Russia: A Victim to Transition or to the Financial Crisis?
Marina Grusevaja
Wirtschaft im Wandel,
No. 8,
2009
Abstract
The global financial crisis has revealed deficiencies of the Russian economic system which are caused by the path of the transformation from central planning to the market economy, and not only attributable to the downfall of crude oil prices. While the worldwide liquidity crunch impaired the availability of loans to enterprises, the situation in Russia has deteriorated especially by the large exposure of the private sector to short-term foreign liabilities and by the one-sided orientation of the economy relying on the natural resources industry. Until the mid-2008, the foreign debt of the private banks and non-banks had increased strongly and had strengthened the dependence of the Russian economy on the developments on the international financial markets. The Ruble devaluation at the end of January 2009 aggravated the situation. The high short-term foreign debt of the private sector and the dependence on exports of natural resources are typical outcomes of the Russian transformation path. Therefore, on the one hand, the banking sector has not being able to satisfy financing demand of the private sector beyond the natural resources industries, enterprises became forced to borrow short-term money abroad. On the other hand, the economic strategy of the past seventeen years has strengthened the influence of the state on the natural resources sector – with the strong priority to develop it further. Hence, the one-sided economic development negatively affects the adaptability of the real-economic sector to change during the crisis period. In essence, the present political preferences of the government are aimed at providing direct financial assistance and at protectionist measures. In the long run, these actions could lead to stronger intervention of the state in the economy. Due to these recent developments, the crisis is likely to continue in Russia longer than in the other transformation countries.
Read article
Lending Technology, Bank Organization and Competition
Hans Degryse, Steven Ongena, Günseli Tümer-Alkan
Journal of Financial Transformation,
2009
Abstract
This paper reviews recent theoretical and empirical studies investigating how both bank technology and organization shape bank-borrower interactions. We refer to two related concepts for bank technology. First, the technologies banks employ in loan granting decisions and second, the advances in information technology linked to the bank's lending technology. We also summarize and interpret the theoretical and empirical work on bank organization and its influence on lending technologies. We show that the choice of lending technology and bank organization depend heavily on the availability of information, the technological progress in the collection of information, as well as the banking market structure and the legal environment. We draw important policy conclusions from the literature. Competition authorities and supervisors have to remain alert to the consequences of the introduction of any new technology because: (1) advances in technology do not necessarily lead to more intense banking competition, and (2) the impact of technological and financial innovation on financial efficiency and stability depends on the incentives of the entire „loan production chain.‟
Read article
Securitization and the Declining Impact of Bank Finance on Loan Supply: Evidence from Mortgage Originations
Elena Loutskina, Philip E. Strahan
Journal of Finance,
No. 2,
2009
Abstract
Low‐cost deposits and increased balance sheet liquidity raise banks' supply of illiquid loans more than loans easily sold or securitized. We exploit the inability of Fannie Mae and Freddie Mac to purchase jumbo mortgages to identify an exogenous change in liquidity. The volume of jumbo mortgage originations relative to nonjumbo originations increases with bank holdings of liquid assets and decreases with bank deposit costs. This result suggests that the increasing depth of the mortgage secondary market fostered by securitization has reduced the effect of lender's financial condition on credit supply.
Read article
The Impact of Organizational Structure and Lending Technology on Banking Competition
Hans Degryse, Luc Laeven, Steven Ongena
Review of Finance,
No. 2,
2009
Abstract
We investigate how bank organization shapes banking competition. We show that a bank's geographical lending reach and loan pricing strategy is determined by its own and its rivals’ organizational structure. We estimate the impact of organization on the geographical reach and loan pricing of a large bank. We find that the reach of the bank is smaller when rival banks are large and hierarchically organized, have superior communication technology, have a narrower span of organization, and are closer to a decision unit with lending authority. Rival banks’ size and the number of layers to a decision unit soften spatial pricing.
Read article
The Effect of the Iraq War on Foreign Bank Lending to the MENA Region
H. Evren Damar
Emerging Markets Finance and Trade,
No. 5,
2007
Abstract
This paper examines whether a large geopolitical event, such as the war in Iraq, can affect foreign bank lending from developed countries to emerging markets. Using country-level data, the paper analyzes the effects of economic shocks and the Iraq war on the availability of foreign bank credit to five countries in the Middle East and North Africa. The war has had a nonuniform effect on foreign banks: Although the war has led to higher U.S. lending, it has also discouraged British and Italian banks from lending to the region. Implications concerning the stability and reliability of foreign bank credit in the face of increased geopolitical risks are identified and discussed.
Read article
The Impact of Competition on Bank Orientation
Hans Degryse, Steven Ongena
Journal of Financial Intermediation,
No. 3,
2007
Abstract
How do banks react to increased competition? Recent banking theory significantly disagrees regarding the impact of competition on bank orientation—i.e., the choice of relationship-based versus transactional banking. We empirically investigate the impact of interbank competition on bank branch orientation. We employ a unique data set containing detailed information on bank–firm relationships. We find that bank branches facing stiff local competition engage considerably more in relationship-based lending. Our results illustrate that competition and relationships are not necessarily inimical.
Read article
Bank Lending, Bank Capital Regulation and Efficiency of Corporate Foreign Investment
Diemo Dietrich, Achim Hauck
IWH Discussion Papers,
No. 4,
2007
Abstract
In this paper we study interdependencies between corporate foreign investment and the capital structure of banks. By committing to invest predominantly at home, firms can reduce the credit default risk of their lending banks. Therefore, banks can refinance loans to a larger extent through deposits thereby reducing firms’ effective financing costs. Firms thus have an incentive to allocate resources inefficiently as they then save on financing costs. We argue that imposing minimum capital adequacy for banks can eliminate this incentive by putting a lower bound on financing costs. However, the Basel II framework is shown to miss this potential.
Read article
Heterogeneity in Lending and Sectoral Growth: Evidence from German Bank-level Data
A. Schertler, Claudia M. Buch, N. von Westernhagen
International Economics and Economic Policy,
2006
Abstract
This paper investigates whether heterogeneity across firms and banks matters for the impact of domestic sectoral growth on bank lending. We use several bank-level datasets provided by the Deutsche Bundesbank for the 1996–2002 period. Our results show that firm heterogeneity and bank heterogeneity affect how lending responds to domestic sectoral growth. We document that banks’ total lending to German firms reacts pro-cyclically to domestic sectoral growth, while lending exceeding a threshold of €1.5 million to German and foreign firms does not. Moreover, we document that the response of lending depends on bank characteristics such as the banking groups, the banks’ asset size, and the degree of sectoral specialization. We find that total domestic lending by savings banks and credit cooperatives (including their regional institutions), smaller banks, and banks that are highly specialized in specific sectors responds positively and, in relevant cases, more strongly to domestic sectoral growth.
Read article
Monetary Policy and Bank Lending in Japan: An Agency-based Approach
Diemo Dietrich
Incentives and Economic Behaviour,
2005
Abstract
This paper studies the incentive effects on Japanese banks of a low interest rate policy by the Bank of Japan. It utilizes a simplified version of an overlapping principal-agent-style model of corporate finance originally developed in Dietrich (2003). This model is dedicated to study the monetary policy transmission mechanism by combining arguments of the broad credit channel and the bank lending channel taking into account that banks need to be provided with incentives to monitor entrepreneurs. We argue that stipulating banks to possess some amount of own capital generate these incentives. We denote this capital requirement to be market based and show that this requirement depends crucially on interest rates. After revealing some shortcomings of the credit crunch hypothesis, we apply this approach to the Japanese economy. As a result, a policy of very low interest rates may not only be inefficient but counterproductive to reactivate a stumbled economy via the usual credit channel.
Read article
Distance, Lending Relationships, and Competition
Hans Degryse, Steven Ongena
Journal of Finance,
No. 1,
2005
Abstract
We study the effect on loan conditions of geographical distance between firms, the lending bank, and all other banks in the vicinity. For our study, we employ detailed contract information from more than 15,000 bank loans to small firms comprising the entire loan portfolio of a large Belgian bank. We report the first comprehensive evidence on the occurrence of spatial price discrimination in bank lending. Loan rates decrease with the distance between the firm and the lending bank and increase with the distance between the firm and competing banks. Transportation costs cause the spatial price discrimination we observe.
Read article