Browsing by Subject "banking"

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  • Kauko, Karlo (World Scientific, 2018)
    Singapore Economic Review 3
    Policy discussions are dominated by the view that governmental safety nets offered to banks cause moral hazard and encourage risk-taking. However, [Cordella, T and E Levy Yeyati (2003). Bank bailouts: moral hazard vs. value effect. Journal of Financial Intermediation, 12, 300–330.] proposed that government support offered during crises may increase bank franchise value, resulting in less risk-taking. This paper presents additional theoretical results on the franchise value effect. The franchise value effect can dominate over the moral hazard effect even when there are no specific crisis periods. The franchise value effect dominates if bank shareholders have a weak time preference and if the decision on the intensity of risk monitoring is a long-term choice.
  • Jokivuolle, Esa; Keppo, Jussi; Yuan, Xuchuan (2015)
    Bank of Finland Research Discussion Papers 5/2015
    Regulators restrict bankers’ risk-taking by bonus caps or deferrals. We derive a structural model to analyze these compensation regulations and show that for a risk-neutral banker subject to positive switching costs of reducing bank risk, a bonus deferral is impotent while a sufficiently tight bonus cap reduces risk-taking. The model suggests that a bonus cap that equals fixed salary (as in the EU) reduces risk on average by 13% under conservatively calibrated positive switching costs. Further, the bonus cap would have considerably reduced risk-taking incentives in most US banks that did poorly during the global financial crisis. We also show that the bonus deferral is effective if the banker is risk-averse and the switching costs are not too high.
  • Hasan, Iftekhar; Wu, Deming (2016)
    Bank of Finland Research Discussion Papers 9/2016
    Do banks use credit default swap hedging to substitute for loan sales? By tracking banks’ lending exposures and CDS positions on individual firms, we find that banks use CDS hedging to complement rather than to substitute for loan sales. Consequently, bank loan sales are higher for firms that are actively traded in the CDS market. In addition, we find evidence that suggests that banks sell CDS protection as credit enhancements to facilitate loan sales. This study employs identification strategies similar to the “twin study” design to separate the effects of borrower-side and lender-side factors, and to minimize the omitted-variables bias.
  • Fungáčová, Zuzana; Kerola, Eeva; Weill, Laurent (2019)
    BOFIT Discussion Papers 21/2019
    Online First Journal of Financial Services Research
    This paper investigates how past experience with banking crises influences an individual’s trust in banks. We combine data on banking crises for the period 1970–2014 with individual data on trust in banks for 52 countries. We find that experiencing a banking crisis diminishes a person’s trust in banks, and that high exposure to banking crises is negatively related to trust in banks. An individual’s age at the time of the crisis is important, and significant for individuals between 41 and 60 years of age at the time of the banking crisis. Both severe and mild crises diminish trust in banks, but a severe banking crisis hits also young people’s trust, while less severe banking crises mainly degrade trust of more mature people. The detrimental effect for trust in banks seems to be connected specifically to systemic banking crises. Other types of financial crises incur a less significant effect. Overall, our results indicate that banking crises generate previously unrecognized costs for the economy in the form of a lasting reduction of trust in banks.
  • Saka, Orkun; Eichengreen, Barry; Aksoy, Cevat Giray (2021)
    BOFIT Discussion Papers 13/2021
    We ask whether epidemic exposure leads to a shift in financial technology usage and who participates in this shift. We exploit a dataset combining Gallup World Polls and Global Findex surveys for some 250,000 individuals in 140 countries, merging them with information on the incidence of epidemics and local 3G internet infrastructure. Epidemic exposure is associated with an increase in remote-access (online/mobile) banking and substitution from bank branch-based to ATM activity. Heterogeneity in response centers on the age, income and employment of respondents. Young, high-income earners in full-time employment have the greatest tendency to shift to online/mobile transactions in response to epidemics. These effects are larger for individuals with better ex ante 3G signal coverage, highlighting the role of the digital divide in adaption to new technologies necessitated by adverse external shocks.
  • Stern, Caroline; Mäkinen, Mikko; Qian, Zongxin (2017)
    Journal of Chinese Economic and Foreign Trade Studies 3
    BOFIT Policy Brief 8/2017
    China is a country with the most number of operating peer-to-peer (P2P) lending platforms (approximately 2,000) worldwide. This study aims to provide an overview on FinTechs in China. It was examined why payment services and P2P lending are so popular in China and what are the determinants for the emergence of P2P lending platforms in different provinces in China.
  • Xia, Le (2020)
    BOFIT Policy Brief 3/2020
    China’s banking sector, particularly small and medium-sized banks, today face a headwind of asset quality deterioration. Revisiting Chinese bank rescues from the early 2000s, we examine how the authorities tackled a severe rise in non-performing loans (NPLs). Following a discussion on costsharing among government agencies in that fitful NPL clean-up, we identify policy measures most suited to dealing with the current NPL situation.
  • Fungáčová, Zuzana; Klein, Paul-Olivier; Weill, Laurent (2020)
    China Economic Review February ; 2020
    Published in BOFIT Discussion Paper 16/2018.
    A vast literature shows that China's five largest state-owned banks (the Big Five) suffer from low cost efficiency. We offer a new explanation of this situation, by decomposing overall efficiency of Chinese banks into two parts: persistent and transient efficiency. Using the model of Kumbhakar, Lien, and Hardaker (2014) based on the stochastic frontier approach, we measure persistent and transient efficiency for a large sample of 166 Chinese banks over the period 2008–2015. We show that the lower efficiency of China's Big Five banks is almost entirely due to low persistent cost efficiency, indicating structural problems. On the contrary, the Big Five banks transient efficiency is similar to other Chinese banks, reflecting a good aptitude to minimize their costs in the short-term. Our findings support the view that major structural reforms are needed to enhance the efficiency of China's Big Five banks. © 2019 Elsevier Inc.
  • Ristolainen, Kim (2018)
    Scandinavian Journal of Economics 1; January 2018
    Studies of the early warning systems (EWSs) for banking crises usually rely on linear classifiers, estimated with international datasets. I construct an EWS based on an artificial neural network (ANN) model, and I also account for regional heterogeneity in order to improve the generalization ability of EWS models. All of the banking crises in my test set are then predictable at a 24-month horizon, using information from earlier crises. For some countries, estimation with a regional dataset significantly improves the predictions. The ANN outperforms the usual logit regression, assessed by the area under the receiver operating characteristics curve.
  • Fungáčová, Zuzana; Hasan, Iftekhar; Weill, Laurent (2016)
    BOFIT Discussion Papers 7/2016
    Published in Journal of Economic Behavior and Organization, 157, January, 2019, 452-476
    ​Trust in banks is considered essential for an effective financial system, yet little is known about what determines trust in banks. Only a handful of single-country studies discuss the topic, so this paper aims to fill the gap by providing a cross-country analysis on the level and determinants of trust in banks. Using World Values Survey data covering 52 countries during the period 2010–2014, we observe large cross-country differences in trust in banks and confirm the influence of several sociodemographic indicators. Our main findings include: women tend to trust banks more than men; trust in banks tends to increase with income, but decrease with age and education; access to television enhances trust, while internet access erodes trust; and religious, political, and economic values may affect trust in banks. Notably, religious individuals tend to put greater trust in banks, but differences are observed across denominations. The holding of pro-market economic views is also associated with greater trust in banks.
  • Fungáčová, Zuzana; Weill, Laurent (2017)
    BOFIT Discussion Papers 9/2017
    Published in Pacific Economic Review, 23, 2, 2018, 131–149
    Trust in banks is essential to financial system effectiveness. This study examines the determinants of trust in banks in China. Using the most recent wave of the World Values Survey, which included information on trust in banks from the survey in China in 2012, we perform ordered logit estimations to investigate the potential influence of a large set of individual and provincial indicators on trust in banks. We observe the influence of certain sociodemographic indicators. Membership in the Communist Party and living in a rural area are negatively associated with trust in banks. Age and satisfaction with financial situation contribute to higher trust in banks, while being married and having a higher level of education tend to lower trust in banks. Access to information regardless of the type of media disseminating the information newspapers, television, internet) seem to have no impact on trust in banks. Economic values influence trust in banks. In particular, individuals who favor inequality as an incentive for individual effort or support an expanded government ownership role in the economy tend to trust banks more.