John L. Simpson

The impact of the internet in banking: observations and evidence from developed and emerging markets

This paper investigates the risk, efficiency and rate of progress in the implementation of electronic commerce (e-commerce) in a sample of banks from a developed country (the US), and a sample of banks from developing and emerging markets. The results confirm that the US is very advanced in its electronic-banking (e-banking) actuation. There is evidence suggesting that e-banking is driven largely by the prospects of operating costs minimisation and operating revenue maximisation. Costs are lower and revenues higher when banking services are delivered through a branch network. The results also suggest that perceptions of banking risk may be partially driven by similar factors. Using a basic risk-scoring model, bank risk scores (reflecting a banks ability to repay depositors) are regressed against operating efficiency measures.

Financial Integration in the GCC Stock Markets: Evidence from the Early 2000s Development Phase

The GCC markets are the most advanced in economic reforms in the Middle East and have proceeded solidly towards regional integration during the early 2000s. Some of the GCC markets (for example, Bahrain and the UAE) had made solid progress in their expansion, reforms and openness. Over the period there is evidence of cointegration of the UAE market with the other GCC markets in prices. Causality analysis shows the UAE was the major influence over prices in the Saudi Arabian, Kuwait and Qatar markets. The UAE already presents a strong case to be the regional financial centre if development continues strongly.

Were there warning signals from banking sectors for the 2008/2009 global financial crisis?

This article takes the position that there have been significant costs attached to global banking financial integration and these costs were identified in a period prior to the 2008 Global Financial Crisis revealed by the analysis of daily country banking index data from December 1999 to September 2008. Regression, correlation, cointegration, causality and variance decomposition analysis of daily bank price index data indicate that banking systems had achieved a high level of global integration, exemplified in the global involvement in the US sub-prime mortgage market. Integration implies interdependence, which in turn implies the existence of systemic risk or the threat of contagion. Re-focusing by banks on a culture of portfolio diversification of investments and borrowings is necessary. Greater involvement by a global banking regulatory authority such as the Bank for International Settlements (BIS) to monitor undiversified systemic interdependence may be inevitable (e.g. the administration of insurance schemes for interbank lines of credit).

An Empirical Economic Development Based Model of International Banking Risk and Risk Scoring

The paper reconsiders the relationship between international banking risk and economic development. It is shown quite conclusively that the significant explanatory variables of international banking risk scores (when international banking risk is used as a proxy for country risk) are the income elasticity of demand for imports (when the latter is used as an indicator of economic growth and development), the phase of industrialization (based on country per capita income), and certain historical economic and financial variables (external debt levels and international bank size according to total assets). The investigation arrives at a new approach to risk scoring systems and models.

Energy economics and financial markets

Foreword.- Introduction.- Part I: Supply and Demand.- Part II: Environmental Issues and Renewables.- Part III: The Dynamics of Energy and Derivatives Trading.- Part IV: Finance and Energy.

The Effect of OPEC Production Allocations on Oil Prices

Production allocations are analysed in conjunction with an investigation of unlagged and optimally lagged relationships between key daily crude oil price series interacting with OPEC prices. It is found that structural breaks in the interacting series coincide with production allocations meetings which induce oil price increases. This implies cartel behaviour through collusive supply restriction. With crude oil prices at record highs, high inflation in developing countries and the onset of increased systemic risk in global financial markets, the major global players should well remember the impact of OPEC oil supply interference and cartel behaviour of the late 1980s early 1990s on global financial stability.

The Effects of Extreme Political Acts and Political Risk on International Banking Systems

This study supports existing evidence of adverse domestic and international economic and financial spillover effects of extreme political acts. The relationship between the variables in the model is greater after the 9/11 event than before; the effects are greater in developed compared to developing banking systems; and the adverse effects had not dissipated in period of relative stability up to late 2004. In addition, USA political risk-adjusted banking returns together with world-banking system returns add new information in explaining country-banking system political risk-adjusted returns. This evidence should be heeded by risk managers and bank regulators in calculations of capital adequacy benchmarks to mitigate systemic flow-on effects.

Interdependence in Gulf Cooperating Stock Markets

Historically, the stock and securities markets in the Gulf Cooperating Countries (GCC) have been limited in their capacity to raise international capital. Apart from the fact that many are simply not open to outside investment, they have been regarded as thinly traded, less liquid and less efficient than Western stock markets. Meaningful and comparable stock market data has only been gathered for less than four years. The GCC countries are striving to strengthen and expand their financial markets in relation to their listing, regulatory, trading and settlement procedures, as well as to improve transparency and informational efficiency. The GCC economies have much in common including their growing levels of economic development and trade integration, and also their collective contribution to world oil production. Bahrain has long been regarded as the most open of the GCC economies, but the question arises as to whether or not Bahrain drives the other GCC markets. This study focuses on both short and medium-term relationships using ordinary least squares regressions, vector auto regressive techniques, cointegration tests, pairwise causality, variance decomposition and impulse response analysis of daily indexed share market data to provide evidence of continuing cointegration and interdependence in stock markets in the GCC. Saudi Arabia and Kuwait markets are the major drivers of the other GCC markets.

Cointegration and Exogeneity in Eurobanking and Latin American Banking: Does Systemic Risk Linger?

This paper examines financial integration, interdependence and exogeneity within and between Latin American banking and Eurobanking systems during a period of relative stability after the oil and debt crises of the 1980s. Significant evidence of cointegration in both long- and short-term relationships is reported. Within Latin America, exogeneity lies mainly with the Brazilian system. Within Eurobanking, the U.S. system is the dominant influence. Between Eurobanking and Latin American banking systems, the U.S. system is the major driving force. With continued interdependence of these banking systems, systemic risk lingers, and vigilance is required in banking supervision.

The Relationship between Commodity Prices and the Australian Dollar

Australia is a major exporter of mining and agricultural commodities. These commodities are often invoiced in USD. The purpose of this study is to examine the strength of the relationship between the nominal Australian/United States exchange rate and indexed commodity prices using monthly data between 1986 and 2001. The next issue is whether or not these time series are cointegrated and whether or not uni-directional and/or two-way causality exists. An ordinary least squares regression model on unlagged data was expected to have low and spurious explanatory power, however this picture improves significantly when first difference data are used. It is found that cointegration does not exist in the level data set. However, it is found that the variables exhibit dual causality and negative correlation, with the significantly stronger causality running from commodity prices to AUD/USD exchange rate. This implies exogeneity in commodity prices. That knowledge should assist Australian commodity exporters in making firm-value decisions regarding the hedging of their foreign exchange and commodity price exposures. Because the level data do not exhibit cointegration, it cannot be concluded that long-term and systematic rational properties exist in the Australian exchange and commodity markets. However, when ordinary least squares regressions are applied to the first difference data, greater explanatory power of exchange rates and significant negative correlation is exhibited. Australian foreign exchange market-participants may use commodity price information to adjust their exchange rate expectations in the short-term in a sensible way.