Firm size, bank size, and financial development

Grechyna, Daryna

doi:10.1016/j.jedc.2018.09.004

“…Likewise, positive results of country-level monetary policy rate and lending interest rate variables suggest banks charge higher loan interest rates in countries with tightened monetary policy and higher average risk, respectively. The negative association of banking industry concentration and bank size implies large banks in a concentrated banking industry benefit from economies of scale and charge lower rates on loans, results consistent with Berger et al (2005) and Grechyna (2018). Banks with aggressive financial intermediation strategy charge lower rates as shown by results of the loans-to-deposits ratio.…”

Section: Summary Statisticssupporting

confidence: 53%

Is Economic Uncertainty a Risk Factor in Bank Loan Pricing Decisions? International Evidence

Ashraf

¹

2021

Risks

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Uncertainty in economic environment leads economic agents to act cautiously. In this paper, we postulate that such uncertainty leads banks to charge higher interest rate on loans. Measuring aggregate country-level economic uncertainty with the World Uncertainty Index (WUI) and using a bank-level dataset from 88 countries over the period 1998–2017, we find that heightened economic uncertainty increases bank loan interest rates. Specifically, bank loan interest rates rise by 20.67 basis points with a one standard deviation increase in WUI. Our results are robust when we use alternative proxy of uncertainty, include additional controls in the model, and extend the sample size. We also observe that WUI index is better at measuring local economic uncertainty as compared to the Economic Policy Uncertainty (EPU) index. Overall, this study provides evidence that bank price in economic uncertainty is an important risk while setting interest rates on bank loans.

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“…to characteristics of the financial intermediaries (such as size, liquidity and equity) and regulatory environment (Demirguc-Kunt et al, 2004) and competitiveness (Degryse and Ongena, 2008); see Calice and Zhou (2018) and Dwumfour (2018) for analyzes of recent data. Further empirical support for the link of financial frictions and financial intermediation (or lack thereof) to capital accumulation and allocation is found in the financial development literature (Levine, 2005), see Fernández and Tamayo (2017) for a review stressing the links to financial frictions and Cihak et al (2013) and Grechyna (2018) for recent analyses including the role of financial intermediation with empirical and theoretical focus, respectively.…”

Section: Literaturementioning

confidence: 96%

“…For simplicity, we assume an additive, linear intermediation cost function C(D t , L t ) as in Freixas and Rochet (2008) or Diallo and Koch (2018) but see Grechyna (2018) for a model, where intermediation costs arise endogenously from loan volume and monitoring activity.…”

Section: Financial Intermediariesmentioning

confidence: 99%

Climate Finance Intermediation: Interest Spread Effects in a Climate Policy Model

Lessmann

¹

,

Kalkuhl

²

2020

SSRN Journal

2

0

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Interest rates are central determinants of saving and investment decisions. Costly financial intermediation distort these price signals by creating a spread between the interest rates on deposits and loans with substantial effects on the supply of funds and the demand for credit. This study investigates how interest rate spreads affect climate policy in its ambition to shift capital from polluting to low-carbon sectors of the economy. To this end, we introduce financial intermediation costs in a dynamic general equilibrium climate policy model. We find that costly financial intermediation affects carbon emissions in various ways through a number of different channels. For low to moderate interest rate spreads, carbon emissions increase by up to 7 percent, in particular, because of lower investments into the capital intensive clean energy sector. For very high interest rate spreads, emissions fall because lower economic growth reduces carbon emissions. If a certain temperature target should be met, carbon prices have to be adjusted upwards by up to one third under the presence of capital market frictions.

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“…to characteristics of the financial intermediaries (such as size, liquidity and equity) and regulatory environment (Demirguc-Kunt et al, 2004) and competitiveness (Degryse and Ongena, 2008); see Calice and Zhou (2018) and Dwumfour (2018) for analyzes of recent data. Further empirical support for the link of financial frictions and financial intermediation (or lack thereof) to capital accumulation and allocation is found in the financial development literature (Levine, 2005), see Fernández and Tamayo (2017) for a review stressing the links to financial frictions and Cihak et al (2013) and Grechyna (2018) for recent analyses including the role of financial intermediation with empirical and theoretical focus, respectively.…”

Section: Literaturementioning

confidence: 98%

Climate Finance Intermediation: Interest Spread Effects in a Climate Policy Model

Lessmann¹,

Kalkuhl²

2024

Journal of the Association of Environmental and Resource Econom

0

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Interest rates are central determinants of saving and investment decisions. Costly financial intermediation distort these price signals by creating a spread between the interest rates on deposits and loans with substantial effects on the supply of funds and the demand for credit. This study investigates how interest rate spreads affect climate policy in its ambition to shift capital from polluting to low-carbon sectors of the economy. To this end, we introduce financial intermediation costs in a dynamic general equilibrium climate policy model. We find that costly financial intermediation affects carbon emissions in various ways through a number of different channels. For low to moderate interest rate spreads, carbon emissions increase by up to 7 percent, in particular, because of lower investments into the capital intensive clean energy sector. For very high interest rate spreads, emissions fall because lower economic growth reduces carbon emissions. If a certain temperature target should be met, carbon prices have to be adjusted upwards by up to one third under the presence of capital market frictions.

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Firm size, bank size, and financial development

Cited by 6 publications

References 39 publications

Is Economic Uncertainty a Risk Factor in Bank Loan Pricing Decisions? International Evidence

Is Economic Uncertainty a Risk Factor in Bank Loan Pricing Decisions? International Evidence

Climate Finance Intermediation: Interest Spread Effects in a Climate Policy Model

Climate Finance Intermediation: Interest Spread Effects in a Climate Policy Model

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