This article analyses noninterest checking (NIC) account fees using a unique data set covering 11 875 observations on 1880 banks from 2008 to 2012. These data identify whether the bank has free or ...fee checking on NIC accounts and, where relevant, the fee and minimum balance to avoid the fee. Appealing to shrouded equilibrium theory, we hypothesize that banks, and particularly small banks, will avoid drawing the attention of myopic, low-income types by having stable policies, or will attempt to confuse depositors with contradictory policy shifts in the fee and minimum balance requirements. Competition and small bank size should favour consumers, but the meaning of 'favour' is complicated by large depositors and the banks subsidizing small depositors with NIC accounts.
The results support the avoid attention hypothesis, particularly for single-market banks, and weakly support the confuse depositors hypothesis. The largest banks, including three too big to fail banks, are most responsive to competition, with single-market banks far less responsive. Competition may be responsible for a dramatic decline in free checking among the largest banks, and substantial increases in minimum balances for those banks, since these effectively reduced subsidies. Simultaneously, single-market banks became more likely to offer free checking.
The management of operational risk in the banking industry has undergone explosive changes over the last decade due to substantial changes in the operational environment. Globalization, deregulation, ...the use of complex financial products, and changes in information technology have resulted in exposure to new risks which are very different from market and credit risks. In response, the Basel Committee on Banking Supervision has developed a new regulatory framework for capital measurement and standards for the banking sector. This has formally defined operational risk and introduced corresponding capital requirements. Many banks are undertaking quantitative modelling of operational risk using the Loss Distribution Approach (LDA) based on statistical quantification of the frequency and severity of operational risk losses. There are a number of unresolved methodological challenges in the LDA implementation. Overall, the area of quantitative operational risk is very new and different methods are under hot debate. This book is devoted to quantitative issues in LDA. In particular, the use of Bayesian inference is the main focus. Though it is very new in this area, the Bayesian approach is well suited for modelling operational risk, as it allows for a consistent and convenient statistical framework for quantifying the uncertainties involved. It also allows for the combination of expert opinion with historical internal and external data in estimation procedures. These are critical, especially for low-frequency/high-impact operational risks. This book is aimed at practitioners in risk management, academic researchers in financial mathematics, banking industry regulators and advanced graduate students in the area. It is a must-read for anyone who works, teaches or does research in the area of financial risk.
Changes in the field of central banking over the past two decades have been nothing short of dramatic. They include the importance of central bank autonomy, the desirability of low and stable ...inflation, and the vital role played by how central banks communicate their views and intentions to the markets and the public more generally. There remains considerable diversity nevertheless in the institutional framework affecting central banks, the manner in which the stance of monetary policy is determined and assessed, and the forces that dictate the conduct of monetary policy more generally. The global financial crisis, which began in the United States in 2007, only serves to highlight further the importance of central bank policies. The aim of this volume is to take stock of where we are in the realm of the practice of central banking and considers some of the implications arising from the ongoing crisis.
•A U-shaped relationship between competition and banks’ risk of failure has been found for MENA banks.•Competition-stability and competition-fragility can be applied at the same time for MENA ...banks.•Monetary authorities should proceed differently depending on the level of competition.•The concentration is not associated with uncompetitive markets.•The policies to increase the level of concentration to improve the financial stability are questionable.
This paper tests the relationship between competition and bank stability for 356 banks operating in the Middle East North Africa (MENA) countries during the period 2005–2012. Our results show that for the overall sample, a U-shaped relationship between competition and banks’ risk taking for MENA banks. The negative linear relationship between Z-Score and H-statistics in Gulf countries shows that an increase in competition leads to a reduction in the level of financial stability. In the case of other non-Gulf countries, the increase of competition in uncompetitive markets can lead to an increase in stability. The results confirm the importance of the market structure as an explanatory factor for financial stability, but also indicate that concentration is not associated with uncompetitive markets.
This study examines the volatility connectedness among banks, industrials, and services subindices of Borsa Istanbul using the Diebold-Yılmaz connectedness index methodology. The findings indicate ...that the banks index typically acts as a net receiver of connectedness from industrials and services indices. If the banks index is considered a proxy for the financial side of the Turkish economy while the other two represent the real side, this result aligns with earlier observations on the connectedness between the real and financial sides of economies. Specifically, it suggests that when a proxy for the real side incorporates financial variables, the real side tends to be a net source of connectedness most of the time. As shock propagators, industrials play a dominant role, and the banks index often moves in the opposite direction to the other two sectors. Key Words: Real and Financial Sectors, Financial Connectedness, Volatility, Borsa Istanbul. JEL Classification: C32, E44, G10.
This article argues that the European Central Bank (ECB) has been acting as lender of last resort (LoLR) for the sovereigns of the eurozone since it first started its outright purchases of eurozone ...periphery sovereign debt under the Securities Markets Programme (SMP) in May 2010 (see De Grauwe, 2011b; Wyplosz, 2011, 2012; Buiter and Rahbari, 2012a). The scale of its interventions as LoLR for sovereigns has grown steadily since then and its range of instruments has expanded. We interpret the longer-term refinancing operations (LTROs) of Dec 2011 and Feb 2012 as being as much about acting, indirectly, as LoLR for the Spanish and Italian sovereigns by facilitating the purchase of their debt by domestic banks in the primary issue markets, as about dealing with a liquidity crunch for eurozone banks. A future third LoLR instrument will be indirect lending by the eurozone to periphery sovereigns. This will be achieved through national central banks lending to the International Monetary Fund (IMF) and the IMF lending to the Spanish and Italian sovereigns, once these sovereigns have come under suitable troika (that is, IMF, European Commission and ECB) programmes. If and when the European Stability Mechanism (ESM) gets a banking licence (becomes an eligible counterparty of the eurozone for the purpose of repos or other forms of collateralized borrowing), the ECB will have a fourth mechanism through which it can act as LoLR for sovereigns.
Various efforts are made to quantify and explain risk taking behavior including systematic risk with in financial institutions. This study is about determining various factors affecting commercial ...banks systematic risk in Pakistan. Sample included in the study consisted of twelve commercial banks listed in PSX (Pakistan Stock Exchange), these banks hold 81.3% market share of customer deposits. Data was collected from 2010 to 2016. The systematic risk for this study was calculated through stock beta (SB) and value at risk (VaR). To determine systematic risk the independent variables used are liquidity, firm size, asset quality, firm growth, return on assets, business mix, operating efficiency and loan growth. The result shows that liquidity, asset quality, return on assets and firm size have significant impact on systematic risk of banks in Pakistan.
In this paper we develop a theoretical model with a representative bank whose ownership is shared between state and private sector. The bank faces a risk of failure and provides private and public ...explicit deposit insurance. Banks owned to a larger extent by the government are more able to counteract a restrictive monetary policy because of their capacity to raise additional volume of deposits. Therefore, the greater the state’s share in the bank ownership, the less the impact of a monetary tightening on the level of loan supply.
We analyze residential mortgage lending by banks in periods surrounding upgrades or downgrades in their ratings under the Community Reinvestment Act (CRA). Empirical results indicate that upgraded ...banks had higher relative levels of lending than did downgraded banks prior to ratings changes. Additionally, both downgraded and upgraded banks increased lending following implementation of reforms to the CRA in the 1990s, which were intended to more closely align rating assessment with lending outcomes. Little support is provided, on the other hand, for a hypothesis that banks respond to downgrades by increasing lending (despite apparent incentives for them to do so).
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