Edward C. Lawrence

An empirical investigation of new bank performance

Abstract Of the past studies exploring the establishment of new banks, most have been concerned with the impact of new bank entry on the performance of existing banks. Unfortunately, very little is known about the performance of new banks per se. The relatively little empirical research is surprising given the importance of these vital institutions to the local communities they serve. The present study empirically investigates the performance behavior of newly chartered banks. Since bank performance is a multidimensional concept that cannot be fully captured by a single variable, canonical correlation analysis (CCA) is used for the analysis. With CCA, various measures of performance can be simultaneously related to a set of external and internal variables which influence performance. The results show that several endogenous factors were among the most important determinants of new bank success. Specifically, the banks cost structure, size, and the composition of the loan portfolio were critical influences.

An analysis of default risk in mobile home credit

Abstract There are approximately US

A Multinomial Logit Analysis of Problem Loan Resolution Choices in Banking

22 billion in outstanding receivables and an active secondary market for mobile home credit in the United States. This important segment of the financing industry shares some attributes with traditional home mortgage financing and other attributes with consumer credit. In this paper we draw on the mortgage literature to postulate the determinants of default risk for mobile home loans. Using multivariate logit models, we investigate the relevance of payment history, loan terms, borrower characteristics, economic conditions, and legal constraints in analyzing loan defaults and delinquencies. Payment history emerges as the overwhelming factor in predicting the likelihood of default.

Forecasting losses on a liquidating long-term loan portfolio

This paper presents a conceptual framework of problem loan resolution choices that is a function of the combined borrower and lender decisions. A bank will choose a workout option if its expected value is greater than the outcome under a no-workout plan. For the borrower, if the reputational penalty due to a default is less than the opportunity cost of the best new alternative, the borrower will have an incentive to default. If the reverse holds then the borrower will be better-off with a loan workout. Using a unique data set composed of borrower, lender and economic factors we empirically examine the problem loan resolution choices. The, results provide support for our conceptual framework that problem loan choices are based on combined borrower/lender variables. Copyright 1995 by Ohio State University Press.

The viability of minority-owned banks

Abstract Assessing the condition of financial institutions and valuation of loan portfolios in secondary markets require the estimation of exposure to losses on existing portfolios of long-term loans. Data from a major U.S. financial institution were used to construct a forecasting model with Markovian structure and nonstationary transition probabilities. The model proved to be effective in representing changes in probability of default that occur as individual loans mature and accurate in forecasting aggregate defaults and losses on a nationwide portfolio of long-term loans.

Discrimination in consumer lending

The poor performance of minority-owned banks that has been widely documented in the literature over the last three decades is not due to their operating environments. Even after local market conditions are considered, the findings of this study reveal that black and Hispanic banks generally underperform their nonminority peers competing in the same marketplace. High levels of government deposits in minority banks did not improve the long-term viability of these institutions. The one exception appears to be the Asian-American banks which are not found to be significantly different from their local nonminority peer banks.

Incentive problems in bank insider borrowing

This paper tests for the existence of discrimination in consumer lending by finance companies in Texas before the passage of the Equal Credit Opportunity Act. The data used permit conclusions about discrimination in the market, not just in the behavior of a small number of creditors. The tests suggest that lenders did not discriminate against factors now protected by ECOA. These companies may have discriminated against single borrowers of both sexes and against widows but not married women or divorced borrowers. The results support the view that consumer credit markets as a whole were not characterized by widespread systematic discrimination. Copyright 1990 by MIT Press.

Sensitivity and scenario analysis for simulation metamodels

Although bank insider abuses have been one of the most frequently cited causes of recent bank problems, the existing literature is surprisingly sparse in this area. The purpose of this article is to examine one element of insider abuse—the case of bank insider borrowing. In the context of the theory of financial intermediation, we propose a hypothesis that excessive insider borrowing creates substantial incentive problems and leads the bank to inferior performance. Our empirical analysis provides results consistent with this hypothesis. The policy implication of this article is that the regulatory agencies and especially the FDIC should carefully monitor banks with excessive insider borrowing to prevent an arbitrage against the insurance fund.

The distributional impact of foreign deposits on federal deposit insurance premia

We use simple orthogonal and non-orthogonal designs to analyze a multi-tiered model for forecasting performance of a large-scale home mortgage portfolio. The experiments are used to assess the sensitivity of performance to projected changes in economic conditions as well as the sensitivity of the model to coefficients estimated from historical data. Our results attribute the variation in loan performance to variation in individual factors or factor combinations, indicating which are crucial to monitor or forecast accurately. The results are at times counter-intuitive, indicating the benefits of a systematic approach to sensitivity assessment and scenario generation.

A COMPARATIVE ANALYSIS OF PAYDAY LOAN CUSTOMERS

Abstract Rapid growth of deposits in U.S. foreign bank branches and current U.S. government policies have combined to create a new inequality in the deposit insurance system. Our research shows that smaller banks are substantially subsidizing the insurance costs of the larger, multinational institutions. When insurance premiums are viewed in the context of an implicit tax, it is highly regressive with the wealth transfer growing over time. Recent reform proposals do not fully address important international influences and therefore underestimate the scope of the problem.