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Jelen cikk egyes makrogazdasagi valtozok hatasat vizsgalja a tőkeatteteli ciklus felepuleseben az Amerikai Egyesult Allamok gazdasagaban 1990 es 2015 kozott. A tőkeattetel –ahogyan azt a Nagy Recesszio is bebizonyitotta –serulekennye teszi a gazdasagot, amiszelsőseges esetben katasztrofahoz vezet. A tőkeattetel a gazdasag egeszehez hasonloan ciklikusan alakul, ezert ahitelallomany felepulesenekmegertese kritikus.A hitelezesre hato tenyezők es mas kutatasok eredmenyeinek osszefoglalasat kovetően acikkkiserletet tesz arra, hogygazdasagiszektorok szintjen vizsgalja meg,mely valtozok jatszanak fontos szerepet ajelenseg mogott.A vizsgalatok elvegzesehez a szerzők a tobbvaltozos linearis modszert valasztottakannak kideritesere, mennyire mutat egyseges kepet a gazdasagon belul a tőkeattetel felepulese.Az elemzes nem terjedki a haztartasi hitelezesre, kizarolag a nagyvallalati szegmens folyamataira koncentral. A szerzők arra amegallapitasajutottak, hogy megeri a makrogazdasagi valtozokszerepet iparagi szinten vizsgalni, mivel az egyes szektorok eseteben elterő valtozokbizonyultak szignifikansnakaz empirikus vizsgalatokalapjan. = This article examines the impact of macroeconomic variables over the leverage cycle in the US economy between 1990 and 2015. Leverage –as demonstrated by the Great Recession –makes the whole economy vulnerable, leading to a catastrophe in extreme cases. As in the case of the economy as a whole, leverage is cyclical, so understanding the recovery of the loan portfolio is crucial. After summarizing the results of factors affecting lending and other researches, the article attempts to investigate at the level of economic sectors, which variables play key roles behind this phenomenon. To carry out the examinations, the authors chose the multivariate linear method to find out the general characteristics of the leverage cycle within the economy. The analysis does not include the household lending activity, it concentrates solely on the processes of the large corporate segment. The authors have come to the conclusion that it is worth considering the role of macroeconomic variables at industry level as different variables have proved to be significant on the basis of empirical studies.

Purpose This paper examines the effects of limiting the number of loans a bank can issue, reflecting a policy recently implemented by the US Federal Reserve. Design/methodology/approach This paper does so in a streamlined model of the banking sector. Findings This paper finds that a binding limit on loans can enhance welfare by motivating the bank to reduce the number of socially unproductive loans it makes. However, the limit can sometimes reduce welfare by inducing a reduction in the number of socially productive loans the bank issues, the quality of the bank’s loan portfolio, and/or the accuracy with which the bank screens loan opportunities. Practical implications The research demonstrates that limits on the loans a bank issues can have subtle and unintended consequences. Consequently, careful thought is warranted before such limits are imposed. Originality/value To our knowledge, the existing literature does not provide guidance on the merits of such loan restrictions.

By empirically analysing the panel data of Chinese commercial banks, we find that regional city commercial banks significantly mimic their peers in multiple lending parts of loan portfolio, while l...

In this study, the effect of sectoral loan portfolio concentration on bank stability is investigated in the Ghanaian banking sector between 2007 and 2014. Specifically, we investigate the linearity and non-linearity effects of sectoral loan concentration on bank stability given the limited exploration of this nexus. Employing a two-step generalized method of moments (GMM) robust random and fixed effects panel models of 30 banks, the study provides evidence showing that sectoral loan concentration weakens the stability of banks. This confirms the concentration-fragility hypothesis and the diversification theory of traditional banking but may promote bank stability beyond a certain threshold point. This implies that bank sectoral loan concentrate has a direct non-linear U-shape effect on bank stability in Ghana. We argue that although sectoral loan concentration may weaken stability of banks in the short run, it may however enhance the stability of banks in the long run through prolonged expert knowledge, experience and understanding of sectors. From these findings, policymakers, regulators and bank managers must not only develop and design policies and regulations that prohibit sectoral loan concentration but should also incorporate plans and policies that encourage banks to develop core competence and competitive advantage to take advantage of advancing bank stability through sectoral loan concentration. JEL Codes: G10; G18; G41

The relationship of such key macroeconomic concepts as the monetary system and the national economy in extreme economic situations (in the “military economy”) has been di sclosed. During the process of analyzing the works of Russian scientists of the early twentieth century, the specifics of the monetary instruments of market regulation in the conditions of the “military economy” and the change in the structure of the monetary mass have been considered. It has been shown, that the classical forms of credit (military loans, taxes), due to their low efficiency, give way to credit money, which during the demonetization of gold, play the role of a financial resource (“bills of exchange for the future”).

Poor bank governance has disastrous consequences for economies as the 2007–2009 financial crisis has shown. In the aftermath, board diversity is identified as an effective mechanism to enhance bank governance. Diversity, creating cognitive conflict between board members, is expected to enhance board's independence of thought to better perform monitoring and advising functions. Age is a key demographic measure and age dissimilarity between the chair and the CEO in non-financial firms leads to better economic outcomes (Goergen, Limbach, & Scholz, 2015). In this paper, we examine whether chair-CEO age dissimilarity can mitigate banks' excessive risk-taking behaviour. Using a unique sample of 100 listed banks in Europe between 2005 and 2014, we find that age difference between the chair and the CEO reduces bank risk-taking. A chair-CEO generational gap –defined as a minimum of 20 years' age difference– has a larger impact in reducing risk-taking.

У статті доведено, що реалізація ефективних методів управління кредитним портфелем вимагає комплексного оцінювання його ефективності. Проведений огляд існуючих підходів до моделювання узагальненої оцінки кредитного портфелю дозволив визначити, що ключовими розглядаються критерії дохідності, ризикованості та ліквідності. Аналіз індикаторів оцінювання кредитного портфелю в контексті статистичного аналізу та економіко-математичного моделювання дозволив визначити основні показники, на яких має ґрунтуватися подібний аналіз: рівень кредитної активності окремо за суб’єктами господарювання та фізичними особами; рівень дохідності цих портфелів; рівень ризикованості; частка непрацюючих кредитів. В якості економіко-математичного інструментарію було використано кластерний аналіз, який дозволив сформувати групи банків за середніми значеннями досліджуваних показників. Відповідно кожному кластеру було запропоновано окремі шляхи підвищення ефективності кредитного портфелю.

While the real effects of bank competition is a classic topic in the finance literature, there has been relatively little research studying the effect it might have on local labor markets. In this paper, I utilize county level data and an exogenous shock to competition supplied by DOJ antitrust policies to look at the relationship between bank competition and local labor markets. Following this negative shock to competition, unemployment increases and wages decrease, but there is no aggregate employment effect. Industries that depend more on bank funding see an increase in employment following a negative shock to competition in the short run, but see a decrease in employment in the longer term. This is due to local banks taking a lower return on their loan portfolio to local businesses in the short run, while raising their loan rates in the long term. Once the type of industries present inside a county is taken into account, an employment effect can be documented in the aggregate. Overall, the evidence suggest that competition has a negative effect on employment outcomes, although there may be positive effects in the short run.

The paper examines how loan portfolio diversification drives bank returns, mainly focusing on the conditioning roles of business models and market power in this nexus. We employ a sample of Vietnamese commercial banks from 2008 to 2019 to perform regressions in the dynamic panel models with the two-step system generalized method of moments (GMM) estimator. We find that increased sectoral loan portfolio diversification reduces bank returns, but not all banks are equally affected. Banks that adopted a business model towards non-interest activities are hurt less from loan portfolio diversification, and bank market power may mitigate the detrimental effects of loan portfolio diversification on bank returns. When such asymmetric effects are sizeable, neglecting them could miscalculate the choice of loan portfolio diversification. Our findings are robust to a rich set of bank return indicators and alternative loan portfolio diversification measures based on the Herfindahl-Hirschman (HHI)/Shannon Entropy (SE) indexes with different sectoral exposure profiles. Thus, both regulators and commercial banks should take the disadvantage of portfolio diversification into account when encouraging/pursuing a diversified strategy, which must be accompanied by the crucial caveat that the damage is most pronounced for banks with lower shares of non-interest income and less market power.

Does failure in a marriage foretell a failure to repay credit? Analyzing the retail loan portfolio of a representative bank, we find no significant difference in probability of default between divorcees and others, but do find evidence for taste-based discrimination. Divorcees pay 5.8 basis points more in interest than non-divorced peers. This discrimination is greater in regions where clan culture is more dominant, and among loan officers who are male, are older, and have been longer on the job. Such discrimination is reduced if the loan officers are better educated, and if competition in local banking market is fiercer.

This paper examines the link between bank liquidity and exposure to industry-level shocks. Using a unique dataset of borrower industry affiliations, we propose a new measure of industry-level shocks calculated at bank-level. First, we construct bank-specific loan portfolio weights for each industry. Then, we apply these weights to two industry-level indices – cost-effectiveness and production – to calculate the bank shock exposure. Our estimates reveal the negative link between bank liquidity and industry shocks. This could be explained by precautionary reasons as large negative industry-level shocks are likely to induce banks to hoard liquid assets. The relationship is also channelized through the lending behaviour of banks. The sensitivity of liquidity to bank exposure is higher for more liquid, better capitalized and smaller banks, which might be explained by the capability of displacing funds either for precautionary reasons or for loan financing.

In this article, we set ourselves a task to test institutional memory hypothesis as a core of endogenous credit cycles. According to this hypothesis, risks taken by creditors depend largely on availability heuristic and experience of loan officers. To assess validity of this hypothesis we construct and estimate a simple VAR model. The data for this model is acquired from results of an experimental study (lasted for 70 rounds), the purpose of which is to identify behavioral patterns of participants while meeting demand for credit, specifics of subjectively weighted assessment of credit risk, based on shock approach. The results of the study allow confirming institutional memory hypothesis. After initial shock of bad debts, number of periods to recover willingness to accept risk has increased by 39%, which supports the hypothesis of availability heuristic’s influence. However, with improvement of loan portfolio’s quality, willingness to take risk is restoring. In addition, we managed to confirm existence of risk’s underestimation and overestimation periods in an experimental manner. Key words: Institutional memory hypothesis, Credit cycle, Availability heuristic, Credit risk, Bounded rationality. JEL: G02, E32, E51. Ponovo testiranje hipoteze institucionalnog pamcenja: Eksperimentalna studija U radu postavili smo zadatak da testiramo hipotezu o institucionalnom pamcenju kao jezgru endogenih kreditnih ciklusa. Prema ovoj hipotezi, rizici koje donatori preuzimaju u velikoj meri zavise od heuristicke dostupnosti i iskustva kreditnih službenika. Da bismo procenili validnost ove hipoteze, konstruisemo i ocenjujemo jednostavan VAR model. Podaci za ovaj model su nabavljeni iz rezultata eksperimentalne studije (koji je trajao 70 krugova), cija je svrha da se identifikuju obrasci ponasanja ucesnika u toku zadovoljenja potražnje za kreditom, specificnosti subjektivno ponderisane procene kreditnog rizika, zasnovane na pristupu koji se bazira na sokovima. Rezultati studije omogucavaju potvrđivanje hipoteze o institucionalnom pamcenju. Nakon inicijalnog soka zbog losih dugova, broj perioda za povracaj volje za prihvatanje rizika povecao se za 39%, sto podržava hipotezu o uticaju heuristicke raspoloživosti. Međutim, uz poboljsanje kvaliteta kreditnog portfolia, volja za uzimanje rizika je vracena. Pored toga, uspeli smo da potvrdimo postojanje potcenjivanja i precenjivanja rizika na ekperimentalni nacin. Kljucne reci: hipoteza institucionalnog pamcenja, kreditni ciklus, heuristicka raspoloživost, kreditni rizik, ogranicena racionalnost.

This article analyzes the effect of valuations-based capital requirements and concentration risk provisions on the risk-shifting response of the banking sector to monetary easing. It provides a closed economy DSGE model for the Euro zone with costly bank capital and two heterogeneous borrowers. Banks maximize their profits by choosing the optimal allocation of their loan portfolio. A procyclical movement of capital requirements is observed, which amplifies the expansionary effect of monetary easing. Capital requirements decline asymmetrically, which creates a risk-shifting impulse. Sticky bank capital rents can strengthen this risk-shift.

The regulatory and business need to expand the use of macroeconomic-scenario-based forecasting and stress testing in retail lending has led to a rapid expansion in the types and complexity of models being applied. As these models become more sophisticated and include lifecycle, credit quality, and macroeconomic effects, model specification errors become a common, but rarely identified feature of many of these models. This problem was discovered decades ago in demography with Age-Period-Cohort (APC) models, and we bring those insights to the retail lending context with a detailed discussion of the implications here. Although the APC literature proves that no universal, data-driven solution is possible, we propose a domain-specific solution that is appropriate to lending. This solution is demonstrated with an auto loan portfolio.

Purpose– The role of foreign banks in impacting the behavior of domestic banks has been a relatively unaddressed topic in the literature. Employing bank-wise data on MENA countries during 2000-2012, the purpose of this paper is to examine how the behavior of foreign banks impact domestic bank performance. For this purpose, the authors focus on not only their profitability and stability, but also on broader numbers such as loan portfolio and funding costs. In addition, the authors also explore the impact of foreign banks on the growth of domestic economies and its implications for the allocation of capital and labor.Design/methodology/approach– The authors employ the dynamic panel data methodology as compared to alternate techniques owing to the ability of this technique to effectively address the endogeneity problem of some of the independent variables.Findings– The results suggest that foreign bank presence exerts significant spillover effects. At the same time, increased foreign banks appear to impel domestic banks to cut back lending. As regards its impact on growth, the results indicate that although labor does not exert any discernible impact on GDP growth, capital exerts a positive impact on output when foreign bank penetration is high, supportive of the real effects of foreign banks.Originality/value– To the best of the authors’ knowledge, this is one of the early studies for MENA countries to examine this issue in a systematic manner. Most studies of this genre focus on a limited set of banks/countries, thereby limiting their empirical evidence. By focussing on an extended sample of MENA country banks covering an extended period that subsumes the financial crisis, the analysis is also able to shed light as to how foreign presence impacts domestic bank performance.

This paper studies the impact of geographic banking restrictions on monetary policy transmission. Exploiting the staggered deregulation of U.S. banking from the late 1970s to the early 1990s, we find that interstate deregulation signifi cantly increased the responsiveness of bank lending to monetary shocks. This effect occurred primarily for small and illiquid banks, pointing to a strengthening of the bank lending channel. Changes in bank market structure and loan portfolio composition are unlikely to explain the effect of deregulation. This instead reflects a reduced propensity of small banks affiliated with complex holding companies to insulate borrowers from monetary contractions.

HAPI-Kredi, a small not-for-profit microfinance institution (MFI), entered into the Haitian marketplace shortly after the devastating 2010 earthquake. HAPI-Kredi, with a mission to serve female entrepreneurs at the economic margins, emerged as a complementary financial service to HAPI, a young NGO with strong ties to the impoverished rural area of La Vallee, Haiti. This article highlights the challenges and opportunities of providing and growing microcredit in rural Haiti through a start-up MFI with two employees and a loan portfolio approaching $10,0002 derived primarily from church-centered charitable donations. Extensive interviews with 30 clients of HAPI-Kredi conducted in May 2013 and in June 2014 provide business context for the demand and potential impact of microcredit in the region. This article, through the lens of a case study, details the experience of one MFI in La Vallee, Haiti situated in the poorest country in the Western Hemisphere.

In this paper, we use two samples of Latin American MFIs (41 MFIs from 2005-2014 and 102 MFIs from 2010-2014) to show that there is no relation between the percentage of female borrowers in an MFI portfolio and MFI economic outcomes. We verified the return on equity for companies focused on women tend to be smaller. Whilst the cost per borrower is smaller, this is not related to the loan portfolio size. When focusing on the portfolio-at-risk and gender the relation is not found when using a dynamic panel to account for serial autocorrelation, not accepting the hypothesis that women repay better than men. Thus, this paper suggests that MFIs lend more towards women for reasons that are beyond just “economical,” such as empowering women and help poor people, otherwise unable to access credit lines, get loans.

This article examines commercial bank lending strategies for micro-enterprises and small and medium-sized businesses (SMEs) in Mexico, and the factors that promote or hinder lending in this segment. With this in mind, in 2011 a detailed survey was conducted of commercial banks operating in Mexico. Although credit to micro-enterprises and SMSs still represents a small share of the loan portfolio, the survey results point to growing interest in broadening it. Three different business models were identified, with major differences in strategies for offering. financial services to this segment of enterprises. The greatest barriers to increasing the credit supply are lack of information, creditor protection failures, informality, and the changes and disruptions that commercial banking has experienced over the past three decades.

During the first phase of the financial crisis in 2008/09, after Iceland and Belgium, Kazakhstan experienced the most significant bank failures as a share of bank system assets. Using rich monthly data for virtually the entire Kazakh banking industry for the period March 2007–December 2010, Stochastic Frontier Analysis (SFA) is used to fit several functions (cost, revenue, standard profit, alternative profit and input distance). Among other things, we estimate the effects of two measures of the quality and risk of the loan portfolio on the industry best practice frontiers and bank inefficiencies. We find that an increase in the volume of bad loans as a ratio of total lending has a desirable effect on the cost, input-distance and alternative profit frontiers, all of which is consistent with the ‘skimping’ hypothesis.

The aim of this research is find a model for optimal resource allocation in Banks of iran. So in this study we want to present a mathematical model based on the linear programming models to find the best combination of facilities of resources. For case study in Among the Iranian banks we select The maskan bank. At first look, the banks take action in two fields: one is mobilization of financial resources and the other is resource allocation. Allocation encounters some limitations which affect the model, for example there should be balance between resources and expenditures and the expenditures should not be more than resources, also relative contribution of the sectors should be respected. Here, banks considering credit risk of customers should enforce their facility demands because the loan portfolio management problems, has been the main factor of bank bankruptcy. In the model, facilities are considered as six variables. Using LINDO software can solve the model. At first we have determined the target and then specified the limitations of model and finally wrote the Model. The results of the model were obtained in two forms: with and without into account the resources of Javanan maskan savings fund. The findings showed if mathematical model had been used in the year, the more revenue of facilities was obtained.

We find that increases in implied market volatility (a proxy for market fear) have a significant impact on returns of bank stocks, above and beyond systematic risk proxied by the expected excess market return during a bad economic regime. Large bank returns are favorably affected by increases in implied market volatility during the crisis, while small banks are adversely affected by increases in implied market volatility. We attribute the different effects among the size-categorized bank portfolios to the perception that large banks are protected by too-big-to-fail policies. Within the sample of small banks, the adverse share price response to increased implied market volatility is more pronounced for banks that rely more heavily on non-traditional sources of funds, use a high proportion of loans in their assets, have a higher level of non-performing assets, and have a relatively low provision for loan losses. The adverse effect of negative innovations in implied market volatility on small bank returns during the crisis is primarily driven by exposure of their loan portfolio to weak economic conditions.

In Q1 2013 the trend of slowing growth in the credit portfolio of banks was sustained. In the retail segment of credit market there was started deterioration of the Bank’s loan portfolio quality. Profitability of the banking business is getting reduced for the second consecutive quarter, which is driven by the growing deductions to reserves and higher cost of the resource base.

The study assesses whether incorporating macroeconomic variables and attributes of the loan portfolio improves the specification of models designed to identify management discretion in making loan loss provisions by banks, considering the standards issued by regulatory agencies. The empirical tests confirm the consistency of the proposed model based on the expected signs of the explanatory variable’s parameters and their statistical significance. These results were confronted with those of other models found in the literature by comparing the models’ adjusted R2s, by applying Vuong’s (1989) model selection test, by using an F test for nested models, and by analyzing the persistence of the non-discretionary components of loan loss provisions, which shows that the incorporation of macroeconomic variables and attributes of the loan portfolio improves the empirical investigation of discretion practiced by banks.

Despite continued advances in the state of the art, stress tests predict failure less often than would seem reasonable. This paper argues that even if a stress test produces a good estimate for aggregate losses, failing to account for unevenness of losses could easily lead to an under-estimate of likely failures. Instead of relying on mean estimates for residential loan portfolio default rate, LVR and underlying property values, this paper uses distributional properties, providing a more realistic setting by allowing for variation between banks. A key finding is that once such variation is included, the increase in average banking system losses is substantial. Both the average bank and the worst performing group of banks suffer a significantly greater magnitude of loss. A simple intensification algorithm is then presented which allows for stress tests to generate more insight into the likelihood of failure for a given population under stress. The intensification outcomes may well generate a better specified stress model, as the failure patterns brought to light by intensification may reveal better ways to differentiate the stressed population.

This paper provides evidence on the strategic lending decisions made by banks facing a negative funding shock. Using bank-firm level credit data, we show that banks reallocate credit within their domestic loan portfolio in at least three different ways. First, banks reallocate to sectors where they have high sector presence. Second, they also reallocate to sectors in which they are heavily specialized. Third, they reallocate credit towards low-risk firms. These reallocation effects are economically large. A standard deviation improvement in sector presence, sector specialization or firm risk reduces the transmission of the funding shock to credit supply by 20, 13 and 10%, respectively. We also provide insight in the timing of these reallocation decisions. Reallocation to sectors in which a bank has a high sector presence is almost instantaneous, while sector specialization starts playing a role four to five months after the shock.

The authors investigate optimal capital requirements in a model in which banks decide on their investment in credit scoring systems. The main result is that regulators should encourage sophisticated banks to keep their asset portfolios safe, while assets with high systematic risk should be concentrated in smaller banks. The proposed regulatory differentiation follows the Basel Accord's distinction between internal ratings-based approach and standard approach. Sophisticated banks should increase their equity capital relative to other banks, leading to further size differentiation. The moral hazard problem of banks misrepresenting their loan portfolio risk is analyzed, with the result that it induces stricter capital requirements. Copyright 2012, Oxford University Press.

Rapid credit growth has been one of the most pervasive developments in recent years in Central and Eastern Europe. Our estimates support the hypothesis that the growth of credit and the amount of available finance might harm banking performance and deteriorate non-performing loans (NPL) dynamics, most probably due to the overheating of economies in the five NMSs. The procyclicality of banking sector performance and high economic activities growth is a signal of an economy overheating and therefore a slowdown in economic activity is likely to accelerate the growth of the NPL ratio.

This paper explores how the legal environment affects bank behavior in 20 transition economies. Based on a newly constructed data set we find that banks’ loan portfolio composition depends on the legal environment. If banks operate in a well-functioning legal environment they lend relatively more to SMEs and provide more mortgages. On the other hand, banks lend more to large enterprises and to the government if the legal system is unsound. As a transmission channel we identify the banks’ willingness to accept collateral which depends on the bankers’ perceptions of the prevailing laws regarding collateral.

The article analyzes factors that affect growth of the share of non-performing loans in the loan portfolio of Russian banks and proposes approaches for this share forecasting on the basis of dynamics of macroeconomic indicators. It also deals with methodological issues of remote stress-test of lending agencies. Using the results of conducted stress-test of Russian banks the authors assess their perspective capital needs in 2010 and estimate the share of government assistance in capital injections. Furthermore, the authors define the scale of vulnerable banks groups in the Russian banking sector.

It is estimated that donors commit between US$ 800 million and US$ 1 billion to microfinance per year. This paper analyses the management of microfinance institutions (MFIs) and its relationship with donors' subsidies. The results show that the level of subsidies granted per year is related to the management quality but not the subsidies divided by the gross loan portfolio or the total equity. Well-managed MFIs are larger and regulated organisations but not significantly older. The organisational structure or the experience of the MFI however does not play a role in determining its financial effectiveness, except for cooperatives. Copyright © 2009 John Wiley & Sons, Ltd.

Using international comparisons and a unique bank-level dataset on the Ugandan banking system over the period 1999 to 2005, we explore the factors behind consistently high interest rate spreads and margins. International comparisons show that the small size of Ugandan banks, persistently high T-Bill rates and institutional deficiencies explain large proportions of the high Ugandan interest rate margins. The Ugandan bank panel confirms the importance of macroeconomic factors, such as high inflation, high T-Bill rates and exchange rate appreciation. There is also evidence for the small market place and high costs of doing business explaining persistently high spreads and margins; smaller banks and banks targeting the low end of the market incur higher costs and therefore higher margins. Spreads and margins also vary significantly with the sectoral loan portfolio composition of banks, while there is little evidence for foreign bank entry, privatization or changes in market structure explaining variation in spreads or margins over time.

Foreign aid plays an important role in developing countries, but little is empirically known how it affects incentives of recipient bureaucracies. I provide a model and analytic case study to understand the strategic games that donors and bureaucrats play. My findings are broadly consistent with the theoretical expectations of institutional rational choice: bureaucrats attempt to ensure bureaucratic survival, whereas donors ensure growth of loan portfolio. These findings, however, are not consistent with the Samaritan's Dilemma and the Patron's Dilemma.

PurposePrior research suggests that corporations in countries with a weak and illiquid stock market rely either on internal resources or on loans from the banking system, while family businesses, in their desire to maintain control, prefer debt to equity. Owing to the weak external monitoring role played by the financial markets in Lebanon, this paper aims to goes beyond the financial role played by Lebanese banks by investigating their role in monitoring corporate clients.Design/methodology/approachA survey was conducted which included 12 questions and focused on the role of banks in Lebanon in fostering proper practices of governance amongst their corporate clients. The completed surveys represent 24 banks, with more than 85 percent of the total deposits, 89 percent of the total loan portfolio, and spanning all bank groupings.FindingsThe paper finds that, in addition to their financing role, Lebanese banks are both active monitors of and resource providers to their corporate clients, which is consistent with Hillman and Dalziel.Originality/valueThe paper contributes to prior research on the role played by the banking system in supporting economic growth in developing countries, as well as the large number of reports and recommendations on corporate governance in the MENA region. The empirical findings indicate that developing‐country banks have a substitution role that allows them to act as channels for implementing good corporate governance practices. Specifically, the greater involvement of banks with their larger corporate clients may ensure better oversight of the risks encountered by banks in their clients' operating activities.

We explore the impact and evolution of loan portfolio diversification during the 2001-2002 Argentine financial crisis. Using a novel dataset that combines public information on the main activity of the largest 930 Argentine firms with their borrowing from each bank operating in the country during the 1999-2004 period, we find that banks did not modify much their loan portfolio mix as a response to the crisis, even though the econometric results point to a positive effect of sectoral diversification and lending to tradeable sectors on bank profitability and risk mitigation. Our results suggest that larger banks benefit more from diversification that smaller ones, and that the benefits of diversification are greater during the downside of the business cycle.

Since the source of funds for banks is mainly deposits, banks have difficulty raising funds to refinance their balance sheets when a substantial portion of their loan portfolio is in default. Intrinsically, banks face hard budget constraints and are subject to market discipline. However, governments with both the resources and the incentives to bail out failing banks may lead to soft budget constraints for banks. Consequently, banking regulation, especially bank capital adequacy regulation, becomes an important institutional solution to the resulting instabilities. Our theory predicts that countries having a larger fiscal capacity are more prone to applying soft budget constraints to failing banks; thus, these governments impose tighter bank capital adequacy regulations to minimize the adverse impact of moral hazard arising from the soft budget constraint on banks. We provide cross-country empirical evidence to support this prediction. Journal of Comparative Economics 35 (1) (2007) 108–135.

This article provides an econometric analysis of borrowers’ creditworthiness in order to create corporateorganizational and economic knowledge. It stresses the need for modern methods of applied analysis of creditportfolio management. The authors seek to prove the feasibility of using binary variables to identify and measurecreditworthiness drivers in cognitive supporting of a credit institution management. The paper proposes amethodological approach to modeling the creditworthiness of potential borrowers based on models with binarydependent variables. The results of empirical evaluations which were received through the application of Gretlsoftware confirmed their feasibility in management of the loan portfolio by credit institutions.

The difference of financial institutions from other firms is the wide range of risks that these institutions meet with and must be able to manage. The macroeconomic environment undoubtedly has the impact on banks‘ performance results. This research analyzes the impact of the country‘s economic downturn on banks‘ loan portfolio profitability. The Lithuanian economic downturn in 2009 – 2010 negatively affected the banks‘ debtors abilities to repay their debts increasing the proportion of non-performing loans (NPLs) and reducing the banks‘ loan portfolio. Also the changes in the interbank interest rates and credit margins had the impact on the banks‘ interest income and expenses. The statistical analysis techniques allowed to characterize the dependence between macroeconomic indicators and the bank‘s loan portfolio profitability. Afterwards the factorial regression model was developed to predict the Lithuanian commercial banks‘ loan portfolio to GDP ratio according to the country‘s macroeconomic indicators. To assess the consistent patterns of loan portfolio profitability that are typical for the banking systems, the macroeconomic and banks‘ data of other EU countries was analyzed. Because the proportion of non-performing loans in banks is one of the main factors of their loan portfolio profitability, the association rules network was developed to visualize the dependence between NPLs and macroeconomic indicators. The analysis results affirmed the high sensitivity of NPLs ratio to the economic downturn in the EU countries with the imperfect macroeconomic indicators. It follows that banks in these countries assessing the credit risk of loan applicants must consider the possible changes in the macroeconomy, because they have the significant impact on banks‘ loan portfolio profitability in future periods. DOI: http://dx.doi.org/10.5755/j01.ee.26.1.6486

At the beginning of July 2006, Paris-based Natexis Banques Populaires launched its second CLO of LBOs, Vallauris II. This article describes some of the detail of the Vallauris II deal, and discusses how the European CLO of LBOs market looks set to develop. Vallauris II has issued four classes of rated notes and one class of unrated notes, to be used to purchase a portfolio consisting of at least 92% senior secured leveraged loans, and a maximum 8% second lien loans and secured mezzanine loans. The increasing risk profile and high level of demand for leveraged collateral have caused second lien and mezzanine loans to become increasingly expensive and structurally aggressive. Market pressure has reduced their availability to 8% of the total CLO loan portfolio from the more typical figure of around 15%. CLO funds are the most popular vehicles for selling leveraged loans to the secondary market, with over a quarter of leveraged loans in Europe sold on through such structures. And while CLOs have traditionally been dominated by banks, hedge funds are now being attracted by the increased private-equity buyout activity. As a result of increasing available funding, pressure on spreads is intensifying.

This article reviews the main issues of regulating and supervising banks in emerging markets with a view toward evaluating the long-run options. Particular attention is paid to Latin America and East Asia. These economies face a severe policy commitment problem that leads to excessive bailouts and potential devaluation of claims of foreign investors. This exacerbates moral hazard and makes a case for importing external discipline (for example, acquiring foreign short-term debt). However, external discipline may come at the cost of excessive liquidation of entrepreneurial projects. The article reviews the tradeoffs imposed by external discipline and examines various proposed arrangements, such as narrow banking, foreign banks and foreign regulation, and the potential role for an international agency or international lender of last resort. Liberalization and integration of financial markets have been associated with an increase in capital movements and with the financial crises. In particular, surges in foreign short-term debt have been blamed for crisis episodes in emerging economies in Asia (Thailand, Indonesia, and the Republic of Korea) and Latin America (Mexico, Brazil, Ecuador, and Argentina), as well as in the periphery of Europe (Turkey). These crises have proved costly in terms of output. Several policy responses have been suggested. Among them have been the reduction of short-term debt, the development of stock markets, the improved regulation and supervision of domestic financial system, enhanced transparency requirements and market discipline, and the establishment of an international lender of last resort. A catalog of “solutions” has been proposed to take care of the problems of banking in emerging market economies including moving to a narrow bank system, building a currency union, and leaving banking in the hands of foreign banks and offshore institutions. This article identifies policy responses tailored to the needs of emerging market and developing economies. The question is whether the regulatory policies and

Government ownership of banks is very common in countries other than the United States. This paper provides cross-country, bank-level empirical evidence about political influences on these banks. It shows that government-owned banks increase their lending in election years relative to private banks. This effect is robust to controlling for country-specific macroeconomic and institutional factors as well as bank-specific factors. The increase in lending is about 11% of a government-owned bank's total loan portfolio or about 0.5% of the median country's GDP per election per government-owned bank.

This paper explores international lending and its diversification puzzle by analyzing the risk aversion effects on optimal bank interest margin decisions based on a model under exchange-rate risk. The optimal loan portfolio consists of three alternative contracts (domestic loan only, foreign loan only, and some combination of the two), and hence the international diversification puzzle in Baxter and Jermann’s sense (1997) reveals. The nonlinear preference effects on optimal loan-rate decisions depend on the optimal composition of the loan portfolio. For a bank facing exchange-rate risk, the optimal deposit rate is higher when the bank is risk averse than when the bank is risk neutral. Our findings provide an alternative explanation for bank spread behavior and international diversification puzzle.

Private information obtained by lenders leads to borrower capture to the extent that such information cannot be communicated credibly to outsiders. We analyze how this capture affects the loan portfolio allocation of informed lenders. First, we show that banks charge higher interest rates and finance relatively less creditworthy borrowers in market segments with greater information asymmetries. Second, when faced with greater competition from outside lenders, banks reallocate credit toward more captured borrowers (flight to captivity). Third, if borrower quality and captivity are sufficiently correlated, an increase in the competitiveness of uninformed lenders can worsen the informed lender's overall loan portfolio. The model explains observed consequences of financial liberalizations.

Banks advance loans in the absence of precise knowledge in relation to the outcome of borrowers' projects. Consequently, uncertainty in relation to loan repayment emerges. Thus, banks introduce the 'credit standard' as insurance against loans, so that should borrowers' projects fail, borrowers have an alternative means of honouring their debt obligations. It is argued in this paper that in the competitive atmosphere under which this sector operates, it is not possible to secure the entire loan portfolio by introducing the credit standard, and in recent years this difficulty has been further exacerbated by financial liberalisation, which may have caused bank failures.

A portfolio based model (Credit Risk of Credit Suisse First Boston) and recent Central Bank of Argentina credit bureau data are used to estimate whether current capital and provisioning regulations match actual risks. Arguing that provisions should cover expected losses and that capital requirements should cover potential losses beyond expected losses subject to some statistical level of tolerance, the article assesses how well actual capital and provisioning requirements match the estimated requirements given by the model. Actual provisioning requirements were found to be close to implied levels of expected losses. The estimate of potential losses was found to be highly sensitive to the assumptions of the model, especially the parameter relating the volatility of a loan's rate of default to its mean value. This volatility parameter cannot be estimated accurately with the credit bureau data because of the short time span covered, so proxy data were used to estimate it, and two values around that estimate were tried. The difficulty of estimating this critical parameter implies that the results should only be regarded as suggestive. Moreover, the methodology only does not seek to estimate credit risk and not interest rate risk or exchange rate risk, nor does it fully take into account the indirect effects of interest rates and exchange rates on credit risk. As recent events in Argentina have demonstrated, estimating credit risk along these lines should be thought of as just one tool in attempting to assess the appropriate level of bank provisions and capital.

Increased competition within the financial services industry has raised concerns about the ability of small banks to adequately fund local rural development. To address these concerns, the Gramm-Leach-Bliley Act of 1999 broadened small-bank access to Federal Home Loan Bank (FHLB) financing. Statistical analyses indicate that the following factors were significantly associated with the decisions of small banks headquartered in nonmetropolitan counties to obtain FHLB membership: bank size, affiliation with a bank holding company, exposure to interest rate risk, loan portfolio quality, liquidity pressure, dividend rates on FHLB stock, and binding membership requirements related to residential real estate-related assets. Many, but not all, of these factors were also significantly associated with the membership decisions of small banks headquartered in metropolitan counties. The decisions of both nonmetropolitan and metropolitan banks to use FHLB funding is significantly related to interest rate risk exposure, liquidity pressure, and net interest margins. Neither population trend nor rural county type variables are consistently significant in explaining either which small banks join FHLBs or which member banks borrow from FHLBs.