Alin Marius Andries

Competition and efficiency in EU27 banking systems

Abstract In our study, we investigate competition in the banking systems of the EU27 as a whole, but also in both old EU member states and new EU member states, in the context of European Union integration and enlargement. Specifically, we construct 2 measures of competition, the Lerner Index and H-statistics, using bank-level data for a panel of 923 commercial banks from the 27 countries that are member states of the EU. The results show a significant increase in competition in new EU members between 2001 and 2006, while in old member states we see a notable decrease in competition between 2005 and 2007. As a whole, competition in the EU27 increases comparatively with 2001, and we consider adoption of the euro and continuing European integration to be the main factors for this issue. Additionally, empirical results provide evidence of convergence in terms of banking competition among the member states of the EU.

Impact of financial liberalization on banking sectors performance from central and eastern European countries.

In this paper we analyse the impact of financial liberalization and reforms on the banking performance in 17 countries from CEE for the period 2004–2008 using a two-stage empirical model that involves estimating bank performance in the first stage and assessing its determinants in the second one. From our analysis it results that banks from CEE countries with higher level of liberalization and openness are able to increase cost efficiency and eventually to offer cheaper services to clients. Banks from non-member EU countries are less cost efficient but experienced much higher total productivity growth level, and large sized banks are much more cost efficient than medium and small banks, while small sized banks show the highest growth in terms of productivity.

Convergence of Bank Efficiency in Emerging Markets: The Experience of Central and Eastern European Countries

In this study, we investigate the effect of the European Union integration process on banks efficiency and the convergence of cost efficiency across banking systems from Central and Eastern European countries for the period 2004-10. We observe large differences in the levels of cost efficiency among national banking systems, and we notice an increase in banking efficiency for all banking systems until 2008. However, starting with 2009, the evolution of the average scores of cost efficiency declines. The results provide evidence of β-convergence and σ-convergence in terms of cost efficiency among the banking systems, especially during the period 2009-10.

Systemic Risk, Corporate Governance and Regulation of Banks Across Emerging Countries

This paper investigates the impact of governance and regulation on systemic risk banks from 10 CEE countries. Our results show that tight internal risk management mechanisms and shareholder-friendly supervisory boards are associated with higher contribution of banks to systemic risk. Additionally, external governance significantly affects the impact of corporate governance on systemic risk.

Nexus Between Concentration and Fragility Across EU Banking Systems

Abstract This study assesses the relationship between concentration and financial fragility in the EU banking systems between 2001 and 2009. We investigate if the idea of increasing competition in EU as a result of a single European market it fits with the issue of financial stability of the European financial system. We test the competition implications on financial stability during the crisis and pre-crisis period, too. We use as proxy for competition two structural indicators - Herfindahl-Hirschman Index (HHI) and the concentration rate of the top five largest banks (CR5). The banks’ financial stability is represented by Z-score. The model is estimated on a panel of 923 commercial banks from 27 countries members of European Union for the 2001–2009 periods. Because we work with a large number of cross-sections and a short times series, we will use Generalized Method of Moments (GMM) Dynamic Panel Data models. The results validate both views, depending on group of countries and pre-crisis /crisis period. In the case of CR5, all results are statistically relevant, less for the euro zone and, except for the new member states, increased concentration has a negative impact on financial stability, so it confirms the competition stability theory. The results for the Herfindahl-Hirschman Index (HHI) are statistically relevant only for the countries outside the euro zone and the new members and it is validated the competition-fragility vision: the greater the concentration in the system, measured by the HHI index (i.e. less competition), the higher the Z-score indicator, therefore the bank financial stability increases.

Corporate Governance and Efficiency in Banking: Evidence from Emerging Economies

This paper investigates the impact of corporate governance on bank efficiency across a sample of 139 commercial banks from 17 countries of Central and Eastern Europe during the period 2005-2012. The empirical findings indicate that implementing rigorous corporate governance structures is associated with higher costs for banks and a lower level of efficiency. But, during the crisis a tight governance mechanism significantly increases banks’ cost and technical efficiencies. Also, tight risk management is associated with both higher cost and technical efficiency for more capitalized banks, while rigid supervisory boards are linked with higher technical efficiency for more capitalized banks.

Effects of Macroprudential Policy on Systemic Risk and Bank Risk Taking

Using an international sample of 95 banks from 21 European and North American countries spanning from 2008 to 2014, this paper assesses the effectiveness of a large set of general and housing macro-prudential policies in controlling banks’ systemic importance and risk-taking incentives. Empirical findings indicate that tightening the general capital requirements, sector specific capital buffers, along with housing countercyclical capital requirements and Debt-Service-to-Income lending criteria significantly reduce banks’ contribution to systemic risk and their individual risk-taking. A similar effect has been obtained for loosening real estate loans loss provisioning. Furthermore, the nexus between macroprudential policies and banks’ risk is shaped through several channels like bank size, the share of foreign bank assets, banking sector competition and the independence of supervisory authority.

Systemic Risk and Foreign Currency Positions of Banks: Evidence from Emerging Europe

This article investigates the impact of foreign currency (FX) denominated assets and liabilities on systemic risk by using a unique hand-collected dataset of bank-level FX positions for the period 2005–2012. The sample consists of banks from Central and Eastern Europe with large share of FX exposures on the balance sheet. Empirical findings indicate that systemic risk is dependent on the currency choice of financial institutions. While FX positions denominating in EUR and USD do not pose systemic risk concerns, FX positions denominating in exotic currencies like CHF significantly enhance the banks’ systemic importance. The negative influence of CHF positions might be reduced through prudent corporate governance mechanisms, tight restrictions on banking activity, and more restrictive limits on foreign currency lending in the home countries of the bank holding companies.

The Impact of Central Bank Transparency on Systemic Risk. Evidence from Central and Eastern Europe

The aim of this paper is to analyze the impact of central bank transparency on systemic risk in emerging banking markets using a sample composed of 34 banks from Central and Eastern Europe and a period spanning from 2005 through 2012. Results indicate a positive and significant relationship between central bank transparency and financial institutions’ contribution to systemic risk. On the other side, a higher degree of central bank transparency significantly reduces the idiosyncratic risk of banks. The relationship is influenced by the restrictiveness of regulatory framework. We argue that a more transparent central bank is beneficial for the banking sector from a microprudential perspective, but it may create incentives for financial institutions to engage in risky activities and through a herd behavior increase individual contribution to the risk of the banking system as a whole.

The Relationship between Exchange Rates and Interest Rates in a Small Open Emerging Economy: The Case of Romania

This paper revisits the relationship between interest rates and exchange rates in a small open emerging economy using wavelet-based methodologies. Based on data for Romania, our results confirm the theoretical predictions on the interest rate - exchange rate relationship during turmoil or policy changes. In the short term, the relationship is negative, confirming the sticky-price models, and over the long term, the relationship is positive, confirming the Purchasing Power Parity theory. At the beginning of the turmoil, the exchange rate movements generally take the lead over the interest rates for the first month, but the monetary authorities take the lead afterwards. Our results reveal that in a small open emerging economy with a direct inflation targeting monetary policy regime, the relationship between exchange rates and interest rate is fundamentally different from that in an advanced economy. Also, our results stress the necessity that the central bank must pay simultaneous attention to both variables in order to achieve their monetary policy targets.