Yener Altunbas

Bank ownership and efficiency.

Agency issues associated with different types of firm ownership are an area of concern in many banking systems where state-owned banks operate alongside mutual and private-sector institutions. This paper uses a variety of approaches to model cost and profit inefficiencies as well as technical change for different ownership types in the German banking market. We find little evidence to suggest that privately owned banks are more efficient than their mutual and public-sector counterparts. While all three bank ownership types benefit from widespread economies of scale, inefficiency measures indicate that public and mutual banks have slight cost and profit advantages over their private sector competitors.

Efficiency and risk in Japanese banking

This paper investigates the impact of risk and quality factors on banks’ cost by using the stochastic cost frontier methodology to evaluate scale and X-inefficiencies, as well as technical change for a sample of Japanese commercial banks between 1993 and 1996. Loan-loss provisions are included in the cost frontier model to control for output quality, with a financial capital and a liquidity ratio included to control risk. Following the approach suggested in Mester (1996) we show that if risk and quality factors are not taken into account optimal bank size tends to be overstated. That is, optimal bank size is considerably smaller when risk and quality factors are taken into account when modelling the cost characteristics of Japanese banks. We also find that the level of financial capital has the biggest influence on the scale efficiency estimates. X-inefficiency estimates, in contrast, appear less sensitive to risk and quality factors. Our results also suggest that scale inefficiencies dominate X-inefficiencies. These are important findings because they contrast with the results of previous studies on Japanese banking. In particular, the results indicate an alternative policy prescription, namely, that the largest banks should shrink to benefit from scale advantages. It also seems that financial capital has the largest influence on optimal bank size.

Evidence on the bank lending channel in Europe

Abstract This paper examines evidence for a bank lending channel in Europe. Following the approach suggested by Kishan and Opiela (2000) we use bank balance sheet data to estimate the response of bank lending to changes in monetary policy stance between 1991 and 1999. In particular, we classify banks according to asset size and capital strength to see if these factors have a significant impact on the lending channel. Using a panel data approach we find that across the EMU systems, undercapitalised banks (of any size) tend to respond more to change in policy.

Frontier cost functions and bank efficiency

Abstract An extension of the translog cost function, where some trigonometric terms are added to gain better fit to the data, has gained popularity in recent literature examining efficiency rankings of banks. This paper demonstrates that the goodness-of-fit criterion is an unreliable indicator of forecasting ability, thus casting doubts on the validity of conclusions derived from the use of above frontier cost functions.

Technical change in banking

Abstract The impact of technical change on the costs of European banks is investigated using stochastic cost frontier estimation. Technical change is decomposed into pure, scale augmenting and non-neutral components. We find that the rate of reduction in costs due to technical change increased, between 1989 and 1996, and large banks benefited more than small banks.

Large Debt Financing: Syndicated Loans versus Corporate Bonds

Following the introduction of the euro, the markets for large debt financing experienced a historical expansion. We investigate the financial factors behind the issuance of syndicated loans for an extensive sample of euro area non-financial corporations. For the first time, we compare these factors to those of its major competitor: the corporate bond market. We find that large firms, with greater financial leverage, more (verifiable) profits and higher liquidation values tend to choose syndicated loans. In contrast, firms with more short-term debt and those perceived by markets as having more growth opportunities favour financing through corporate bonds. Syndicated loans are the preferred instrument at the extreme where firms are very large, profitable but have less growth opportunities.

Efficiency measures and the banking structure in Europe

Abstract In the calculation for gains from European integration in the financial services, it is assumed that banks will become equally efficient between countries with the removal of cross-border restrictions. But doubts remain. These doubts arise from the belief that banks may not necessarily perform the same function in every country. We argue that a comparison of bank efficiency across national frontiers entails an examination of the difference between countries in the institutional structure of the banking system.

Who Transfers Credit Risk? Determinants of the Use of Credit Derivatives by Large US Banks

Abstract Credit derivatives enable banks to transfer selected credit risks to third parties. An empirical model is developed for the motivation for bank participation in credit derivative markets and, conditional on participation, the factors that determine the volume of business transacted. Participation appears to be closely related to bank size, but there is only limited evidence that entry barriers related to franchise value or past experience in dealing in derivatives are important. There is evidence that banks use credit derivatives as part of their overall risk management strategy. However, the use of credit derivatives does not appear to be influenced by the extent of managerial share ownership.

Cost economies in EU banking systems

Abstract This paper examines the cost structure of four EU banking systems using the translog cost function methodology. The results indicate strong evidence of economies of scale across all output sizes for the French, German and Spanish systems. In contrast, the Italian system appears to exhibit constant and diseconomies of scale. Costs also appear to be subadditive across all output ranges apart from the Italian system. These results tentatively suggest that scale economies and the benefits of size could be important in generating economic gains in EU banking markets under the single market programme.

Fiscal Decentralization and Governance

The literature on the economics of fiscal decentralization stresses the potential for both positive and negative effects on governance in a country. Using a data set comprising sixty-four developed and developing economies and several different measures of fiscal decentralization, the authors find that countries in which a larger share of fiscal revenues and expenditures are located at the level of subnational governments appear to be less corrupt. The authors also find that the beneficial impact of fiscal decentralization on corruption is mitigated in the presence of mechanisms enforcing vertical administrative decentralization. The results indicate that fiscal decentralization appears to reduce corruption even in countries in which there is a high degree of political representation. The results are robust to alternative estimation methodologies and to specifications that control for the influence of variables that have been identified as affecting governance.