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Jyhhorng Lin - One of the best experts on this subject based on the ideXlab platform.

  • Bank interest margin, multiple shadow banking activities, and capital regulation
    'MDPI AG', 2018
    Co-Authors: Jyhhorng Lin
    Abstract:

    [[abstract]]In this paper, we develop a contingent claim model to evaluate a bank’s equity and liabilities that integRates the premature default risk conditions with Loan Rate-setting behavioral mode and multiple shadow banking activities under capital regulation. The barrier options theory of corpoRate security valuation is applied to the contingent claims of a bank. The barrier reports that default can occur at any time before the maturity date. We focus on a type of earning-asset portfolio, consisting of balance-sheet banking activities of Loans and liquid assets and shadow banking activities of wealth management products (WMPs) and entrusted Loans (ELs). The optimal bank interest margin, i.e., the spread between the Loan Rate and the deposit Rate, is derived and analyzed. The results provide an alternative explanation for the decline in bank interest margins, which better fits the narrative evidence on bank spread behavior under capital regulation in particular during a financial crisis. Raising either WMPs or ELs leads to a transfer of wealth from equity holders to the debt holders, and hence increases the deposit insurance liabilities. We also show that the multiple shadow banking activities of WMPs and ELs captured by scope equities may produce superior return performance for the bank. Tightened capital requirements may reinforce the superior return performance by a surge in shadow banking activities that makes the bank less prudent and more prone to risk-taking at a reduced margin, thereby adversely affecting banking stability. We demonstRate that financial disturbance may be created because of the potential for shadow banking activities to spill over to regular banking activities and damage the real economy.[[notice]]補正完

  • Bank Interest Margin, Multiple Shadow Banking Activities, and Capital Regulation
    MDPI AG, 2018
    Co-Authors: Jyhhorng Lin, Shi Chen, Fu-wei Huang
    Abstract:

    In this paper, we develop a contingent claim model to evaluate a bank’s equity and liabilities that integRates the premature default risk conditions with Loan Rate-setting behavioral mode and multiple shadow banking activities under capital regulation. The barrier options theory of corpoRate security valuation is applied to the contingent claims of a bank. The barrier reports that default can occur at any time before the maturity date. We focus on a type of earning-asset portfolio, consisting of balance-sheet banking activities of Loans and liquid assets and shadow banking activities of wealth management products (WMPs) and entrusted Loans (ELs). The optimal bank interest margin, i.e., the spread between the Loan Rate and the deposit Rate, is derived and analyzed. The results provide an alternative explanation for the decline in bank interest margins, which better fits the narrative evidence on bank spread behavior under capital regulation in particular during a financial crisis. Raising either WMPs or ELs leads to a transfer of wealth from equity holders to the debt holders, and hence increases the deposit insurance liabilities. We also show that the multiple shadow banking activities of WMPs and ELs captured by scope equities may produce superior return performance for the bank. Tightened capital requirements may reinforce the superior return performance by a surge in shadow banking activities that makes the bank less prudent and more prone to risk-taking at a reduced margin, thereby adversely affecting banking stability. We demonstRate that financial disturbance may be created because of the potential for shadow banking activities to spill over to regular banking activities and damage the real economy

  • a barrier option framework for bank interest margin management under anticipatory regret aversion
    Economic Modelling, 2013
    Co-Authors: Jyhhorng Lin, Weiming Hung
    Abstract:

    This paper proposes a framework for bank equity valuation based on a path-dependent, barrier option model. A direct implication of this framework is that bank equity will be priced as a down-and-out call option. Using this approach, we examine how bank interest margin, i.e., the spread between the Loan Rate and the deposit Rate, is determined when a bank is regret-averse. Regret-averse preferences are characterized by a down-and-in call, which is specified as the difference between a standard call and a down-and-out call. The model demonstRates how anticipatory regret aversion and the default barrier jointly determine an optimal bank interest margin decision. We find that a bank interest margin with a low level of default barrier is negatively related to anticipatory regret aversion and to the default barrier. Regret aversion and default barriers make a bank less prudent and more prone to risk-taking, thereby adversely affecting the stability of the banking system.

Hans Degryse - One of the best experts on this subject based on the ideXlab platform.

  • rules versus discretion in Loan Rate setting
    Journal of Financial Intermediation, 2010
    Co-Authors: Geraldo Cerqueiro, Hans Degryse, Steven Ongena
    Abstract:

    Loan Rates for seemingly identical borrowers often exhibit substantial dispersion. This paper investigates the determinants of the dispersion in interest Rates on Loans granted by banks to small and medium sized enterprises. We associate this dispersion with the Loan officers’ use of “discretion” in the Loan Rate setting process. We find that “discretion” is most important if: (i) Loans are small and unsecured; (ii) firms are small and opaque; (iii) the firm opeRates in a large and highly concentRated banking market; and (iv) the firm is distantly located from the lender. Consistent with the proliferation of information-technologies in the banking industry, we find a decreasing role for “discretion” over time in the provision of small credits to opaque firms. While widely used in the pricing of Loans, “discretion” plays only a minor role in the decisions to grant Loans.

  • Rules versus discretion in Loan Rate setting
    Journal of Financial Intermediation, 2010
    Co-Authors: Geraldo Cerqueiro, Hans Degryse, Steven Ongena
    Abstract:

    We propose a heteroscedastic regression model to identify the determinants of the dispersion in interest Rates on Loans granted to small and medium sized enterprises. We interpret unexplained deviations as evidence of the banks’ discretionary use of market power in the Loan Rate setting process. “Discretion” in the Loan-pricing process is most important, we find, if: (i) Loans are small and uncollateralized; (ii) firms are small, risky and difficult to monitor; (iii) firms’ owners are older, and, (iv) the banking market where the firm opeRates is large and highly concentRated. We also find that the weight of “discretion” in Loan Rates of small credits to opaque firms has decreased somewhat over the last fifteen years, consistent with the proliferation of information-technologies in the banking industry. Overall, our results reflect the relevance in the credit market of the costs firms face in searching information and switching lenders.

  • relationship lending within a bank based system evidence from european small business data
    2000
    Co-Authors: Hans Degryse, Patrick Van Cayseele
    Abstract:

    We investigate relationship lending using detailed contract information from nearly 18,000 bank Loans of small Belgian firms operating within the continental European bank-based system. Specifically, we investigate the impact of different measures of relationship strength on price and non-price terms of the Loan contract. We test for the possibility of rent shifting by banks. The evidence shows two opposing effects. On the one hand, the Loan Rate increases with the duration of a bank-firm relationship. On the other hand, the scope of a relationship, defined as the purchase of other information-sensitive products from a bank, decreases the Loan's interest Rate substantially. Relationship duration and scope thus have opposite effects on Loan Rates, with the latter being more important. We also find that the collateral requirement is decreasing in the duration of the relationship and increasing in its scope.

  • relationship lending within a bank based system evidence from european small business data
    Journal of Financial Intermediation, 2000
    Co-Authors: Hans Degryse, Patrick Van Cayseele
    Abstract:

    Abstract We investigate relationship lending using detailed contract information from nearly 18,000 bank Loans to small Belgian firms operating within the continental European bank-based system. Specifically, we investigate the impact of different measures of relationship strength on price and nonprice terms of the Loan contract. We test for the possibility of rent shifting by banks. The evidence shows two opposing effects. On the one hand, the Loan Rate increases with the duration of a bank–firm relationship. On the other hand, the scope of a relationship, defined as the purchase of other information-sensitive products from a bank, decreases the Loan's interest Rate substantially. Relationship duration and scope thus have opposite effects on Loan Rates, with the latter being more important. We also find that the collateral requirement is decreasing in the duration of the relationship and increasing in its scope. Journal of Economic Literature Classification Numbers: G21, G32.

  • relationship lending within a bank based system evidence from european small business data
    1998
    Co-Authors: Hans Degryse, Patrick Van Cayseele
    Abstract:

    This paper adds to the relationship lending debate by investigating detailed contract information obtained from examining nearly eighteen thousand bank Loans. The beneficiaries all were very small firms that opeRate within the continental European bank-based system. That is, with data gathered for Belgium, we investigate price and non-price terms of the Loan contract. We test for the possibility of intertemporal rent shifting by banks. The empirical evidence shows two opposing effects. On the one hand, the length of a bank-firm relationship increases the Loan Rate. On the other hand, widening the relationship by buying other information sensitive products from a bank decreases the Loan Rate. Thus the effect on the price opeRates more through the dimension of the relationship than through the length of the relationship. We also find that the length of the financial relationship slightly negatively influences the probability of pledging collateral.

Fu-wei Huang - One of the best experts on this subject based on the ideXlab platform.

  • Bank Interest Margin, Multiple Shadow Banking Activities, and Capital Regulation
    MDPI AG, 2018
    Co-Authors: Jyhhorng Lin, Shi Chen, Fu-wei Huang
    Abstract:

    In this paper, we develop a contingent claim model to evaluate a bank’s equity and liabilities that integRates the premature default risk conditions with Loan Rate-setting behavioral mode and multiple shadow banking activities under capital regulation. The barrier options theory of corpoRate security valuation is applied to the contingent claims of a bank. The barrier reports that default can occur at any time before the maturity date. We focus on a type of earning-asset portfolio, consisting of balance-sheet banking activities of Loans and liquid assets and shadow banking activities of wealth management products (WMPs) and entrusted Loans (ELs). The optimal bank interest margin, i.e., the spread between the Loan Rate and the deposit Rate, is derived and analyzed. The results provide an alternative explanation for the decline in bank interest margins, which better fits the narrative evidence on bank spread behavior under capital regulation in particular during a financial crisis. Raising either WMPs or ELs leads to a transfer of wealth from equity holders to the debt holders, and hence increases the deposit insurance liabilities. We also show that the multiple shadow banking activities of WMPs and ELs captured by scope equities may produce superior return performance for the bank. Tightened capital requirements may reinforce the superior return performance by a surge in shadow banking activities that makes the bank less prudent and more prone to risk-taking at a reduced margin, thereby adversely affecting banking stability. We demonstRate that financial disturbance may be created because of the potential for shadow banking activities to spill over to regular banking activities and damage the real economy

Steven Ongena - One of the best experts on this subject based on the ideXlab platform.

  • rules versus discretion in Loan Rate setting
    Journal of Financial Intermediation, 2010
    Co-Authors: Geraldo Cerqueiro, Hans Degryse, Steven Ongena
    Abstract:

    Loan Rates for seemingly identical borrowers often exhibit substantial dispersion. This paper investigates the determinants of the dispersion in interest Rates on Loans granted by banks to small and medium sized enterprises. We associate this dispersion with the Loan officers’ use of “discretion” in the Loan Rate setting process. We find that “discretion” is most important if: (i) Loans are small and unsecured; (ii) firms are small and opaque; (iii) the firm opeRates in a large and highly concentRated banking market; and (iv) the firm is distantly located from the lender. Consistent with the proliferation of information-technologies in the banking industry, we find a decreasing role for “discretion” over time in the provision of small credits to opaque firms. While widely used in the pricing of Loans, “discretion” plays only a minor role in the decisions to grant Loans.

  • Rules versus discretion in Loan Rate setting
    Journal of Financial Intermediation, 2010
    Co-Authors: Geraldo Cerqueiro, Hans Degryse, Steven Ongena
    Abstract:

    We propose a heteroscedastic regression model to identify the determinants of the dispersion in interest Rates on Loans granted to small and medium sized enterprises. We interpret unexplained deviations as evidence of the banks’ discretionary use of market power in the Loan Rate setting process. “Discretion” in the Loan-pricing process is most important, we find, if: (i) Loans are small and uncollateralized; (ii) firms are small, risky and difficult to monitor; (iii) firms’ owners are older, and, (iv) the banking market where the firm opeRates is large and highly concentRated. We also find that the weight of “discretion” in Loan Rates of small credits to opaque firms has decreased somewhat over the last fifteen years, consistent with the proliferation of information-technologies in the banking industry. Overall, our results reflect the relevance in the credit market of the costs firms face in searching information and switching lenders.

Patrick Van Cayseele - One of the best experts on this subject based on the ideXlab platform.

  • relationship lending within a bank based system evidence from european small business data
    2000
    Co-Authors: Hans Degryse, Patrick Van Cayseele
    Abstract:

    We investigate relationship lending using detailed contract information from nearly 18,000 bank Loans of small Belgian firms operating within the continental European bank-based system. Specifically, we investigate the impact of different measures of relationship strength on price and non-price terms of the Loan contract. We test for the possibility of rent shifting by banks. The evidence shows two opposing effects. On the one hand, the Loan Rate increases with the duration of a bank-firm relationship. On the other hand, the scope of a relationship, defined as the purchase of other information-sensitive products from a bank, decreases the Loan's interest Rate substantially. Relationship duration and scope thus have opposite effects on Loan Rates, with the latter being more important. We also find that the collateral requirement is decreasing in the duration of the relationship and increasing in its scope.

  • relationship lending within a bank based system evidence from european small business data
    Journal of Financial Intermediation, 2000
    Co-Authors: Hans Degryse, Patrick Van Cayseele
    Abstract:

    Abstract We investigate relationship lending using detailed contract information from nearly 18,000 bank Loans to small Belgian firms operating within the continental European bank-based system. Specifically, we investigate the impact of different measures of relationship strength on price and nonprice terms of the Loan contract. We test for the possibility of rent shifting by banks. The evidence shows two opposing effects. On the one hand, the Loan Rate increases with the duration of a bank–firm relationship. On the other hand, the scope of a relationship, defined as the purchase of other information-sensitive products from a bank, decreases the Loan's interest Rate substantially. Relationship duration and scope thus have opposite effects on Loan Rates, with the latter being more important. We also find that the collateral requirement is decreasing in the duration of the relationship and increasing in its scope. Journal of Economic Literature Classification Numbers: G21, G32.

  • relationship lending within a bank based system evidence from european small business data
    1998
    Co-Authors: Hans Degryse, Patrick Van Cayseele
    Abstract:

    This paper adds to the relationship lending debate by investigating detailed contract information obtained from examining nearly eighteen thousand bank Loans. The beneficiaries all were very small firms that opeRate within the continental European bank-based system. That is, with data gathered for Belgium, we investigate price and non-price terms of the Loan contract. We test for the possibility of intertemporal rent shifting by banks. The empirical evidence shows two opposing effects. On the one hand, the length of a bank-firm relationship increases the Loan Rate. On the other hand, widening the relationship by buying other information sensitive products from a bank decreases the Loan Rate. Thus the effect on the price opeRates more through the dimension of the relationship than through the length of the relationship. We also find that the length of the financial relationship slightly negatively influences the probability of pledging collateral.