Bank Heterogeneity and Interest Rate Setting: What Lessons Have We Learned Since Lehman Brothers?

Gambacorta, Leonardo; Mistrulli, Paolo Emilio

doi:10.2139/ssrn.2004399

Cited by 58 publications

(33 citation statements)

References 159 publications

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“…In line with the recent empirical evidence about the credit crunch in Italy (Gambacorta and Mistrulli Forthcoming, Gobbi and Sette ), our results show that Italian banks significantly reduced the supply of credit after the Lehman collapse. In addition, they clearly show that the organizational structure of local credit markets has been a (statistically and economically) major determinant of the severity of the credit crunch.…”

Section: Resultssupporting

confidence: 91%

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The Home Bias and the Credit Crunch: A Regional Perspective

Presbitero

Udell

Zazzaro

2014

J of Money Credit Banking

126

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Using detailed data on loan applications and decisions for a large sample of manufacturing firms in Italy during the recent financial crisis, we find that the credit crunch has been harsher in provinces with a large share of branches owned by distantly managed banks. Inconsistent with a flight to quality we do not find evidence that economically weaker firms suffered more during the crisis. In contrast, we find that financially healthier firms were affected more in functionally distant credit markets than in markets populated by less distant banks, consistent with a home bias on the part of nationwide banks.JEL codes: F33, F34, F35, O11

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Section: Resultssupporting

confidence: 91%

“…The threshold of 20 employees for small firms has been used in the empirical literature on the credit crunch in Italy, among others, by Gambacorta and Mistrulli (Forthcoming). We also consider the more traditional threshold of 50 employees and obtain similar results.…”

mentioning

confidence: 99%

The Home Bias and the Credit Crunch: A Regional Perspective

Presbitero

Udell

Zazzaro

2014

J of Money Credit Banking

126

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“…Second, we focus on mortgages and hence bank lending to private households rather than bank lending to firms as mostly analyzed in the literature (see i.e. Cornett et al, 2011, Jiménez et al, 2012, Gambacorta and Mistrulli, 2014.…”

Section: 4mentioning

confidence: 99%

“…In their quantitative impact study, Cournède and Slovik (2011) state that for banks maintaining a discretionary capital buffer, the impact of higher capital requirements on lending spreads might be lower. Based on empirical evidence, Gambacorta and Mistrulli (2014) find that banks with higher excess capitalization shield their customers during financial crises.…”

Section: Definition Of Sensitivity Measures Excess Capitalization As mentioning

confidence: 99%

“…Furthermore, against the background on relationship lending, Gambacorta and Mistrulli (2014) find that banks with a business focus on retail lending protect their corporate customers during financial crises. However, the CCB as designed in the Swiss context applies exclusively to residential mortgage lending while sparing other bank businesses.…”

Section: Specialization and Business Focusmentioning

confidence: 99%

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Higher Bank Capital Requirements and Mortgage Pricing: Evidence from the Counter-Cyclical Capital Buffer

Basten

Koch²

2014

SSRN Journal

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This paper investigates the impact of the CCB's increased capital requirements on mortgage pricing. We shed light on different bank balance sheet characteristics including capitalization, business model, portfolio and funding structure that might render banks more sensitive to the effects of the CCB. As risk-weighting schemes tied to loan-to-value (LTV) ratios link the riskiness of individual borrowers to the regulatory capital requirements of banks, we also examine whether these threshold LTV ratios amplify the CCB effects. We exploit a comprehensive dataset of a Swiss online mortgage broker, which allows us to separate mortgage demand from mortgage supply. Customers provide detailed information on their financial situation and the real estate property they intend to buy. Then, each mortgage request receives several binding but independent offers by banks and insurance companies. As we observe responses from both banks and insurers, we can also analyze the effect on insurers which do not need to comply with the CCB's capital requirements.Our study yields three core findings. First, capital-constrained banks and banks that are specialized in the mortgage business raise their offered mortgage rates relatively more. Hence, banks do not only charge more on new mortgages after the CCB, but also do specialized banks recover the costs of higher capital requirements for mortgages already on their balance sheets.Indeed, these specialized banks pass higher costs on to new mortgage customers. Second, banks in general charge more on very risk mortgages with critical LTV ratios above respectively 66% and 80%, but these threshold LTVs do not amplify the CCB effects. Risk-weighting schemes put an extra equity levy in terms of equity capital requirements on mortgages with LTV ratios above 3 66% and again with LTV ratios above 80%. One might hence anticipate that banks claim extra compensation for granting these more equity capital-intensive mortgages in general and even more so after the CCB imposes higher capital standards. However, we find that banks price these LTV thresholds, but risk-weighting schemes do not amplify the CCB effect. In this light, we might interpret LTV thresholds as signals for very risky mortgages inducing all lenders to charge a risk premium. Apparently, the existing risk-weighting schemes create only a relatively weak link between LTV ratios and capital requirements. Our third finding suggests that banks and insurers increase their average mortgage rates after the CCB's activation, but insurers raise rates by on average 8.8 bp more than banks. For this reason we infer that in the Swiss mortgage market there has been little "policy leakage" in the sense of CCB-exempt insurers seeking to underbid CCB-subjected banks. By contrast, we find that insurers aim for higher profits rather than seeking to expand their market share. We interpret this as the insurers' attempt to reap additional profits in a low interest rate environment with scarce profitable investment opportunities.Generally speaking, the CCB act...

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How functional and geographic diversification affect bank profitability during the crisis

Brighi

Venturelli

2016

Finance Research Letters

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Using bank-level data on 491 Italian banks over the period 2006-2012, we investigate the impact of functional and geographic diversification on bank performance during 2008’s financial and 2010’s sovereign debt crises. Both scenarios negatively affect bank profitability while discordant effects emerge in case of the Z-Score analysis. Italian banks’ risk stays unaffected by the 2008’s episode, while the sovereign debt crisis increases such risk. Results differ for the sample of mutual and not-mutual banks being the different banking groups characterised by different size and business models

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Bank Heterogeneity and Interest Rate Setting: What Lessons Have We Learned Since Lehman Brothers?

Cited by 58 publications

References 159 publications

The Home Bias and the Credit Crunch: A Regional Perspective

The Home Bias and the Credit Crunch: A Regional Perspective

Higher Bank Capital Requirements and Mortgage Pricing: Evidence from the Counter-Cyclical Capital Buffer

How functional and geographic diversification affect bank profitability during the crisis

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