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Bank Competition and Financial Stability

Berger, Allen N.; Klapper, Leora F.; Turk-Ariss, Rima
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Relevância na Pesquisa
56.17%
Under the traditional "competition-fragility" view, more bank competition erodes market power, decreases profit margins, and results in reduced franchise value that encourages bank risk taking. Under the alternative "competition-stability" view, more market power in the loan market may result in greater bank risk as the higher interest rates charged to loan customers make it more difficult to repay loans and exacerbate moral hazard and adverse selection problems. But even if market power in the loan market results in riskier loan portfolios, the overall risks of banks need not increase if banks protect their franchise values by increasing their equity capital or engaging in other risk-mitigating techniques. The authors test these theories by regressing measures of loan risk, bank risk, and bank equity capital on several measures of market power, as well as indicators of the business environment, using data for 8,235 banks in 23 developed nations. The results suggest that - consistent with the traditional "competition-fragility" view - banks with a greater degree of market power also have less overall risk exposure. The data also provide some support for one element of the "competition-stability" view - that market power increases loan portfolio risk. The authors show that this risk may be offset in part by higher equity capital ratios.

Practical Guidelines for Effective Bank Resolution

Bolzico, Javier; Mascaró, Yira; Granata, Paola
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Relevância na Pesquisa
56.17%
This study adopts a practical approach in developing a set of guidelines on designing a bank resolution framework and implementing efficient bank resolution methods in Latin America. It identifies six pillars that are useful for establishing a bank resolution framework. The study aims to guide policymakers choose from a set of bank resolution methods, by outlining their advantages and disadvantages and establishing efficiency requirements. The focus is on the good-bank/bad-bank approach, which is a type of purchase and assumption mechanism that has increasingly become part of the newer legal frameworks in Latin America. The good-bank/bad-bank approach is an effective bank resolution method because it can be very successful in meeting certain efficiency criteria, including the minimization of contagion costs and preservation of business.

Cross-Country Empirical Studies of Systemic Bank Distress : A Survey

Demirgüç-Kunt, Aslı; Detragiache, Enrica
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Relevância na Pesquisa
56.16%
A rapidly growing empirical literature is studying the causes and consequences of bank fragility in contemporary economies. The authors reviews the two basic methodologies adopted in cross-country empirical studies-the signals approach and the multivariate probability model-and their application to study the determinants of banking crises. The use of these models to provide early warnings for crises is also reviewed, as are studies of the economic effects of banking crises and of the policies to forestall them. The paper concludes by identifying directions for future research.

European and Best Practice Bank Resolution Mechanisms : An Assessment and Recommendations for Policy and Legal Reforms

World Bank
Fonte: Washington, DC Publicador: Washington, DC
EN_US
Relevância na Pesquisa
56.15%
The process of bank resolution, or the procedure for handling insolvency of banks using a range of tools, including alternatives to standard bankruptcy processes, has gained major traction since the experience of the 2008-09 financial crisis. In this context, this report reviews models for bank resolution that provide increased flexibility and describes several of the supervisory, legal and instrumental tools that can be used under modernized bank resolution procedures. As well, it looks at the recent European Commission proposals on this matter which take into account international best practices experiences. It also highlights areas of reform and areas where further regulatory considerations and priorities should be considered. The report reviews the bank resolution regimes of a group of European countries as well as those of two non-EU countries to highlight advantages as well as gaps in the legal and regulatory frameworks. This report surveys the banking and deposit insurance laws of six European countries : Poland...

The Incentive-Compatible Design of Deposit Insurance and Bank Failure Resolution : Concepts and Country Studies

Beck, Thorsten
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
EN_US
Relevância na Pesquisa
76.37%
Deposit insurance schemes and bank failure resolution systems are asked to fulfill conflicting public policy objectives: on the one hand, they are supposed to protect small depositors and prevent contagion risks from bank runs; on the other hand, they are supposed to minimize aggressive risk taking by banks. Beck discusses the incentive-compatible design and interaction of both components of the financial safety net and describes and compares three countries with different safety net arrangements-Brazil, Germany, and Russia.

Predicting Bank Insolvency in the Middle East and North Africa

Calice, Pietro
Fonte: World Bank Group, Washington, DC Publicador: World Bank Group, Washington, DC
EN_US
Relevância na Pesquisa
56.17%
This paper uses a panel of annual observations for 198 banks in 19 Middle East and North Africa countries over 2001-12 to develop an early warning system for forecasting bank insolvency based on a multivariate logistic regression framework. The results show that the traditional CAMEL indicators are significant predictors of bank insolvency in the region. The predictive power of the model, both in-sample and out-of-sample, is reasonably good, as measured by the receiver operating characteristic curve. The findings of the paper suggest that banking supervision in the Middle East and North Africa could be strengthened by introducing a fundamentals-based, off-site monitoring system to assess the soundness of financial institutions.

Resolving Bank Failures in Argentina

de la Torre, Augusto
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Tipo: Trabalho em Andamento
EN_US
Relevância na Pesquisa
66.4%
Policies and procedures to resolve bank failures have evolved significantly in Argentina since the introduction of currency convertibility in 1991, and particularly in reaction to the 1995 tequila crisis, which exposed the inadequacy of the bank exit framework in place then. The author reviews the institutional changes introduced in Argentina in 1995 to handle bank failures more effectively, particularly the creation of the deposit guarantee scheme and the procedural framework for resolving bank failures, embedded in Article 35 of the Financial Institutions Law. This framework enables the Central Bank to carve out the assets and privileged liabilities of the failing bank and transfer them to sound banks, thereby sending only a residual balance sheet to judicial liquidation. Subsequent refinements in the application of Article 35 procedures eventually led to current Argentine practice. The author examines this practice in detail by considering the handling of the recent failure of Banco Almafuerte. The author assesses a number of issues that arise from the Argentine model of bank failure resolution...

Bosnia and Herzegovina

World Bank; International Monetary Fund
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Tipo: Relatório
EN_US
Relevância na Pesquisa
56.27%
This Technical Note was prepared in the context of a joint World Bank-IMF Financial Sector Assessment Program mission in Bosnia and Herzegovina during October – November, 2014. The FSAP team found the DIA is to be Compliant or Largely Compliant with 12 out of 16 applicable Core Principles and Materially Non-Compliant with three Core Principles. The team found a number of areas where some deficiencies exist in the deposit insurance system and financial safety-net arrangements and accordingly is proposing a corrective action plan to address these areas.

CROSS-COUNTRY STUDY ON THE DETERMINANTS OF BANK FINANCIAL DISTRESS

ZHEN-JIA-LIU,
Fonte: Fundação Getulio Vargas, Escola de Administração de Empresas de S.Paulo Publicador: Fundação Getulio Vargas, Escola de Administração de Empresas de S.Paulo
Tipo: Artigo de Revista Científica Formato: text/html
Publicado em 01/10/2015 EN
Relevância na Pesquisa
56.31%
ABSTRACTBank failures affect owners, employees, and customers, possibly causing large-scale economic distress. Thus, banks must evaluate operational risks and develop early warning systems. This study investigates bank failures in the Organization for Economic Co-operation and Development, the North America Free Trade Area (NAFTA), the Association of Southeast Asian Nations, the European Union, newly industrialized countries, the G20, and the G8. We use financial ratios to analyze and explore the appropriateness of prediction models. Results show that capital ratios, interest income compared to interest expenses, non-interest income compared to non-interest expenses, return on equity, and provisions for loan losses have significantly negative correlations with bank failure. However, loan ratios, non-performing loans, and fixed assets all have significantly positive correlations with bank failure. In addition, the accuracy of the logistic model for banks from NAFTA countries provides the best prediction accuracy regarding bank failure.

CEO risk-taking incentives and bank failure during the 2007-2010 financial crisis

Boyallian, Patricia; Ruiz-Verdú, Pablo
Fonte: Universidade Carlos III de Madrid Publicador: Universidade Carlos III de Madrid
Tipo: Trabalho em Andamento
Publicado em /03/2015 ENG
Relevância na Pesquisa
56.2%
We propose a simple measure of the risk-taking incentives of the CEOs of highly levered financial institutions, levered delta, which captures the incentives to take on risk generated by CEOs' stock holdings. Using this measure, we find that stronger CEO risk-taking incentives prior to the 2007-2010 financial crisis are associated with a higher probability of bank failure during the crisis. We find no evidence that risk-taking incentives or bank failure are related to corporate governance failures. However, CEOs' risk-taking incentives appear to be aligned with shareholders' incentivesto shift risk to other claim holders.; The authors acknowledge the financial support of Spain's Ministry of Science and Innovation (through research grant ECO2009-08278), Spain's Ministry of Economy and Competitiveness (through grant ECO2012-33308) and of Fundación UCEIF (through a Santander Financial Institute (2013) research grant.)

Financial Sector Assessment Program - Albania : Core Principles for Effective Deposit Insurance Systems

World Bank; International Monetary Fund
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Tipo: Economic & Sector Work :: Financial Sector Assessment Program (FSAP); Economic & Sector Work
ENGLISH; EN_US
Relevância na Pesquisa
56.35%
This assessment of compliance with the core principles for effective deposit insurance systems (core principles) was conducted as a part of the Financial Sector Assessment Program (FSAP) performed by the International Monetary Fund and the World Bank at the request of the Albanian government. This assessment was conducted by Claire McGuire, Senior Financial Sector Specialist with the World Bank, during a mission to Albania from October 28th to November 11th, 2013. The assessment was based on a review of relevant laws, regulations and regulatory and supervisory practices related to the banking sector and the operations of ADIA. Multiple meetings were held with various employees of the Bank of Albania (BOA), Ministry of Finance (MOF), the Banker's Association, the two savings and credit associations, and ADIA. ADIA completed a self-assessment in preparation for the FSAP.

Deposit Insurance as Private Club : Is Germany a Model?

Beck, Thorsten
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
56.26%
The author describes, and evaluates the deposit insurance scheme set-up by private commercial banks in Germany in 1975. The scheme's funding, and management are completely private, with no pubic supervision. Where other schemes rely on monitoring by depositors to decrease moral hazard problems, the German scheme relies on peer monitoring by its member banks. The system has weathered several small bank crises, but has not yet been exposed to a major bank failure, or a systemic crisis. To what extent can it serve as a model for other countries? The success of the German scheme has to be judged against an institutional environment that fosters contract enforcement, and the rule of law, and discourages corruption. In a country with weaker institutions, the voluntary membership might quickly lead to adverse selection, with strong banks leaving the scheme. The high coverage limit might induce bank managers, and owners to abuse the scheme. Banks might intentionally under-fund the scheme, counting on additional government resources in times of crisis. And the secrecy of funds might decrease fund managers' accountability in societies with little transparency...

Nigeria : Crisis Management and Crisis Preparedness Frameworks

International Monetary Fund; World Bank
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Tipo: Economic & Sector Work :: Financial Sector Assessment Program (FSAP); Economic & Sector Work
ENGLISH; EN_US
Relevância na Pesquisa
56.14%
This note elaborates on the recommendations made in the Financial Sector Assessment Program (FSAP) for Nigeria in the areas of contingency planning, crisis management, and bank resolution. It summarizes the findings of the FSAP mission undertaken during September 4 to 19, 2012 and is based upon analysis of the relevant legal and policy documents and extensive discussions with the authorities and private sector representatives. The Nigerian financial system experienced a banking crisis in 2008-2009, partly triggered by the global financial crisis and by domestic events. The decisive crisis response effectively stabilized the banking system, but the challenge now is to devise a credible exit strategy and to strengthen the resolution framework. This note is structured as follows: chapter one sets out an overview of the banking crisis of 2009; chapter two analyses the institutional framework and coordination arrangements for systemic risk monitoring, crisis management, and cross-border coordination; chapter three assesses the approaches to intervene with potential problem institutions at an early stage; chapter four covers crisis management tools including official financial support...

Financial Sector Assessment Program Update : Assessment of Philippines Deposit Insurance Corporation

International Monetary Fund; World Bank
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Tipo: Economic & Sector Work :: Financial Sector Assessment Program (FSAP); Economic & Sector Work
ENGLISH; EN_US
Relevância na Pesquisa
66.34%
The global economic and financial sector crisis of 2008-09 became a stark reminder to countries around the world of the need for an effective process for maintaining the confidence of depositors and resolving troubled financial institutions with the least amount of adverse impact on the financial sector and the community served by the institutions. The role of deposit insurance was highlighted during this difficult time. Nations without a formal system found the need to reassure their citizens by announcing formal government guaranties. Nations with established systems were not immune from the public's concern and as a result many increased the allowable coverage. The Philippines, although somewhat immune from the global crisis, none the less felt the impact of the crisis and responded, as did other countries, by taking steps to address the possible impact of the crisis by bolstering depositor confidence. The Philippines stands out among its Asian neighbors at being in the forefront of deposit insurance. Long before deposit insurance became popular at the peak of the Asian financial crisis of the late 1990's...

Financial Sector Assessment Program : Malaysia - Core Principles for Effective Deposit Insurance Systems

International Monetary Fund; World Bank
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Tipo: Economic & Sector Work :: Financial Sector Assessment Program (FSAP); Economic & Sector Work
ENGLISH; EN_US
Relevância na Pesquisa
56.34%
This assessment of compliance with the Core Principles for Effective Deposit Insurance Systems (Core Principles) was conducted as a part of the Financial Sector Assessment Program (FSAP) performed by the International Monetary Fund and the World Bank at the request of the Malaysian government. This assessment was conducted by Claire McGuire, Senior Financial Sector Specialist with the World Bank, during a mission to Malaysia from March 27 to April 13, 2012. The assessment was based on a review of relevant laws, regulations and regulatory and supervisory practices related to the conventional banking sector and the operations of PIDM. There has been no experience with bank failures in Malaysia since Perbadanan Insurans Deposit Malaysia (PIDM's) establishment in 2005. As a result the assessment looked at the relevant provisions of the legal framework without consideration of how the laws had been applied in practice or interpreted by the courts. Several weaknesses in the legal framework have been noted in this assessment.

Resolution of Failed Banks by Deposit Insurers : Cross-Country Evidence

Beck, Thorsten; Laeven, Luc
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Tipo: Publications & Research :: Policy Research Working Paper; Publications & Research
ENGLISH
Relevância na Pesquisa
56.38%
There is a wide cross-country variation in the institutional structure of bank failure resolution, including the role of the deposit insurer. The authors use quantitative analysis for 57 countries and discuss specific country cases to illustrate this variation. Using data for over 1,700 banks across 57 countries, they show that banks in countries where the deposit insurer has the responsibility of intervening failed banks and the power to revoke membership in the deposit insurance scheme are more stable and less likely to become insolvent. Involvement of the deposit insurer in bank failure resolution thus dampens the negative effect that deposit insurance has on banks' risk taking.

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
56.17%
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.

Creating a More Efficient Financial System : Challenges for Bangladesh

Beck, Thorsten; Rahman, Md. Habibur
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Tipo: Publications & Research :: Policy Research Working Paper; Publications & Research
ENGLISH
Relevância na Pesquisa
56.3%
While Bangladesh has embarked on a path to reform its financial system, most prominently by privatizing its government-owned banks, the Nationalized Commercial Banks (NCBs), a sustainable long-term expansion of the financial system requires a more substantial change in the role of government. Using recent research and international comparisons, this paper argues that the government should move from its role as an operator and arbiter in the financial system to a facilitator role. This implies not only divestment from government-owned banks, but also de-politicization of the licensing process and a market-based bank failure resolution framework that focuses on intermediation and not on the rescue of individual institutions. Most important, the government should move away from the implicit guarantee for depositors and owners to applying the existing limited explicit deposit insurance for depositors, while simultaneously relying more on market participants to monitor and discipline banks instead of micro-managing financial institutions. This redefinition of government's role should not be limited to the banking system, but applies to other segments of the financial system, such as capital markets and the micro-finance sector, and should be seen as an essential element in the governance reform agenda and in the movement from a relationship-based economy to a market and arms-length economy.

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
56.16%
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.

GenSo-EWS: a novel neural-fuzzy based early warning system for predicting bank failures

Tung, W; Quek, C; Cheng, Philip
Fonte: Pergamon Press Publicador: Pergamon Press
Tipo: Artigo de Revista Científica
Relevância na Pesquisa
56.42%
Bank failure prediction is an important issue for the regulators of the banking industries. The collapse and failure of a bank could trigger an adverse financial repercussion and generate negative impacts such as a massive bail out cost for the failing bank and loss of confidence from the investors and depositors. Very often, bank failures are due to financial distress. Hence, it is desirable to have an early warning system (EWS) that identifies potential bank failure or high-risk banks through the traits of financial distress. Various traditional statistical models have been employed to study bank failures [J Finance 1 (1975) 21; J Banking Finance 1 (1977) 249; J Banking Finance 10 (1986) 511; J Banking Finance 19 (1995) 1073]. However, these models do not have the capability to identify the characteristics of financial distress and thus function as black boxes. This paper proposes the use of a new neural fuzzy system [Foundations of neuro-fuzzy systems, 1997], namely the Generic Self-organising Fuzzy Neural Network (GenSoFNN) [IEEE Trans Neural Networks 13 (2002c) 1075] based on the compositional rule of inference (CRI) [Commun ACM 37 (1975) 77], as an alternative to predict banking failure. The CRI based GenSoFNN neural fuzzy network...