Bank Capital Behaviour: Empirical Evidence for Switzerland

In recent years, regulators have increased their focus on the capital adequacy of banking institutions to enhance the stability of the financial system. The purpose of the present paper is to shed some light on whether and how Swiss Banks react to constraints placed by the regulator on their capital. Building on previous work by Shrieves and Dahl (1992), we use a simultaneous equations model to analyse adjustments in capital and risk at Swiss banks, when those approach the minimum regulatory capital level. Our results indicate that regulatory pressure induce banks to increase their capital, but does not affect the level of risk.Risk-based capital; Capital ratios; Portfolio risk

The UBS-SBC Merger and Competition in the Swiss Retail Banking Sector

We address two questions about the impact of the UBS-SBC merger: (i) How will the concentration in the Swiss retail banking market change, and (ii) what are the expected consequences for the consumers. The answer to the first question is based on a comparison of Herfindahl and C3-indices in 1997 as they actually have been to as they could have been if the banks already had been merged. For both types of indices, and for the two product groups considered (loans and mortgages, savings deposits) the impact of the merger is huge. To answer the second question, we have examined how concentration interfered with savings deposits and mortgages interest rates in the previous decade, between the cantons and over time. The results obtained for savings deposits indicate that the structure performance hypothesis dominates for large cantons, while the efficiency hypothesis and the contestable market hypotheses cannot be rejected for small cantons. For mortgages, the contestable market hypotheses clearly dominates for large cantons, while for small cantons evidence is split between the efficiency hypothesis and the contestable market hypothesis.

The Performance of Universal Banks: Evidence from Switzerland

This paper examines the production structure of Swiss banks in the period 1996-99. Using a variety of output specifications, we find evidence of large relative inefficiencies across Swiss banks. The results show the importance of accounting for the broad range of activities that universal banks undertake, e.g., failure to account for off-balance sheet items, trading, and brokerage and portfolio management activities leads profit efficiency to be dramatically understated. We find evidence of economies of scale for small and mid-size banks, but little evidence that significant scale economies remain for the very largest banks. Finally, evidence on scope economies is weak for the largest banks that are involved in a wide variety of activities. These results suggest few obvious benefits from the trend toward larger universal banks.

Bank Integration and Business Volatility in the U.S.

We investigate how bank migration across state lines over the last quarter century has affected the size and covariance of business fluctuations within states. Starting with a two-state version of the unit banking model in Holmstrom and Tirole (1997), we conclude that the theoretical effect of integration on business cycle size is ambiguous, as some shocks are dampened by integration, but others are amplified. Empirically, we find that integration diminishes employment growth fluctuations within states, and decreases the deviations in employment growth across states. Business cycles within states become smaller with integration, in other words, but more alike. Our results for the United States bear on the financial convergence underway in Europe, where banks remain highly fragmented across nations.

The New Basel Accord: Implications of the Co-existence between the Standardized Approach and the Internal Ratings-based Approach

We examine the prudential implications of the co-existence between the standardized approach and the internal ratings-based (IRB) approach, as defined in the new Basle Accord. We consider a model in which sophisticated banks, eligible for the IRB approach, and unsophisticated banks, eligible for the standardized approach, allocate their loan portfolio between high-risk and lowrisk borrowers. We find that the co-existence between the two regimes may induce sophisticated banks to decrease risk-taking, but encourage unsophisticated banks to increase risk-taking. The risk reallocation effects are stronger when competition is more intense.

Bank Integration and State Business Cycles

We investigate how integration of bank ownership across states has affected economic volatility within states. In theory, bank integration could cause higher or lower volatility, depending on whether credit supply or credit demand shocks predominate. In fact, year-to-year fluctuations in a state's economic growth fall as its banks become more integrated (via holding companies) with banks in other states. As the bank linkages between any pair of states increases, fluctuations in those two states tend to converge. We conclude that interstate banking has made state business cycles smaller, but more alike.Bank integration; Business volatility; Geographic diversification

Bank Integration and Business Volatility

We investigate how bank migration across state lines over the last quarter century has affected the size and covariance of business fluctuations across states. Starting with a two-state version of the unit banking model in Holmstrom and Tirole (1997), we conclude that the theoretical effect of integration on business fluctuations is ambiguous because integration dampens the impact of bank capital shocks but amplifies the impact of firm collateral shocks. The net effect empirically seems stabilizing, however, as we find fluctuations in employment growth within states falls as integration rises, especially when we instrument for the level of integration and control for employment composition within states. Integration also weakens the link between bank capital growth within states and growth in state employment and bank lending.

Bank Integration and State Business Cycles

We investigate how the better integration of U.S. banks across states has affected economic volatility within states. In theory, the link between bank integration and volatility is ambiguous; integration tends to dampen the impact of bank capital shocks on state activity, but it amplifies the impact of firm collateral shocks. Empirically, the net effect has been stabilizing as year-to-year fluctuations in employment growth within states fall as that state's banks become better integrated (via holding companies) with banks in other states. The magnitudes are large, and the effects are most pronounced in states with relatively undiversified economies. Consistent with our model, we find the link between economic growth and bank capital within a state weakens with integration, whereas the link between growth and housing prices (a possible proxy for firm capital) tends to increase.

Relationship between the Clinical Frailty Scale and short-term mortality in patients ≥ 80 years old acutely admitted to the ICU: a prospective cohort study.

BACKGROUND: The Clinical Frailty Scale (CFS) is frequently used to measure frailty in critically ill adults. There is wide variation in the approach to analysing the relationship between the CFS score and mortality after admission to the ICU. This study aimed to evaluate the influence of modelling approach on the association between the CFS score and short-term mortality and quantify the prognostic value of frailty in this context. METHODS: We analysed data from two multicentre prospective cohort studies which enrolled intensive care unit patients ≥ 80 years old in 26 countries. The primary outcome was mortality within 30-days from admission to the ICU. Logistic regression models for both ICU and 30-day mortality included the CFS score as either a categorical, continuous or dichotomous variable and were adjusted for patient's age, sex, reason for admission to the ICU, and admission Sequential Organ Failure Assessment score. RESULTS: The median age in the sample of 7487 consecutive patients was 84 years (IQR 81-87). The highest fraction of new prognostic information from frailty in the context of 30-day mortality was observed when the CFS score was treated as either a categorical variable using all original levels of frailty or a nonlinear continuous variable and was equal to 9% using these modelling approaches (p < 0.001). The relationship between the CFS score and mortality was nonlinear (p < 0.01). CONCLUSION: Knowledge about a patient's frailty status adds a substantial amount of new prognostic information at the moment of admission to the ICU. Arbitrary simplification of the CFS score into fewer groups than originally intended leads to a loss of information and should be avoided. Trial registration NCT03134807 (VIP1), NCT03370692 (VIP2)