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Bank capital and stock performance around the subprime lending risis

Gonçalves, Jorge Diogo Barreiros
Fonte: NSBE - UNL Publicador: NSBE - UNL
Tipo: Dissertação de Mestrado
Publicado em /06/2013 ENG
Relevância na Pesquisa
66.43%
A Work Project, presented as part of the requirements for the Award of a Masters Degree in Finance from the NOVA – School of Business and Economics; This empirical study observes the relationship between bank capital and stock performance when an unexpected negative shock materializes to bank value. The analysis covers the three months after the collapse of Lehman Brothers on the 15th September 2008, using the holding period stock return as the dependent variable. With data from the US largest commercial banking and saving and loans institutions, we constructed a multiple regression model and performed several estimations using different definitions of bank capital. Our conclusions are consistent with the premise that better capitalized banks are in a better position to withstand the negative impacts of a disruptive financial event, such as the Lehman collapse, and therefore are susceptible to smaller stock price declines. We also find evidence that simpler and more conservative capital ratios are perceived by equity market participants as more accurate measures of bank health relative to regulatory risk based ratios. Therefore, our results provide support to the inclusion of simpler capital ratios that rely on balance sheet information to bank regulatory frameworks.

Bank Capital : Lessons from the Financial Crisis

Demirguc-Kunt, Asli; Detragiache, Enrica; Merrouche, Ouarda
Fonte: Banco Mundial Publicador: Banco Mundial
Relevância na Pesquisa
56.59%
Using a multi-country panel of banks, the authors study whether better capitalized banks fared better in terms of stock returns during the financial crisis. They differentiate among various types of capital ratios: the Basel risk-adjusted ratio; the leverage ratio; the Tier I and Tier II ratios; and the common equity ratio. They find several results: (i) before the crisis, differences in capital did not affect subsequent stock returns; (ii) during the crisis, higher capital resulted in better stock performance, most markedly for larger banks and less well-capitalized banks; (iii) the relationship between stock returns and capital is stronger when capital is measured by the leverage ratio rather than the risk-adjusted capital ratio; (iv) there is evidence that higher quality forms of capital, such as Tier 1 capital, were more relevant. They also examine the relationship between bank capitalization and credit default swap (CDS) spreads.

Cyclical Effects of Bank Capital Requirements with Imperfect Credit Markets

Agénor, Pierre-Richard; Pereira da Silva, Luiz A.
Fonte: Banco Mundial Publicador: Banco Mundial
Relevância na Pesquisa
66.6%
This paper analyzes the cyclical effects of bank capital requirements in a simple model with credit market imperfections. Lending rates are set as a premium over the cost of borrowing from the central bank, with the premium itself depending on firms effective collateral. Basel I- and Basel II-type regulatory regimes are defined and a capital channel is introduced through a signaling effect of capital buffers on the cost of bank deposits. The macroeconomic effects of various shocks (a drop in output, an increase in the refinance rate, and a rise in the capital adequacy ratio) are analyzed, under both binding and nonbinding capital requirements. Factors affecting the procyclicality of each regime (defined in terms of the behavior of the risk premium) are also identified and policy implications are discussed.

Capital Requirements and Business Cycles with Credit Market Imperfections

Agénor, P.-R.; Alper, K.; Pereira da Silva, L.
Fonte: Banco Mundial Publicador: Banco Mundial
Relevância na Pesquisa
56.6%
The business cycle effects of bank capital regulatory regimes are examined in a New Keynesian model with credit market imperfections and a cost channel of monetary policy. Key features of the model are that bank capital increases incentives for banks to monitor borrowers, thereby reducing the probability of default, and excess capital generates benefits in terms of reduced regulatory scrutiny. Basel I and Basel II-type regulatory regimes are defined, and the model is calibrated for a middle-income country. Simulations of supply and demand shocks show that, depending on the elasticity that relates the repayment probability to the capital-loan ratio, a Basel II-type regime may be less procyclical than a Basel I-type regime.

Notes on Financial System Development and Political Intervention

Song. Fenghua; Thakor, Anjan
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
EN_US
Relevância na Pesquisa
56.56%
The paper studies the impact of political intervention on a financial system that consists of banks and financial markets and develops over time. In this financial system, banks and markets exhibit three forms of interaction: they compete, they complement each other, and they co-evolve. Coevolution is generated by two new ingredients of financial system architecture relative to the existing theories: securitization and risk-sensitive bank capital. The authors show that securitization propagates banking advances to the financial market, permitting market evolution to be driven by bank evolution, and market advances are transmitted to banks through bank capital. Then they examine how politicians determine the nature of political intervention designed to expand credit availability. The authors find that political intervention in banking exhibits a U-shaped pattern, where it is most notable in the early stage of financial system development (through bank capital subsidy in exchange for state ownership of banks) and in the advanced stage (through direct lending regulation). Despite expanding credit access...

Bank Capital and Loan Loss Reserves Under Basel II: Implications for Emerging Countries

Majnoni, Giovanni; Miller, Margaret; Powell, Andrew
Fonte: World Bank, Washington, D.C. Publicador: World Bank, Washington, D.C.
EN_US
Relevância na Pesquisa
76.47%
The authors propose an integrated approach to minimum bank capital, and loan loss reserves regulation. They break new ground in two main areas. First, the authors provide an explicit measurement of the credit loss distribution for a sample of emerging countries, providing a benchmark for discussing the appropriate calibration of new regulatory capital, and loan loss provision requirements for non-G10 countries. Second, on normative grounds, they propose a simplified version of the "internal rating based" (IRB) approach as a transition tool that, while retaining a risk-based definition of solvency ratios, implies reduced supervisory monitoring costs, and could therefore be of interest to emerging countries, where supervisory resources are particularly scarce.

The Dynamics of Foreign Bank Ownership : Evidence from Hungary

Majnoni, Giovanni; Shankar, Rashmi; Varhegyi, Eva
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
EN_US
Relevância na Pesquisa
56.52%
The early start of the process of bank restructuring and privatization in Hungary provides a longer and richer amount of evidence than that available for any other transition economy. The authors analyze the dynamics of bank restructuring in Hungary with a focus on the role played by foreign ownership. They explore the performance over time of foreign-owned Hungarian banks and study the extent to which efficiency gains are affected by the chosen acquisition strategy-strategic acquisition in contrast with investment in a newly established bank (greenfield investment)-or by the management style adopted after the acquisition. The authors supplement previous results on the effects of foreign bank ownership in three ways. First, they explicitly consider the time span required for the change of ownership to affect bank performance. Second, the authors explore how important the chosen acquisition strategy is for the success of an acquisition. And third, they study how relevant the adopted management style is to this end, as proxied by the degree of reliance on foreign management.

Loan Loss Provisioning and Economic Slowdowns : Too Much, Too Late?

Laeven, Luc; Majnoni, Giovanni
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
EN_US
Relevância na Pesquisa
56.54%
Only recently has the debate on bank capital regulation devoted specific attention to the role that bank loan loss provisions can play as part of a minimum capital regulatory framework. Several national regulators have adopted or are planning to introduce a cyclically adjustable requirement for loan loss provisions, and the Basel Committee on Banking Supervision is considering how to provide adequate treatment to provisioning practices within a broad bank capital regulatory framework. The authors contribute to the ongoing debate by exploring the available evidence about bank provisioning practices around the world. They find that in the vast majority of cases banks tend to delay provisioning for bad loans until it is too late-when cyclical downturns have already set in-possibly magnifying the impact of the economic cycle on the income and capital of banks. Notwithstanding the considerable variation in the patterns followed by banks around the world, Laeven and Majnoni find that the size and timing of provisions tend to improve with the level of economic development.

The Macroeconomic Impact of Bank Capital Requirements in Emerging Economies : Past Evidence to Assess the Future

Chiuri, Maria Concetta; Ferri, Giovanni; Majnoni, Giovanni
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
EN_US
Relevância na Pesquisa
76.55%
The authors test for emerging economies, the hypothesis - previously verified only for the Group of 10 (G-10) countries - that enforcing bank capital asset requirements, exerts a negative effect on the supply of credit. Their econometric analysis of data on individual banks, suggests three main results: 1) Enforcement of capital asset requirements - according to the 1998 Basel standard - significantly curtailed credit supply, particularly at less-well-capitalized banks. 2) This negative effect is not limited to countries enforcing capital asset requirements in the aftermath of a currency, or financial crises. 3) The adverse impact of capital requirements on the credit supply was somewhat smaller for foreign-owned banks, suggesting that opening up to foreign investors, may be an effective way to partly shield the domestic banking sector from negative shocks. Overall, by inducing banks to reduce their lending, enforcement of capital asset requirements may well have induced an aggregate slowdown, or contraction in credit in the emerging economies examined. The results have relevance for the ongoing debate on the impact of the revision of bank capital asset requirements...

Bank Capital and Systemic Stability

Anginer, Deniz; Demirguc-Kunt, Asli
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
EN_US
Relevância na Pesquisa
66.59%
This paper distinguishes among various types of capital and examines their effect on system-wide fragility. The analysis finds that higher quality forms of capital reduce the systemic risk contribution of banks, whereas lower quality forms can have a destabilizing impact, particularly during crisis periods. The impact of capital on systemic risk is less pronounced for smaller banks, for banks located in countries with more generous safety nets, and in countries with institutions that allow for better public and private monitoring of financial institutions. The results show that regulatory capital is effective in reducing systemic risk and that regulatory risk weights are correlated with higher future asset volatility, but this relationship is significantly weaker for larger banks. The paper also finds that increased regulatory risk-weights not correlated with future asset volatility increase systemic fragility. Overall, the results are consistent with the theoretical literature that emphasizes capital as a potential buffer in absorbing liquidity...

The impact of changes of capital regulations on bank capital and portfolio risk decision: a case study of Indonesian banks.

Derina, Ratna
Fonte: Universidade de Adelaide Publicador: Universidade de Adelaide
Tipo: Tese de Doutorado
Publicado em //2011
Relevância na Pesquisa
56.58%
Research Objectives: This thesis studied bank risk taking behaviour with regards to capital and asset portfolio adjustments. It also evaluated the impact of economic uncertainty and capital regulations on banks’ risk taking behaviour. There were two objectives of this thesis. The first objective was to investigate the impact of adverse shocks in the economy on a bank’s decisions regarding capital and asset portfolio management. The second objective was to examine the interrelationship between decisions on capital and asset portfolios. Further, the impact of economic uncertainty and changes in capital regulations on this relationship was also examined. This thesis was motivated by several issues. First, even though supervisory authorities and banks are aware of the importance of capital in the prevention of bank failures, empirical studies are inconclusive on the effectiveness of capital regulations in controlling bank risk taking behaviour. Second, the contradictory conclusions in current literature regarding the effectiveness of capital regulations in controlling bank risk taking attitudes do not incorporate economic shocks. Therefore, the existing studies do not examine the impact of economic uncertainty on capital and portfolio risk decisions...

Brazil's Bank Spread in International Context : From Macro to Micro Drivers

Jorgensen, Ole Hagen; Apostolou, Apostolos
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Tipo: Publications & Research :: Policy Research Working Paper; Publications & Research
ENGLISH; EN_US
Relevância na Pesquisa
56.55%
In an international context, this paper analyzes the main drivers of Brazil's bank spreads measured by the net interest margin, by estimating internationally comparable measures for (i) institutional and regulatory (micro-) factors; (ii) macro-economic factors; and (iii) banking competition factors. The paper produces and applies a novel data set covering 197 areas and countries; ranging from 1995 to 2009, including 106 banks for Brazil and 16,434 banks worldwide. The analysis finds that micro-factors are the main drivers of spreads across the world. In the case of Brazil, the spread is found to be strongly accounted for by micro-factors -- also in international comparison. For example, micro-factors contributed 7.2 percentage points (79 percent) of the 11.5 percent total spread in Brazil in 2009, while macro-factors and banking competition factors jointly accounted for only 1.9 percentage points (21 percent). Conversely, Brazil does not rank high in international comparison in terms of macro-economic risk: Brazil and other countries from Latin America and the Caribbean are found to feature the highest micro-factors in the world while having the second-highest spreads and the second-lowest contribution of macro-factors. These unique findings suggest that countries striving toward reducing bank spreads should consider policies aimed at reducing microeconomic frictions in their banking sectors...

World Bank South Asia Economic Update 2010 : Moving Up, Looking East

World Bank
Fonte: World Bank Publicador: World Bank
Tipo: Publications & Research :: Publication; Publications & Research :: Publication
ENGLISH
Relevância na Pesquisa
56.56%
South Asia's rebound since March 2009 has been strong and is comparable to that in East Asia. South Asia is poised to grow by about 7 percent in 2010 and nearly 8 percent in 2011, thanks to the strong recovery in India, good performances in Bangladesh, post-conflict bounce in Sri Lanka, recovery in Pakistan, and turnarounds in other countries, including Afghanistan, Maldives, and Nepal. The region's prospective growth is close to pre-crisis peak levels and faster than the high rates of the early part of the decade (6.5 percent annually from 2000 to 2007). The recovery is being led by rising domestic confidence and is balanced in terms of domestic versus external demand, consumption versus investment, and private demand versus reliance on stimulus. Government policy, external support, resumption of private spending, and global recovery are driving the rebound. Strong government fiscal and monetary stimulus packages and, in some cases, external assistance are helping stimulate recovery. Improved optimism is helping the recovery in private spending in India...

Bank Regulation and Supervision : What Works Best?

Barth, James R.; Caprio, Gerard, Jr.; Levine, Ross
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Tipo: Publications & Research :: Policy Research Working Paper; Publications & Research
ENGLISH; EN_US
Relevância na Pesquisa
56.54%
The authors draw on their new database on bank regulation and supervision in 107 countries to assess different governmental approaches to bank regulation and supervision and evaluate the efficacy of different regulatory and supervisory policies. First, the authors assess two broad and competing theories of government regulation: the helping-hand approach, according to which governments regulate to correct market failures, and the grabbing-hand approach, according to which governments regulate to support political constituencies. Second, they assess the effect of an extensive array of regulatory and supervisory policies on the development and fragility of the banking sector. These policies include the following: Regulations on bank activities and the mixing of banking and commerce. Regulations on entry by domestic and foreign banks. Regulations on capital adequacy. Design features of deposit insurance systems. Supervisory power, independence, and resources; stringency of loan classification; provisioning standards; diversification guidelines; and powers to take prompt corrective action. Regulations governing information disclosure and fostering private sector monitoring of banks. Government ownership of banks. The results raise a cautionary flag with regard to reform strategies that place excessive reliance on a country's adherence to an extensive checklist of regulatory and supervisory practices that involve direct government oversight of and restrictions on banks. The findings...

Corporate Governance and Bank Insolvency Risk : International Evidence

Anginer, Deniz; Demirguc-Kunt, Asli; Huizinga, Harry; Ma, Kebin
Fonte: World Bank Group, Washington, DC Publicador: World Bank Group, Washington, DC
Tipo: Publications & Research :: Policy Research Working Paper; Publications & Research
ENGLISH; EN_US
Relevância na Pesquisa
56.54%
This paper finds that shareholder-friendly corporate governance is positively associated with bank insolvency risk, as proxied by the Z-score and the Merton's distance to default measure, for an international sample of banks over the 2004-08 period. Banks are special in that "good" corporate governance increases bank insolvency risk relatively more for banks that are large and located in countries with sound public finances, as banks aim to exploit the financial safety net. Good corporate governance is specifically associated with higher asset volatility, more nonperforming loans, and a lower tangible capital ratio. Furthermore, good corporate governance is associated with more bank risk-taking at times of rapid economic expansion. Consistent with increased risk-taking, good corporate governance is associated with a higher valuation of the implicit insurance provided by the financial safety net, especially in the case of large banks. These results underline the importance of the financial safety net and too-big-to-fail policies in encouraging excessive risk-taking by banks.

A Guide to the World Bank : Third Edition

World Bank
Fonte: World Bank Publicador: World Bank
Tipo: Publications & Research :: Publication; Publications & Research :: Publication
ENGLISH
Relevância na Pesquisa
56.53%
This guide introduces the reader to the conceptual work of the World Bank Group. Its goal is to serve as a starting point for more in-depth inquiries into subjects of particular interest. It provides a glimpse into the wide array of activities in which the Bank Group institutions are involved, and it directs the reader toward other resources and websites that have more detailed information. This new, updated third edition of a guide to the World Bank provides readers with an accessible and straightforward overview of the Bank Group's history, organization, mission, and work. It highlights the numerous activities and an organizational challenge faced by the institution, and explains how the Bank Group is reforming itself to meet the needs of a multipolar world. The book then chronicles the Bank Group's work in such areas as climate change, financial and food crises, conflict prevention and fragile states, combating corruption, and education. For those wishing to delve further into areas of particular interest...

How Does Corporate Governance Affect Bank Capitalization Strategies?

Anginer, Deniz; Demirguc-Kunt, Asli; Huizinga, Harry; Ma, Kebin
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Tipo: Publications & Research :: Policy Research Working Paper; Publications & Research
ENGLISH; EN_US
Relevância na Pesquisa
56.55%
This paper examines how corporate governance and executive compensation affected bank capitalization strategies for an international sample of banks in 2003-2011. "Good" corporate governance, which favors shareholder interests, is found to give rise to lower bank capitalization. Boards of intermediate size, separation of the chief executive officer and chairman roles, and an absence of anti-takeover provisions, in particular, lead to low bank capitalization. However, executive options and stock wealth invested in the bank are associated with better capitalization except just before the crisis in 2006. In that year, stock options wealth was associated with lower capitalization, which suggests that potential gains from taking on more bank risk outweighed the prospect of additional loss. Banks' tendencies to continue payouts to shareholders after experiencing negative income shocks are shown to reflect executive risk-taking incentives.

A Capital Accord for Emerging Economies?

Powell, Andrew
Fonte: World Bank, Washington, D.C. Publicador: World Bank, Washington, D.C.
Tipo: Publications & Research :: Policy Research Working Paper; Publications & Research
ENGLISH; EN_US
Relevância na Pesquisa
66.54%
The Basel 1988 Capital Accord is arguably the most successful of all recent financial "standards." Although it was designed for internationally active banks in G10 countries, more than 100 countries claim to adhere to it, and many apply the Accord to all banks. Significant changes to this Accord are currently under discussion. The author reviews the current proposals (published in January 2001) from the standpoint of an emerging market. He then addresses how implementation in G10 countries will affect the cost of capital to emerging economies. The new proposals make considerable advances in linking risk and regulatory capital for internationally active banks, especially for their corporate loan book. But the corporate-calibrated internal ratings-based (IRB) approach leads to significant changes in capital requirements and spreads for banks that lend to emerging countries. The author proposes that for sovereign lending, banks should develop internal ratings according to an S&P or Moody's scale, and capital charges be levied at the corresponding weights given by the standardized approach. The author argues that the more detailed and specific the proposals are for G10 internationally active banks...

Do Banks Provision for Bad Loans in Good Times? Empirical Evidence and Policy Implications

Cavallo, Michele; Majnoni, Giovanni
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Tipo: Publications & Research :: Policy Research Working Paper; Publications & Research
ENGLISH; EN_US
Relevância na Pesquisa
56.54%
Recent debate about the pro-cyclical effects of bank capital requirements, has ignored the important role that bank loan loss provisions play in the overall framework of minimum capital regulation. It is frequently observed that under-provisioning, due to inadequate assessment of expected credit losses, aggravates the negative effect of minimum capital requirements during recessions, because capital must absorb both expected, and unexpected losses. Moreover, when expected losses are properly reflected in lending rates, but not in provisioning practices, fluctuations in bank earnings magnify true oscillations in bank profitability. The relative agency problems faced by different stakeholders, may help explain the prevailing, and often unsatisfactory institutional arrangements. The authors test their hypotheses with a sample of 1,176 large commercial banks - 372 of them in non-G10 countries - for the period 1988-99. After controlling for different country-specific macroeconomic, and institutional features...

The cyclical behavior of bank capital buffers in an emerging economy: size do matters

García-Suaza, Andrés; Gómez-González, José E.; Murcia-Pabón, Andrés; Tenjo-Galarza, Fernando
Fonte: Facultad de Economía Publicador: Facultad de Economía
Tipo: info:eu-repo/semantics/book; info:eu-repo/semantics/acceptedVersion Formato: application/pdf
Publicado em //2011
Relevância na Pesquisa
66.41%
Using a panel of Colombian banks and quarterly data between 1996:1 and 2010:3, we study the relationship between short-run adjustemnts in bank capital buffers and the business cycle. We follow a partial adjustment framework and control for several variables that have been identified as important determinants of bank capital buffers in previous studies, and find that bank capital buffers vary over the business cycle. We are able to identify a negative co-movement of capital buffers and and the business cycle. However, we also find that capital buffers of small and large banks behave asymmetrically during the business cycle. While the former appear to be constant over time, once the appropriate set of control variables is used, the latter present a countercyclical behavior. Our results suggest the possible need of the implementation of regulatory policy measures in developing countries