Refine
Keywords
- Banking (2)
- Asset Side Market Discipline (1)
- Competition Policy (1)
- Costly Capital (1)
- Financial Innovation (1)
- Financial Regulation (1)
- Historical Cost (1)
- Incomplete Markets (1)
- Insurance (1)
- Legal Institutions (1)
-
The economic impact of merger control legislation
(2008)
- Based on a unique dataset of legislative changes in industrial countries, we identify events that strengthen the competition control of mergers and acquisitions, analyze their impact on banks and non-financial firms and explain the different reactions observed with specific regulatory characteristics of the banking sector. Covering nineteen countries for the period 1987 to 2004, we find that more competition-oriented merger control increases the stock prices of banks and decreases the stock prices of non-financial firms. Bank targets become more profitable and larger, while those of non-financial firms remain mostly unaffected. A major determinant of the positive bank returns is the degree of opaqueness that characterizes the institutional setup for supervisory bank merger reviews. The legal design of the supervisory control of bank mergers may therefore have important implications for real activity. JEL Classification: G21, G28, D4
-
Mark-to-market accounting and liquidity pricing
(2006)
- When liquidity plays an important role as in times of financial crisis, asset prices in some markets may reflect the amount of liquidity available in the market rather than the future earning power of the asset. Mark-to-market accounting is not a desirable way to assess the solvency of a financial institution in such circumstances. We show that a shock in the insurance sector can cause the current value of banks’ assets to be less than the current value of their liabilities so the banks are insolvent. In contrast, if historic cost accounting is used, banks are allowed to continue and can meet all their future liabilities. Mark-to-market accounting can thus lead to contagion where none would occur with historic cost accounting. Klassifizierung: G21, G22, M41
-
Bank mergers, competition and liquidity
(2006)
- We model the impact of bank mergers on loan competition, reserve holdings and aggregate liquidity. A merger changes the distribution of liquidity shocks and creates an internal money market, leading to financial cost efficiencies and more precise estimates of liquidity needs. The merged banks may increase their reserve holdings through an internalization effect or decrease them because of a diversification effect. The merger also affects loan market competition, which in turn modifies the distribution of bank sizes and aggregate liquidity needs. Mergers among large banks tend to increase aggregate liquidity needs and thus the public provision of liquidity through monetary operations of the central bank. Klassifikation: D43, G21, G28, L13
-
Credit risk transfer and contagion
(2005)
- Some have argued that recent increases in credit risk transfer are desirable because they improve the diversification of risk. Others have suggested that they may be undesirable if they increase the risk of financial crises. Using a model with banking and insurance sectors, we show that credit risk transfer can be beneficial when banks face uniform demand for liquidity. However, when they face idiosyncratic liquidity risk and hedge this risk in an interbank market, credit risk transfer can be detrimental to welfare. It can lead to contagion between the two sectors and increase the risk of crises. Klassifikation: G21, G22
-
Stakeholder capitalism, corporate governance and firm value
(2007)
- We consider the advantages and disadvantages of stakeholder-oriented firms that are concerned with employees and suppliers as well as shareholders compared to shareholder-oriented firms. Societies with stakeholder-oriented firms have higher prices, lower output, and can have greater firm value than shareholder-oriented societies. In some circumstances, firms may voluntarily choose to be stakeholder-oriented because this increases their value. Consumers that prefer to buy from stakeholder firms can also enforce a stakeholder society. With globalization entry by stakeholder firms is relatively more attractive than entry by shareholder firms for all societies. JEL Classification: D02, D21, G34, L13, L21
-
Credit market competition and capital regulation
(2005)
- Market discipline for financial institutions can be imposed not only from the liability side, as has often been stressed in the literature on the use of subordinated debt, but also from the asset side. This will be particularly true if good lending opportunities are in short supply, so that banks have to compete for projects. In such a setting, borrowers may demand that banks commit to monitoring by requiring that they use some of their own capital in lending, thus creating an asset market-based incentive for banks to hold capital. Borrowers can also provide banks with incentives to monitor by allowing them to reap some of the benefits from the loans, which accrue only if the loans are in fact paid o.. Since borrowers do not fully internalize the cost of raising capital to the banks, the level of capital demanded by market participants may be above the one chosen by a regulator, even when capital is a relatively costly source of funds. This implies that capital requirements may not be binding, as recent evidence seems to indicate. JEL Classification: G21, G38
-
Multiple-bank lending : diversification and free-riding in monitoring
(2004)
- This paper analyzes banks' choice between lending to firms individually and sharing lending with other banks, when firms and banks are subject to moral hazard and monitoring is essential. Multiple-bank lending is optimal whenever the benefit of greater diversification in terms of higher monitoring dominates the costs of free-riding and duplication of efforts. The model predicts a greater use of multiple-bank lending when banks are small relative to investment projects, firms are less profitable, and poor financial integration, regulation and inefficient judicial systems increase monitoring costs. These results are consistent with empirical observations concerning small business lending and loan syndication. Klassifikation: D82; G21; G32. June 1, 2004.
