics of competition in the lending market. We find evidence that deregulation improves banks performance and fosters competition in the lending market. Results suggest technological progress, once Indian commercial banks have adjusted to the new regulatory environment. This, however, does not translate in efficiency gains. There is also evidence of an ownership effect on the level and pattern of efficiency change. Finally, competition keeps building pace even in the re-regulation period and technological improvements are not hampered by the tightening of prudential norms

Do Islamic and conventional banks have the same technology?

Is there a technology gap between Islamic and conventional banks? Do Islamic and conventional banks have different cost efficiency levels? We show that conventional and Islamic banks have similar mean (aggregate) cost efficiency levels in the MENA area and there is no technology gap between the two types of banks. At the country level, Islamic banks are more cost efficient than conventional banks in Indonesia, Pakistan, Turkey and United Arab Emirates, and less efficient in Bangladesh, Kuwait, Malaysia and Tunisia. We analyse a very large sample of banks in twelve MENA and South East Asian countries between 2000 and 2006 and we use the meta-frontier approach to account for the sample heterogeneity

Bank Capital Buffer and Risk Adjustment Decisions

Building an unbalanced panel of United States (US) bank holding company (BHC) and commercial bank balance sheet data from 1986 to 2006, we examine the relationship between short-term capital buffer and portfolio risk adjustments. Our estimations indicate that the relationship over the sample period is a positive two-way relationship. Moreover, we show that the management of such adjustments is dependent on the degree of bank capitalization. Further investigation through time-varying analysis reveals a cyclical pattern in the uncovered relationship: negative after the 1991/1992 crisis, and positive before 1991 and after 1997.Bank capital, Portfolio Risk, Regulation