Hesna Genay

Globalization of Financial Institutions: Evidence from Cross-Border Banking Performance

We address the causes, consequences, and implications of the cross-border consolidation of financial institutions by reviewing several hundred studies, providing comparative international data, and estimating cross-border banking efficiency in France, Germany, Spain, the U.K., and the U.S. during the 1990s. We find that, on average, domestic banks have higher profit efficiency than foreign banks. However, banks from at least one country (the U.S.) appear to operate with relatively high efficiency both at home and abroad. If these results continue to hold, they do not preclude successful international expansion by some financial firms, but they do suggest limits to global consolidation.

Does the Japanese Stock Market Price Bank-Risk? Evidence from Financial Firm Failures

The ability of the Japanese stock market to appropriately price the riskiness of Japanese financial firms has been frequently questioned, particularly in light of Japan’s widespread financial distress in recent years and poor disclosure requirements. This paper examines the response in equity returns of Japanese banks to the failure of four commercial banks and two securities firms between 1995 and 1998. Using event study methodology, the analysis finds that share prices of surviving banks on the whole responded unfavorably to the failures and that financially weaker survivors were more adversely affected. This suggests that, despite the distress and alleged opaqueness, bank shareholders were able to use available indicators of financial condition both to incorporate new information quickly into stock prices and to differentiate among banks.

Federal Reserve Policies and Financial Market Conditions during the Crisis

During the recent financial crisis, the Federal Reserve implemented a series of extraordinary and unconventional policies to alleviate the impact of the crisis on financial markets and the economy. In this paper, we examine the effects of these policies on broad financial market conditions, explicitly taking into account that policy was endogenously determined in response to prevailing financial market and economic conditions. We find that the Fed was more likely to initiate or expand new programs when financial market conditions were tighter than usual and economic conditions deteriorating. We also find that the Fed’s policies improved broad financial market conditions significantly at announcement and that the improvements were associated primarily with program initiations and expansions.