Zuzana Fungáčová

The Influence of Bank Ownership on Credit Supply: Evidence from the Recent Financial Crisis

This study examines how bank ownership influenced the credit supply during the recent financial crisis in Russia, where the banking sector consists of a mix of state-controlled banks, foreign-owned banks, and domestic private banks. To estimate credit supply changes, we apply an original approach based on stochastic frontier analysis. We use quarterly data for Russian banks covering the period from the beginning of 2007 to the end of 2009. Our findings suggest that bank ownership affected credit supply during the financial crisis and that the crisis led to an overall decrease in the credit supply. Relative to domestic private banks foreign-owned banks reduced their credit supply more and state-controlled banks less. This supports the hypothesis that foreign banks have a “lack of loyalty” to domestic actors during a crisis, as well as the view that an objective function of state-controlled banks leads them to support the economy during economic downturns.

Market power in the russian banking industry

The aim of this paper is to analyze bank competition in Russia by measuring the market power of Russian banks and its determinants over the period 2001-2006 with the Lerner index. We find that bank competition has only slightly improved during the period studied. The mean Lerner index for Russian banks is of the same magnitude as those observed in developed countries, which suggests that the Russian banking industry is not plagued by weak competition. Furthermore, we find no greater market power for state-controlled banks nor less market power for foreign-owned banks. Finally, our analysis of the determinants of market power enables the identification of several factors that influence competition, including market concentration and risk as well as the nonlinear influence of size.

How Market Power Influences Bank Failures: Evidence from Russia

There has been a notable debate in the banking literature on the impact of bank competition on financial stability. While the dominant view sees a detrimental impact of competition on the stability of banks, this view has recently been challenged by Boyd and De Nicolo (2005) who see the reverse effect. The aim of this paper is to contribute to this literature by providing the first empirical investigation of the role of bank competition on the occurrence of bank failures. We analyze this issue based on a large sample of Russian banks over the period 2001-2007 and employ the Lerner index as the metric of bank competition. The Russian banking industry is a unique example of an emerging market which has undergone a large number of bank failures during the last decade. Our findings clearly support the view that tighter bank competition is detrimental for financial stability. This result is robust to tests controlling for the measurement of market power, the definition of bank failure, the set of control variables, and the particular linear specification of the relationship. The normative implication of our findings is therefore that measures that increase bank competition could undermine financial stability.

Does Competition Influence Bank Failures

There has been a notable debate in the banking literature on the impact of bank competition on financial stability. The aim of this article is to provide the first investigation of the role of bank competition on the occurrence of bank failures. We analyse this issue on a large sample of Russian banks for the period 2001–2007, as the Russian banking industry is a unique example of an emerging market which has undergone a large number of bank failures during the last decade. Our findings support the view that tighter bank competition enhances the occurrence of bank failures. Thus, measures that increase bank competition could undermine financial stability.

Understanding Financial Inclusion in China

We use data from the World Bank Global Findex database for 2011 to analyze financial inclusion in China, including comparisons with the other BRICS countries. We find a high level of financial inclusion in China manifested by greater use of formal account and formal saving than in the other BRICS. Financial exclusion, i.e. not having a formal account, is mainly voluntary. The use of formal credit is however less frequent in China than in the other BRICS. Borrowing through family or friends is the most common way of obtaining credit in all the BRICS countries, but other channels for borrowing are not very commonly used by individuals in China. We find that higher income, better education, being a man, and being older are associated with greater use of formal accounts and formal credit in China. Income and education influence the use of alternative sources of borrowing. Overall financial inclusion does not constitute a major problem in China, but such limited use of formal credit can create a challenge for further economic development.

Does bank competition influence the lending channel in the euro area

This paper examines how bank competition influences the bank lending channel in the Euro area countries. Using a large panel of banks from 12 euro area countries over the period 2002-2010 we analyze the reaction of loan supply to monetary policy actions depending on the degree of bank competition. We find that the effect of monetary policy on bank lending is dependent on bank competition: the transmission of monetary policy through the bank lending channel is less pronounced for banks with extensive market power. Further investigation shows that banks with less market power were more sensitive to monetary policy only before the financial crisis. These results suggest that the bank market power has a significant impact on monetary policy effectiveness. Therefore, wide variations in the level of bank market power may lead to asymmetric effects of a single monetary policy.

Bank Liquidity Creation in Russia

Two EU-based senior economists analyze the contribution of bank liquidity creation to the Russian economy, as well as changes in creation of liquidity occurring during the global financial crisis. Applying the methodology of Berger and Bouwmans (2009) study of U.S. banking to a rich panel dataset for Russian banks for the period 1999-2009, the authors compute three alternative measures of bank liquidity creation. They find evidence of increased creation of liquidity in real terms over the period and also determine that state-controlled (versus private) banks and Russias largest banks (versus intermediate-size and small banks) contributed most to liquidity creation (lower in Russia than in the U.S.). Their findings suggest that consolidation of the Russian banking sector may prove more instrumental in increasing liquidity creation than privatization per se.

Bank Stress Tests as an Information Device for Emerging Markets: The Case of Russia

The recent financial crisis emphasised the need for effective financial stability analyses and tools for detecting systemic risk. This paper looks at assessment of banking sector resilience through stress testing. We argue such analyses are valuable even in emerging economies that suffer from limited data availability, short time series and structural breaks. We propose a top-down stress test methodology that employs relatively limited information to overcome this data problem. Moreover, as credit growth in emerging economies tends to be rather volatile, we rely on dynamic approach projecting key balance sheet items. Application of our proposed stress test framework to the Russian banking sector reveals a high sensitivity of the capital adequacy ratio to the economic cycle that shows up in both of the two-year macroeconomic scenarios considered: a baseline and an adverse one. Both scenarios indicate the need for capital increase in the Russian banking sector. Furthermore, given that Russias banking sector is small and fragmented relative to advanced economies, the loss of external financing can cause profound economic stress, especially for medium-sized and small enterprises. The Russian state has a low public debt-to-GDP ratio and plays decisive role in the banking sector. These factors allow sufficient fiscal space for recapitalisation of problematic banks under both of our proposed baseline and adverse scenarios. Keywords: stress testing, bank, Russia JEL Classification: G28, P34, G21

Like China, the Chinese Banking Sector is in a Class of Its Own

This paper provides an overview of the Chinese banking sector, which has expanded tremendously over the past two decades. We first describe aggregate developments of the sector and compare them to the situation in other countries. Also, various financial institutions that operate in China are analyzed. Our results confirm that the Chinese banking sector is truly in a class of its own, especially given the level of China’s economic development. Despite significant reforms, the state and various public organizations still own controlling shares in the largest commercial banks. The state is also present on the borrowers’ side; it is estimated that about half of state-owned commercial bank lending still goes to state-controlled companies. In this way, the banking system can serve as an important policy tool. Another distinctive feature of the Chinese banking sector is the variety of its banking institutions. New types of banking institutions, especially those serving rural areas, are emerging all the time. While equity and debt markets are still tiny relative to the banking sector and their importance as sources of financing of investment remain minor, they have evolved rapidly in recent years.

Asymmetric Information and Loan Spreads in Russia: Evidence from Syndicated Loans

This paper considers whether local bank participation exerts an impact on the spreads for syndicated loans in Russia. Following Berger, Klapper and Udell (2001), we test whether local banks possess a superior ability to deal with information asymmetries. Using a sample of 528 syndicated loans to Russian borrowers, we perform regressions of the spread on a set of variables including information on local bank participation and the characteristics of loans and borrowers. Unlike earlier studies, we distinguish foreign banks with a local presence from those without such presence. The intuition here is that a local presence may influence a foreign bank’s monitoring ability and access to information about borrowers. We observe no significant impact on the spread when there is local bank participation in a syndicated loan, nor do we find any significant influence of the presence of domestic-owned banks or foreign-owned banks on the spread. Additional estimations considering subsamples with exacerbated information asymmetries provide similar results. Therefore our conclusion is that local banks do not benefit from an advantage in monitoring ability and in information in Russia.