We show corporate-level real, financial, and (bank) risk-taking effects associated with calculating loan provisions based on expected-rather than incurred-credit losses. For identification, we exploit unique features of a Colombian reform and supervisory, matched loan-level data. The regulatory change induces a dramatic increase in provisions. Banks tighten all new lending conditions, adversely affecting borrowing-firms, with stronger effects for risky-firms. Moreover, to minimize provisioning, more affected (less-capitalized) banks cut credit supply to risky-firms-SMEs with shorter credit history, less tangible assets or more defaulted loans-but engage in "search-for-yield" within regulatory constraints and increase portfolio concentration, thereby decreasing risk diversification.
In this paper we use manufacturing data on Colombian exports and bank financing to estimate the credit elasticity of exports. The data allows us to construct a supply side instrumental variable for the credit of manufacturers that we use to address a possible reverse causality problem. We find that access to credit produces a significant increase in the revenue of exporters, explained by the positive effect of credit on the trade margins. Likewise, we find that across manufacturers, the impact of credit on the margins varies by firm size. Medium-sized manufacturers use credit to increase their market reach, market penetration and product mix. The largest manufacturers use credit to increase their market reach, while the smallest manufacturers use it to expand their product mix.
We show corporate-level real, financial, and (bank) risk-taking effects associated with calculating loan provisions based on expected—rather than incurred—credit losses. For identification, we exploit unique features of a Colombian reform and supervisory, matched loan-level data. The regulatory change induces a dramatic increase in provisions. Banks tighten all new lending conditions, adversely affecting borrowing-firms, with stronger effects for risky-firms. Moreover, to minimize provisioning, more affected (less-capitalized) banks cut credit supply to risky-firms— SMEs with shorter credit history, less tangible assets or more defaulted loans—but engage in “search-for-yield” within regulatory constraints and increase portfolio concentration, thereby decreasing risk diversification.
Financial system's health is a signal of economic growth therefore it is a key indicator to investors. As a consequence, one of the main purposes of policymakers is to keep its stability as well as protect it from foreign activity. Both financial and economic activity in general are susceptible of crises, as soon as this happen a country may face default risk, which can be measured with long term debt risk rating of countries. Through this variable we propose the use the survival analysis methodology, to analyze falls rating duration and capability of macroeconomic variables to predict that event. From the analysis, we point out important differences between developed and emerging economies, with variables which stand out exchange risk and economies indebtedness. ResumenLa dinámica del sistema financiero es una señal de crecimiento económico, por lo tanto es un indicador clave para los inversionistas. Por lo tanto, uno de los principales retos de la política económica es mantener la estabilidad así como proteger el sistema financiero de los fenómenos externos. La actividad financiera y la actividad económica son en general susceptibles a las crisis y dicho riesgo puede medirse a partir de la calificación de deuda de largo plazo. A través de esta variable proponemos aplicar el análisis de sobrevivencia, para explorar la duración de las caídas en la calificación de riesgo y la capacidad de variables macroeconómicas para predecirlas. Con ello se encontraron diferencias importantes en las economías desarrolladas y emergentes, teniendo en cuenta variables de riesgo cambiario y endeudamiento de la economía. ♣ Universidad Nacional de Colombia, research intern at Banco de la República. ♦ Researcher Universidad del Rosario, research intern at Banco de la República in 2006. † Researcher Universidad del Rosario. Contact information: lbonilme@banrep.gov.co andres.for their useful comments. All errors remain ours. Classification JEL: G15, G28, H81.
This paper develops a standard model of international trade and makes three contributions. First, it shows that when the welfare function of the recipient country reflects the utility of natives, freetrade and free-migration generate isomorphic results, that is, they increase overall welfare but redistribute income by reducing the returns of the scarce factor. Although this result is frequently evoked in academic circles, this document shows that the equivalence holds for the most relevant measure of welfare from a political economy perspective. Second, this equivalence is extended to the public policy domain: for each level of trade restrictions mutually imposed, it is found an immigration tax that generates the same redistribution and welfare impacts. Third, in the light of these results, the model is enlarged to illustrate a channel through which political economy concerns may influence immigration policy.
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