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Bank Competition and Financial Stability : Friends or Foes?

Beck, Thorsten
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Relevância na Pesquisa
56.5%
Theory makes ambiguous predictions about the relationship between market structure and competitiveness of the banking system and banking sector stability. Empirical studies focusing on individual countries provide similarly ambiguous results, while cross-country studies point mostly to a positive relationship between competition and stability in the banking system. Where liberalization and unfettered competition have resulted in fragility, this has been mostly the consequence of regulatory and supervisory failures. The advantages of competition for an efficient and inclusive financial system are strong, and regulatory and supervisory policies should focus on an incentive-compatible environment for banking rather than try to fine-tune market structure or the degree of competition.

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
56.32%
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
56.32%
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.

Bank Privatization in Sub-Saharan Africa : The Case of Uganda Commercial Bank

Clarke, George R.G.; Cull, Robert; Fuchs, Michael
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Relevância na Pesquisa
56.31%
Previous empirical analyses have found that bank privatizations are more successful when the government fully relinquishes control, when the bank is privatized to a strategic investor, and when foreign-owned banks are allowed to participate in the bidding. The privatization of Uganda Commercial Bank (UCB) to the South African bank Stanbic met all these criteria, suggesting that it is a likely candidate for success. But other features suggest reasons for caution: UCB dominated the Ugandan banking sector prior to privatization and the institutional environment in Uganda was less favorable than in many of the middle-income countries looked at in earlier empirical studies. Despite these concerns, the privatization appears to have been relatively successful. The portfolio of the privatized bank, which was cleaned prior to sale, remains relatively strong and profitability and credit growth are now on par with other Ugandan banks. Though market segmentation remains a concern since Stanbic faces little or no direct competition in many remote areas...

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
56.31%
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
56.3%
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...

Market Discipline Under Systemic Risk: Evidence from Bank Runs in Emerging Economies

Levy-Yeyati, Eduardo; Martinez Peria, Maria Soledad; Schmukler, Sergio L.
Fonte: World Bank, Washington, D.C. Publicador: World Bank, Washington, D.C.
EN_US
Relevância na Pesquisa
56.3%
The authors show that systemic risk exerts a significant impact on the behavior of depositors, sometimes overshadowing their responses to standard bank fundamentals. Systemic risk can affect market discipline both regardless of and through bank fundamentals. First, worsening systemic conditions can directly threaten the value of deposits by way of dual agency problems. Second, to the extent that banks are exposed to systemic risk, systemic shocks lead to a future deterioration of fundamentals not captured by their current values. Using data from the recent banking crises in Argentina and Uruguay, the authors show that market discipline is indeed quite robust once systemic risk is factored in. As systemic risk increases, the informational content of past fundamentals declines. These episodes also show how few systemic shocks can trigger a run irrespective of ex-ante fundamentals. Overall, the evidence suggests that in emerging economies, the notion of market discipline needs to account for systemic risk.

Foreign Bank Behavior During Financial Crises

Adams-Kane, Jonathon; Caballero, Julian A.; Lim, Jamus Jerome
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
EN_US
Relevância na Pesquisa
56.32%
One of the persistent policy problems faced by governments contemplating financial liberalizations is the question of whether to allow foreign banks entry into the domestic economy. This question has become ever more urgent in recent times, due to rapid financial globalization, coupled with the credit contractions experienced as a result of the 2007/08 financial crisis. This paper examines the question of whether opening the financial sector to foreign participation is a good idea for developing countries, using a unique bank-level database of foreign ownership. In particular, the authors examine whether the credit supply of majority foreign-owned financial institutions differ systematically conditional on a crisis event in their home economies. They show that foreign banks that were exposed to crises in their home countries exhibit changes in lending patterns that are lower by between 13 and 42 percent than their non-crisis counterparts.

Financial Crises, Credit Ratings, and Bank Failures : An Introduction

Reinhart, Carmen M.
Fonte: Washington, DC: World Bank Publicador: Washington, DC: World Bank
Tipo: Artigo de Revista Científica
EN_US
Relevância na Pesquisa
56.37%
Financial crises of every variety rocked emerging markets in the second half of the 1990s. Nearly every region experienced currency crashes, banking crises were both numerous and severe, and a few countries, facing extreme duress, defaulted on their sovereign debt. Not surprisingly, then, there is considerable interest in policy and academic circles and within the investment community in gaining a better understanding of financial and economic distress.

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
56.29%
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.

Bank Concentration and Crises

Beck, Thorsten; Demirguc-Kunt, Asli; Levine, Ross
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
EN_US
Relevância na Pesquisa
56.3%
The authors study the impact of bank concentration, regulations, and national institutions on the likelihood of suffering a systemic banking crisis. Using data on 79 countries over the period 1980-97, they find that crises are less likely (1) in more concentrated banking systems, (2) in countries with fewer regulatory restrictions on bank competition and activities, and (3) in economies with better institutions, that is, institutions that encourage competition and support private property rights.

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
56.32%
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.

World Bank Research Digest, Vol. 5(1)

World Bank
Fonte: Washington, DC Publicador: Washington, DC
EN_US
Relevância na Pesquisa
56.42%
In this issue: charting new directions in development economics; focus: agriculture for development, revisited; too big to fail or too big to save? Bank runs in emerging economies; closer scrutiny of mashup indices; ethnic discrimination and political competition in Sri Lanka; and interactions between formal and informal 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
76.69%
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...

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
66.48%
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.

The Jobs Crisis : Household and Government Responses to the Great Recession in Eastern Europe and Central Asia

World Bank
Fonte: World Bank Publicador: World Bank
Tipo: Publications & Research :: Publication; Publications & Research :: Publication
ENGLISH
Relevância na Pesquisa
66.41%
The financial crisis swiftly expanded into an economic crisis throughout America and Western Europe, from where it spread to developing countries that had depended on foreign direct investment, consumer and mortgage credit, trade, and remittances. By early 2009, it was clear that this economic downturn would be more severe than any crisis since the great depression, prompting some to it as the 'great recession.' Eastern European and Central Asian countries were hit particularly hard during 2009, global Gross Domestic Product (GDP) contracted for the first time since Second World War. The financial crisis and the ensuing economic downturn, the worst since the Great Depression in the 1930s, went hand in hand with tightening of credit markets, bank failures, firm closures, and high demand for social safety nets. This report, The jobs crisis: household and Government responses to the great recession in Eastern Europe and Central Asia, brings together evidence that World Bank teams have collected on the impact of the crisis on households and families in Eastern Europe and Central Asia. This report shows how the crisis was felt by Eastern European and Central Asian households. Not only did unemployment rise sharply but it also lasted longer. The report also shows that the pain of the recession was broader...

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
56.32%
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.

Bank Bailouts, Competition, and the Disparate Effects for Borrower and Depositor Welfare

Calderon, Cesar; Schaeck, Klaus
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
56.32%
This paper investigates how government interventions into banking systems such as blanket guarantees, liquidity support, recapitalizations, and nationalizations affect banking competition. This debate is important because the pricing of banking products has implications for borrower and depositor welfare. Exploiting data for 124 countries that witnessed different policy responses to 41 banking crises, and using difference-in-difference estimations, the paper presents the following key results: (i) Government interventions reduce Lerner indices and net interest margins. This effect is robust to a battery of falsification and placebo tests, and the competitive response also cannot be explained by alternative forces. The competition-increasing effect on Lerner indices and net interest margins is also confirmed once the non-random assignment of interventions is accounted for using instrumental variable techniques that exploit exogenous variation in the electoral cycle and in the design of the regulatory architecture across countries. (ii) Consistent with theoretical predictions...

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
56.3%
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
56.61%
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...