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.‟
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Effects of Heterogeneity on Bank Efficiency Scores
J. W. B. Bos, Michael Koetter, James W. Kolari, Clemens J. M. Kool
European Journal of Operational Research,
No. 1,
2009
Abstract
Bank efficiency estimates often serve as a proxy of managerial skill since they quantify sub-optimal production choices. But such deviations can also be due to omitted systematic differences among banks. In this study, we examine the effects of heterogeneity on bank efficiency scores. We compare different specifications of a stochastic cost and alternative profit frontier model with a baseline specification. After conducting a specification test, we discuss heterogeneity effects on efficiency levels, ranks and the tails of the efficiency distribution. We find that heterogeneity controls influence both banks’ optimal costs and profits and their ability to be efficient. Differences in efficiency scores are important for more than only methodological reasons. First, different ways of accounting for heterogeneity result in estimates of foregone profits and additional costs that are significantly different from what we infer from our general specification. Second, banks are significantly re-ranked when their efficiency is estimated with a specification other than the preferred, general specification. Third, the general specification gives the most reliable estimates of the probability of distress, although differences to the other specifications are low.
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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.
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Why Do Payday Lenders Enter Local Markets? Evidence from Oregon
H. Evren Damar
Review of Industrial Organization,
No. 2,
2009
Abstract
This study analyzes payday lenders’ entry strategies in the state of Oregon in order to look for changes in the nature of the industry and its relationship to traditional financial institutions. The results of fixed-effects logit regressions suggest that payday lenders have started to enter areas already being served by banks. Furthermore, the presence of “incumbent advantage” in entry decisions may also have implications concerning the level of competition in the industry. Finally, since payday lenders also enter areas with large Hispanic populations, it is still possible that payday loans represent the sole source of credit for certain segments of the population.
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Cross-Border Bank Contagion in Europe
Reint E. Gropp, M. Lo Duca, Jukka M. Vesala
International Journal of Central Banking,
No. 1,
2009
Abstract
We analyze cross-border contagion among European banks in the period from January 1994 to January 2003. We use a multinomial logit model to estimate, in a given country, the number of banks that experience a large shock on the same day (“coexceedances”) as a function of common shocks and lagged coexceedances in other countries. Large shocks are measured by the bottom 95th percentile of the distribution of the daily percentage change in distance to default of banks.We find evidence of significant cross-border contagion among large European banks, which is consistent with a tiered cross-border interbank structure. The results also suggest that contagion increased after the introduction of the euro.
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Banking Integration, Bank Stability, and Regulation: Introduction to a Special Issue of the International Journal of Central Banking
Reint E. Gropp, H. Shin
International Journal of Central Banking,
No. 1,
2009
Abstract
The link between banking integration and financial stability has taken center stage in the wake of the current financial crisis. To what extent is the banking system in Europe integrated? What role has the introduction of the common currency played in this context? Are integrated banking markets more vulnerable to contagion and financial instability? Does the fragmented regulatory framework in Europe pose special problems in resolving bank failures? What policy reforms may become necessary? These questions are of considerable policy interest as evidenced by the extensive discussions surrounding the design and implementation of a new regulatory regime and by the increasing attention coming from academia.
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Contestability, Technology and Banking
S. Corvoisier, Reint E. Gropp
ZEW Discussion Papers, No. 09-007,
No. 7,
2009
Abstract
We estimate the effect of internet penetration on retail bank margins in the euro area. Based on an adapted Baumol [1982] type contestability model, we argue that the internet has reduced sunk costs and therefore increased contestability in retail banking. We test this conjecture by estimating the model using semi-aggregated data for a panel of euro area countries. We utilise time series and cross-sectional variation in internet penetration. We find support for an increase in contestability in deposit markets, and no effect for loan markets. The paper suggests that for time and savings deposits, the presence of brick and mortar bank branches may no longer be of first order importance for the assessment of the competitive structure of the market.
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Monetary Policy and Financial (In)stability: An Integrated Micro–Macro Approach
Ferre De Graeve, Thomas Kick, Michael Koetter
Journal of Financial Stability,
No. 3,
2008
Abstract
Evidence on central banks’ twin objective, monetary and financial stability, is scarce. We suggest an integrated micro–macro approach with two core virtues. First, we measure financial stability directly at the bank level as the probability of distress. Second, we integrate a microeconomic hazard model for bank distress and a standard macroeconomic model. The advantage of this approach is to incorporate micro information, to allow for non-linearities and to permit general feedback effects between financial distress and the real economy. We base the analysis on German bank and macro data between 1995 and 2004. Our results confirm the existence of a trade-off between monetary and financial stability. An unexpected tightening of monetary policy increases the probability of distress. This effect disappears when neglecting microeffects and non-linearities, underlining their importance. Distress responses are largest for small cooperative banks, weak distress events, and at times when capitalization is low. An important policy implication is that the separation of financial supervision and monetary policy requires close collaboration among members in the European System of Central Banks and national bank supervisors.
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Parenting Benefit – A New Risk for Companies
Nicole Nulsch, Henry Dannenberg
Wirtschaft im Wandel,
No. 7,
2008
Abstract
Mit dem zum 1. Januar 2007 neu eingeführten Elterngeld verfolgt der Gesetzgeber unter anderem das Ziel, mehr Väter für eine Elternzeit zu begeistern. Bislang wurden die Auswirkungen des Elterngelds insbesondere aus familienpolitischer Perspektive betrachtet. Ziel dieses Beitrags ist es jedoch, die unternehmenspolitischen Folgen des Elterngelds zu untersuchen.
Die Entwicklung der Elterngeldanträge im Jahr 2007 deutet darauf hin, dass zunehmend mehr Väter von der Elternzeit Gebrauch machen. Dabei handelt es sich in mehr als der Hälfte der Fälle um berufstätige Väter. Konnten Unternehmen in der Vergangenheit das Risiko, dass eine wichtige Position im Unternehmen für einen längeren Zeitraum aufgrund der Geburt eines Kindes unbesetzt ist, verhältnismäßig einfach dadurch senken, indem ein Mann beschäftigt wurde, wird diese Strategie in Zukunft an Bedeutung verlieren. Es ist zu erwarten, dass dieses veränderte Risikoumfeld einerseits die Karrierechancen der Frauen verbessern und zu einer Verringerung der Lohnlücke zwischen den Geschlechtern beitragen kann. Es ist jedoch auch zu erwarten, dass sich die Risikosituation der Unternehmen insgesamt verschlechtert und bei gegebener Risikotragfähigkeit bisher tragbare Risiken zukünftig nicht mehr eingegangen werden können, was sich negativ auf die wirtschaftliche Entwicklung auswirken könnte.
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An Assessment of Bank Merger Success in Germany
Michael Koetter
German Economic Review,
No. 2,
2008
Abstract
German banks have experienced a merger wave since the early 1990s. However, the success of bank mergers remains a continuous matter of debate.This paper suggests a taxonomy to evaluate post-merger performance on the basis of cost and profit efficiency (CE and PE). I identify successful mergers as those that fulfill simultaneously two criteria. First, merged institutes must exhibit efficiency levels above the average of non-merging banks. Second, banks must exhibit efficiency changes between merger and evaluation year above efficiency changes of non-merging banks. I assess the post-merger performance up to 11 years after the mergers and relate it to the transfer of skills, the adequacy to merge distressed banks and the role of geographical distance. Roughly every second merger is a success in terms of either CE or PE. The margin of success in terms of CE is narrow, as efficiency differentials between merging and non-merging banks are around 1 and 2 percentage points. PE performance is slightly larger. More importantly, mergers boost in particular the change in PE, thus indicating persistent improvements of merging banks to improve the ability to generate profits.
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