Softening Competition by Inducing Switching in Credit Markets
Jan Bouckaert, Hans Degryse
Journal of Industrial Economics,
No. 1,
2004
Abstract
We show that competing banks relax overall competition by inducing borrowers to switch lenders. We illustrate our findings in a two-period model with adverse selection where banks strategically commit to disclosing borrower information. By doing this, they invite rivals to poach their first-period market. Disclosure of borrower information increases the rival's second-period profits. This dampens competition for serving the first-period market.
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Further VAR Evidence for the Effectiveness of a Credit Channel in Germany
Oliver Holtemöller
Applied Economics Quarterly 49,
2003
Abstract
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Why do we have an interbank money market?
Jürgen Wiemers, Ulrike Neyer
IWH Discussion Papers,
No. 182,
2003
Abstract
The interbank money market plays a key role in the execution of monetary policy. Hence, it is important to know the functioning of this market and the determinants of the interbank money market rate. In this paper, we develop an interbank money market model with a heterogeneous banking sector. We show that besides for balancing daily liquidity fluctuations banks participate in the interbank market because they have different marginal costs of obtaining funds from the central bank. In the euro area, which we refer to, these cost differences occur because banks have different marginal cost of collateral which they need to hold to obtain funds from the central bank. Banks with relatively low marginal costs act as intermediaries between the central bank and banks with relatively high marginal costs. The necessary positive spread between the interbank market rate and the central bank rate is determined by transaction costs and credit risk in the interbank market, total liquidity needs of the banking sector, costs of obtaining funds from the central bank, and the distribution of the latter across banks.
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Rating Agency Actions and the Pricing of Debt and Equity of European Banks: What Can we Infer About Private Sector Monitoring of Bank Soundness?
Reint E. Gropp, A. J. Richards
Economic Notes,
No. 3,
2001
Abstract
The recent consultative papers by the Basel Committee on Banking Supervision has raised the possibility of an explicit role for external rating agencies in the assessment of the credit risk of banks’ assets, including interbank claims. Any judgement on the merits of this proposal calls for an assessment of the information contained in credit ratings and its relationship to other publicly available information on the financial health of banks and borrowers. We assess this issue via an event study of rating change announcements by leading international rating agencies, focusing on rating changes for European banks for which data on bond and equity prices are available. We find little evidence of announcement effects on bond prices, which may reflect the lack of liquidity in bond markets in Europe during much of our sample period. For equity prices, we find strong effects of ratings changes, although some of our results may suffer from contamination by contemporaneous news events. We also test for pre-announcement and post-announcement effects, but find little evidence of either. Overall, our results suggest that ratings agencies may perform a useful role in summarizing and obtaining non-public information on banks and that monitoring of banks’ risk through bond holders appears to be relatively limited in Europe. The relatively weak monitoring by bondholders casts some doubt on the effectiveness of a subordinated debt requirement as a supervisory tool in the European context, at least until bond markets are more developed.
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Korean unification and banking system - An analysis in view of German experiences and Korean differences
Ralf Müller
IWH Discussion Papers,
No. 139,
2001
Abstract
One of the reforms that have to be launched in a future unification process in Korea, which seems possible after the political negotiations last year, is the transformation of the North Korean banking system. The question arises whether Korea could profit from the German experience where banking transformation was one of the rather few success stories in unification. In 1990 the East German banking transformation was achieved relatively fast and uncomplicated due to considerable direct investments of the West German banks compounded with state guarantees for bad loans resulting from the credit business with existing GDR-corporations. Unfortunately, South Korea currently lacks some major prerequesites that contributed to the German banking unification, among them – and probably the most important one – is the lack of a sound and efficient banking
system that could become active in the North. Consequently, depending on the circumstances of a future Korean unification either a more gradual process is recommended or, if inner-Korean migration requires a more dynamic transition, considerable investment by foreign banks and assistance from international organisations is recommended.
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Misallocation of capital as a result of asymmetric distribution of information on credit markets
Ulrike Neyer
Schriften des IWH,
No. 7,
2000
Abstract
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Current trends - Propensity of East German private households to take up credits changes only slowly
Ruth Grunert
Wirtschaft im Wandel,
No. 15,
1999
Abstract
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Make Work Pay – The effects of combination wage programs in the USA and in Great Britain
Lioba Trabert
Wirtschaft im Wandel,
No. 11,
1999
Abstract
Derzeit werden in Deutschland verschiedene Modelle zur reform des Steuer- und Transfersystems zur Subventionierung eines Niedriglohnsektors diskutiert. In anderen Ländern gibt es bereits seit mehreren jahren Konzepte zur finanziellen Besserstellung von beschäftigung gegenüber Arbeitslosigkeit. Zu den wohl bekanntesten programmen gehören der Earned Income Taxe Credit (EITC) in den USA sowie der Family Credit (FC) in Grossbritannien.Von besonderen Interesse sind die dort gewonnenen Erfahrungen über die Anreizwirkungen auf das Arbeitsangebot. Die Untersuchungen zeigen, daß für die Gruppe der bereits der bereits Erwerbstätigen eine Verringerung des Arbeitsvolumens folgt. Dieser negative Effekt kann jedoch überkompensiert werden durch positive Partizipationseffekte von bislang Nichterwerbstätigen. Eine Übertragung dieser programme auf Deutschland würde aufgrund einer vergleichsweise komprimierten Einkommensverteilung sowie eiem höherem Grundsicherungsniveau voraussichtlich zu einer stärkeren fiskalischen Belastung als in den USA oder Grossbritannien führen.
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Personal Bankruptcy and Credit Supply and Demand
Reint E. Gropp, J. K. Scholz, M. J. White
Quarterly Journal of Economics,
No. 1,
1997
Abstract
This paper examines how personal bankruptcy and bankruptcy exemptions affect the supply and demand for credit. While generous state-level bankruptcy exemptions are probably viewed by most policy-makers as benefiting less-well-off borrowers, our results using data from the 1983 Survey of Consumer Finances suggest that they increase the amount of credit held by high-asset households and reduce the availability and amount of credit to low-asset households, conditioning on observable characteristics. Thus, bankruptcy exemptions redistribute credit toward borrowers with high assets. Interest rates on automobile loans for low-asset households also appear to be higher in high exemption states.
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