International audienceThe purpose of this paper is to investigate the relationship between bank risk and product diversification in the changing structure of the European banking industry. Based on a broad set of European banks for the period 1996-2002, our study first shows that banks expanding into non-interest income activities present higher risk and higher insolvency risk than banks which mainly supply loans. However, considering size effects and splitting non-interest activities into both trading activities and commission and fee activities we show that the positive link with risk is mostly accurate for small banks and essentially driven by commission and fee activities. A higher share of trading activities is never associated with higher risk and for small banks it implies, in some cases, lower asset and default risks

International audienceOur study of 602 European banks over 1996-2002 investigates how the banks' expansion into fee-based services has affected their interest margins and loan pricing. We find that higher income share from commissions and fees is associated with lower margins and loan spreads. The higher the commission and fee income share, moreover, the weaker the link between bank loan spreads and loan risk. The latter result is consistent with the conjecture that banks price (or misprice) loans to increase sales of other services. That loss leader (or cross selling) hypothesis has implications for bank regulation and competition with (non-bank) lenders

This paper investigates the impact of banks' political connections on their ability to collect deposits under two different deposit insurance regimes (blanket guarantee and limited guarantee). We estimate a simultaneous equations model of supply and demand for funds using quarterly data for Indonesian banks from 2002 to 2008. We find that, regardless of their type (state-owned or private entities), politically connected banks are able to attract deposits more easily than their non-connected counterparts. We also show that this effect is more pronounced after the implementation of formal deposit insurance with limited coverage. Our findings have various policy implications. Formal deposit insurance might have improved market discipline, as highlighted by earlier studies, but it has also exacerbated the issue of political connections in the banking sector. Political connections, bank deposits, and formal deposit insurance:Evidence from an emerging economy Abstract This paper investigates the impact of banks' political connections on their ability to collect deposits under two different deposit insurance regimes (blanket guarantee and limited guarantee). We estimate a simultaneous equations model of supply and demand for funds using quarterly data for Indonesian banks from 2002 to 2008. We find that, regardless of their type (state-owned or private entities), politically connected banks are able to attract deposits more easily than their non-connected counterparts. We also show that this effect is more pronounced after the implementation of formal deposit insurance with limited coverage. Our findings have various policy implications. Formal deposit insurance might have improved market discipline, as highlighted by earlier studies, but it has also exacerbated the issue of political connections in the banking sector.JEL Classification: G28, D72

Abstract:This paper examines the link between banking and economic development at the regional level in the Philippines and focuses on the role played by rural banks in regional economic activity. We apply cointegration panel data analysis on regional banking and economic data for the period 1993 to 2005. We ranked the sixteen regions in three different groups depending on their average economic development. Our results show that in the long run regional financial development causes regional economic development. But they do not confirm the existence of a consistently positive strong influence of regional financial development on economic development in the Philippines. However, our findings highlight a positive effect of the presence of rural banks, characterized by their expertise in financing micro-entrepreneurs and poor households, on economic development. We also show that this result is stronger for the intermediate developed regions than for the less developed regions, suggesting the existence of a threshold effect. JEL Classification: C23; G21, O16

Résumé L’objectif de cet article est d’analyser l’influence de la concurrence bancaire, et non de la concentration, sur l’efficience de coût des banques dans les peco , pour la période 1999-2006. Pour cela, deux outils (une version individuelle de la H-statistique de Panzar et Rosse et l’indice de Lerner) sont utilisés pour mesurer le pouvoir de marché des banques. Nos résultats mettent en évidence que l’efficience de coût des banques augmente lorsque le niveau de concurrence diminue, posant ainsi la question du niveau optimal de concurrence que la réglementation doit favoriser.