Matej Marinč

Quality of Bank Capital and Bank Lending Behavior During the Global Financial Crisis

Using a worldwide bank sample from 2000 to 2010, this article analyzes the determinants of bank lending behavior during the global financial crisis highlighting the role of bank capital. It reveals that the high quality of the bank funding strategy (tier 1 bank capital and retail deposits) and prevalent government backing were crucial to continuous bank lending during the crisis period. This effect was especially pronounced in non-OECD and BRIC countries. We also point out that, although higher use of tier 2 capital and interbank deposits could be important for increased lending during a normal period, this did not support lending activities during the financial crisis. The article concludes by suggesting that in crisis periods high-quality bank capital is a banks competitive strength.

Banks and information technology: marketability vs. relationships

This paper evaluates the impact of information technology (IT) on the operations of banks and the structure of the banking industry, including implications for stability. On the one hand, banks can focus on relationship banking and use IT developments to tailor services to individual needs and build enhanced, albeit modified, relationships with customers. On the other hand, IT better allows banks to exploit economies of scale and scope, which are most evident in transaction banking. Another manifestation of IT is via financial innovations that have enhanced marketability. Stability enters the picture because increased marketability facilitates opportunistic behavior. Together with enhanced herding behavior and changes in industry structure, this could undermine stability and augment systemic risk, calling for a regulatory overhaul.

The economics of bank bankruptcy law

1 Introduction.- 2 General Issues in Bankruptcy Law.- 3 Are Banks Special? Implications for Bank Bankruptcy Law.- 4 Systemic Crises.- 5 General Issues on the structure of Banking Industry.- 6 Current Bank Bankruptcy Regimes and Recent Developments.- 7 Optimal Design of Bank Bankruptcy Law and the Bank Failures from the 2007-2009 Financial Crisis.- 8 Conclusions.- 9 Appendix.

The Use of Financial Derivatives and Risks of U.S. Bank Holding Companies

In this paper we examine the impact of financial derivatives on systematic risk of publicly listed U.S. bank holding companies’ (BHCs) from 1997 to 2011. The empirical results provide evidence that the use of financial derivatives has significant effects on the BHCs’ systematic risk exposures. Our findings suggest that the more use of interest rate derivatives and credit derivatives corresponds to greater systematic interest rate risk and systematic credit risk, whereas the increased use of exchange rate derivatives is associated with lower systematic exchange rate risk. We also confirm that the use of financial derivatives for hedging purposes is negatively related to systematic risks of BHCs. During the global financial crisis, the relationship between interest rate derivatives and exchange rate derivatives and systematic risks became stronger than in normal time, and the positive relationship between credit derivatives and systematic credit risk became less pronounced.

The Economic Perspective of Bank Bankruptcy Law

This paper argues that a special bank bankruptcy regime is desirable for the efficient restructuring and/or liquidation of distressed banks. We first explore the principal features of corporate bankruptcy law. Next, we examine the specific characteristics that distinguish banks from other corporations, and argue that these features are largely neglected in corporate bankruptcy law. Finally, we make recommendations for optimal closure and reorganization policies, which should allow regulators to better mitigate disruptions in the financial system and minimize the social costs of bank distress. We compare the U.S., UK, and German bank bankruptcy frameworks and describe the EU framework for cross-border bank bankruptcy. We support our recommendations with a discussion of the Lehman Brothers and Fortis bank failures.

Crisis Management and Lender of Last Resort in the European Banking Market

We discuss some key issues related to supervisory arrangements in the Euro-system countries. In particular, we address the lender of last resort (LOLR) structure and the related crisis management framework. We focus on the responsibilities and powers of individual countries (and national central banks) vis-a-vis those at the European level (EU and ECB). In this context, various issues will be raised relating to the effectiveness and efficiency of the arrangements and, specifically, the role and positioning of the LOLR in light of the fragmented supervisory structure. We will discuss potential paths forward.

Financial Innovations, Marketability and Stability in Banking

A fundamental feature of more recent financial innovations is their focus on augmenting marketability. We point at the potential dark side of marketability. Marketability has possibly led to an excessive proliferation of transaction-oriented banking (trading and financial market activities). The 2007-2009 financial crisis appears to have countered this trend, and possibly reemphasized the importance of relationship banking. In order to focus on these issues in a rigorous way, we will evaluate the key insights from the relationship banking literature, including the potential complementarities and conflicts of interest between intermediated relationship banking activities and financial market (underwriting, securitization, etc.) activities. From here we will point at institutional and regulatory changes that might be needed to improve the stability of the financial sector. One could say that the institutional structure (including regulation) has not kept up with the enhanced marketability and ‘changeability’ of the industry.

Economies of Scale and Scope in Financial Market Infrastructures

This article confirms the existence of substantial economies of scale in trading and post-trading financial market infrastructures (FMI), using the panel data of thirty stock exchanges, twenty-nine clearing houses, and twenty-three central securities depositories from thirty-six countries. We show that economies of scale are positively related to size and vertical and horizontal integration of FMI providers. Economies of scale are significantly higher in North America than in other regions. When analyzing economies of scope, we show that the efficiency of FMI providers increases with vertical (but not horizontal) integration and with a focus on a narrow range of asset classes. We also analyze implications for systemic risk.

Stock prices and geographic proximity of information: Evidence from the Ebola outbreak

Abstract Behavioral finance studies reveal that investor sentiment affects investment decisions and may therefore affect stock pricing. This paper examines whether the geographic proximity of information disseminated by the 2014–2016 Ebola outbreak events combined with intense media coverage affected stock prices in the U.S. We find that the Ebola outbreak event effect is the strongest for the stocks of companies with exposure of their operations to the West African countries (WAC) and the U.S. and for the events located in the WAC and the U.S. This result suggests that the information about Ebola outbreak events is more relevant for companies that are geographically closer to both the birthplace of the Ebola outbreak events and the financial markets. The results also show that the effect is more pronounced for small and more volatile stocks, stocks of specific industry, and for the stocks exposed to the intense media coverage. The event effect is also followed by the elevated perceived risk; that is, the implied volatility increases after the Ebola outbreak events.

Mandatory Clearing of Derivatives and Systemic Risk of Bank Holding Companies

This paper investigates systemic risk of bank holding companies (BHCs) following the enactment of mandatory clearing of derivatives by the Dodd–Frank Act. We find that BHCs that were bigger users of derivatives experienced a larger drop in systemic risk after mandatory clearing, all else being equal. This relationship holds across different measures of systemic risk and across several robustness checks that account for potential endogeneity and self-selection bias, including data mining through high-dimensional methods. Overall, our results suggest that derivatives clearing can curtail systemic risk in the banking system.