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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The Economics of Restructuring the German Electricity Sector
Christian Growitsch, Felix Müsgens
Zeitschrift für Energiewirtschaft,
No. 3,
2005
Abstract
The debate about the development of German electricity prices after the liberalization of energy markets in 1998 raises the question of failures in market restructuring. However, a general statement would be misleading for two main reasons. Firstly, the price development, analyzed for the exemplary case of household prices, shows significant differences among the stages of the value chain. Secondly, the underlying cost structure might have changed from 1998 to 2004. While such effects can be expected to level out over time, they can distort the comparison of a small period of observation. For these reasons, we analyzed the different price components at a detailed level, finding a considerable price reduction of about 32% in generation and a much lower reduction of 13% in transmission and distribution tariffs. These decreases have been mostly compensated by a significant increase in taxes and subsidies (+56%).
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An analysis of household electricity price developments in Germany since liberalization
Christian Growitsch, Felix Müsgens
Externe Publikationen,
2005
Abstract
Despite the liberalization of energy markets in 1998, household electricity prices in 2004 are nearly the same as 1998, indicating a failure of market restructuring. However, such a general consideration is misleading for two main reasons. Firstly, the price development shows significant differences among the stages of the value chain. Secondly, the underlying cost structure might have changed from 1998 to 2004. While such effects can be expected to level out over time, they can distort the comparison of a small period of observation. For these reasons, we analyzed the different price components at a detailed level, finding a considerable price reduction of about 32% in generation and a much lower reduction of 13% in transmission and distribution tariffs. These decreases have been mostly compensated by a significant increase in taxes and subsidies (+56%).
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Property networks of corporations as cause of abusive behaviour – A stock market analysis based on institutional economics
Makram El-Shagi
Applied Financial Economics Letters,
No. 5,
2005
Abstract
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Deposit Insurance, Moral Hazard and Market Monitoring
Reint E. Gropp, Jukka M. Vesala
Review of Finance,
No. 4,
2004
Abstract
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.
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Market Indicators, Bank Fragility, and Indirect Market Discipline
Reint E. Gropp, Jukka M. Vesala, Giuseppe Vulpes
Economic Policy Review,
No. 2,
2004
Abstract
A paper presented at the October 2003 conference “Beyond Pillar 3 in International Banking Regulation: Disclosure and Market Discipline of Financial Firms“ cosponsored by the Federal Reserve Bank of New York and the Jerome A. Chazen Institute of International Business at Columbia Business School.
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Investment, Financial Markets, New Economy Dynamics and Growth in Transition Countries
Albrecht Kauffmann, P. J. J. Welfens
Economic Opening Up and Growth in Russia: Finance, Trade, Market Institutions, and Energy,
2004
Abstract
The transition to a market economy in the former CMEA area is more than a decade old and one can clearly distinguish a group of relatively fast growing countries — including Estonia, Poland, the Czech Republic, Hungary and Slovenia — and a majority of slowly growing economies, including Russia and the Ukraine. Initial problems of transition were natural in the sense that systemic transition to a market economy has effectively destroyed part of the existing capital stock that was no longer profitable under the new relative prices imported from world markets; and there was a transitory inflationary push as low state-administered prices were replaced by higher market equilibrium prices. Indeed, systemic transformation in eastern Europe and the former Soviet Union have brought serious transitory inflation problems and a massive transition recession; negative growth rates have continued over many years in some countries, including Russia and the Ukraine, where output growth was negative throughout the 1990s (except for Russia, which recorded slight growth in 1997). For political and economic reasons the economic performance of Russia is of particular relevance for the success of the overall transition process. If Russia would face stagnation and instability, this would undermine political and economic stability in the whole of Europe and prospects for integrating Russia into the world economy.
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Current Trends - Sharp drops at the stock markets: Steps back to normality
Axel Lindner, Marian Berneburg
Wirtschaft im Wandel,
No. 15,
2002
Abstract
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A revised theory of contestable markets : applied on the German telecommunication sector
Christian Growitsch, Thomas Wein
Externe Publikationen,
No. 275,
2002
Abstract
Despite the scepticism raised by the German Monopoly Commission our analysis shows that the revised theory of contestable markets can be applied to the telecommunications market better than expected. The original contestable market theory implied three assumptions necessary to be satisfied to establish potential competition: Free market entry, market exit is possible without any costs, and the price adjustment lag exceeds the entry lag. Our analysis shows that if the incumbent reduces its prices slowly (high adjustment lag) and the market entry can be performed quickly (low entry lag), a new competitor will be able to earn back sunk costs. Therefore it is not necessary that all three conditions are satisfied for potential competition to exist. We applied the ‘revised’ contestable market theory to the German telecommunication market and have been able to clearly identify the value added stages in which regulation is required. Under the present conditions local loops - which can be determined as natural monopolies - are not contestable due to sunk costs, high entry lags expected and a probable short price adjustment lag. Local loops can be identified as monopolistic bottlenecks therefore. Regional and local connection networks should also be regulated because a high entry lag and a low price adjustment lag have to be expected as well as current competition does not exist today. The national connection network shows current competition between several network providers; hence regulation can be abolished in this field. Assumed that network access is regulated, services can be supplied by several competing firms.
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Central and Eastern European stock markets: Insufficient liquidity restricts development
Thomas Linne
Wirtschaft im Wandel,
No. 5,
2000
Abstract
Als Folge der Russlandkrise im August 1998 haben viele internationale Investoren ihre Aktienengagements in den Ländern Mittel- und Osteuropas einer kritischeren Betrachtung unterzogen. Mit dem Rückgang der Portfolioinvestitionen ausländischer Anleger sind wichtige Handelsteilnehmer an den Aktienmärkten weggefallen. Dies hat die ohnehin schon geringe Liquidität noch weiter verringert. Wichtige Impulse für die Entwicklung der Kapitalmärkte können von der Gründung von Pensionsfonds ausgehen, die als Kapitalsammelstellen zusätzliche inländische Nachfrage nach Wertpapieren schaffen.
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