Towards Deeper Financial Integration in Europe: What the Banking Union Can Contribute
Claudia M. Buch, T. Körner, Benjamin Weigert
German Council of Economic Experts Working Paper,
No. 2,
2013
Abstract
Der Beitrag wurde anlässlich des gemeinsamen Workshops des Conseil d'Analyse Économique (CAE) und des Sachverständigenrates zur Begutachtung der gesamtwirtschaftlichen Entwicklung zum Thema fiskalische und ökonomische Integration des Euroraums verfasst. Er diskutiert die makroökonomischen Wirkungen einer Bankenunion und mögliche Ausgestaltungsvarianten vor dem Hintergrund der aktuell diskutierten Vorschläge.
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The Term Structure of Banking Crisis Risk in the United States: A Market Data Based Compound Option Approach
Stefan Eichler, Alexander Karmann, Dominik Maltritz
Journal of Banking and Finance,
No. 4,
2011
Abstract
We use a compound option-based structural credit risk model to estimate banking crisis risk for the United States based on market data on bank stocks on a daily frequency. We contribute to the literature by providing separate information on short-term, long-term and total crisis risk instead of a single-maturity risk measure usually inferred by Merton-type models or barrier models. We estimate the model by applying the Duan (1994) maximum-likelihood approach. A strongly increasing total crisis risk estimated from early July 2007 onwards is driven mainly by short-term crisis risk. Banks that defaulted or were overtaken during the crisis have a considerably higher crisis risk (especially higher long-term risk) than banks that survived the crisis.
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Deriving the Term Structure of Banking Crisis Risk with a Compound Option Approach: The Case of Kazakhstan
Stefan Eichler, Alexander Karmann, Dominik Maltritz
Discussion paper, Series 2: Banking and financial studies, No. 01/2010,
No. 1,
2010
Abstract
We use a compound option-based structural credit risk model to infer a term structure of banking crisis risk from market data on bank stocks in daily frequency. Considering debt service payments with different maturities this term structure assigns a separate estimator for short- and long-term default risk to each maturity. Applying the Duan (1994) maximum likelihood approach, we find for Kazakhstan that the overall crisis probability was mainly driven by short-term risk, which increased from 25% in March 2007 to 80% in December 2008. Concurrently, the long-term default risk increased from 20% to only 25% during the same period.
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Competition between Financial Markets in Europe: What can be Expected from MiFID?
Hans Degryse
Financial Markets and Portfolio Management,
No. 1,
2009
Abstract
The Markets in Financial Instruments Directive (MiFID) could be the foundation of new trading platforms in Europe. This contribution employs insights from the theoretical and empirical literature to highlight some of the possible implications of MiFID. In particular, we argue that more competition will lead to more liquid markets, reflected in lower bid–ask spreads and greater depth. It will also lead to innovation in incumbent markets and stimulate the design of new trading platforms. MiFID has already introduced more competition, as evidenced by the startup of Instinet Chi-X, the announcement of new initiatives, including Project Turquoise and BATS, and the reactions of incumbent exchanges.
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Equity and Bond Market Signals as Leading Indicators of Bank Fragility
Reint E. Gropp, Jukka M. Vesala, Giuseppe Vulpes
Journal of Money, Credit and Banking,
No. 2,
2006
Abstract
We analyse the ability of the distance to default and subordinated bond spreads to signal bank fragility in a sample of EU banks. We find leading properties for both indicators. The distance to default exhibits lead times of 6-18 months. Spreads have signal value close to problems only. We also find that implicit safety nets weaken the predictive power of spreads. Further, the results suggest complementarity between both indicators. We also examine the interaction of the indicators with other information and find that their additional information content may be small but not insignificant. The results suggest that market indicators reduce type II errors relative to predictions based on accounting information only.
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Relationship Lending within a Bank-Based System: Evidence from European Small Business Data
Hans Degryse, Patrick Van Cayseele
Journal of Financial Intermediation,
No. 1,
2000
Abstract
We investigate relationship lending using detailed contract information from nearly 18,000 bank loans to small Belgian firms operating within the continental European bank-based system. Specifically, we investigate the impact of different measures of relationship strength on price and nonprice terms of the loan contract. We test for the possibility of rent shifting by banks. The evidence shows two opposing effects. On the one hand, the loan rate increases with the duration of a bank–firm relationship. On the other hand, the scope of a relationship, defined as the purchase of other information-sensitive products from a bank, decreases the loan's interest rate substantially. Relationship duration and scope thus have opposite effects on loan rates, with the latter being more important. We also find that the collateral requirement is decreasing in the duration of the relationship and increasing in its scope.
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