The Industrial Organization of Banking

VanHoose, David D.

doi:10.1007/978-3-642-02821-2

“…One question that has not yet been addressed is related to portfolio independence. From a literature survey Van Hoose () concludes that the key requirement for the portfolio separation result Sealey () to hold is that a balance sheet item is tradeable at the same per‐unit interest cost either as an asset or a liability. Under this requirement a bank's asset and liability decisions are mutually independent.…”

Section: Conceptual Frameworkmentioning

confidence: 99%

How Do Macroeconomic and Bank‐specific Variables Influence Profitability in the Austrian Banking Sector? Evidence from a Panel Vector Autoregression Analysis

Sigmund

¹

,

Gunter

²

,

Krenn

³

2017

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We examine the determinants of the net interest margin (NIM) and the net fee and commission income ratio (NFCIR) of Austrian banks as well as their interrelationship and whether portfolio separation between loan and deposit categories holds. We describe a conceptual framework for the profit optimization problem faced by banks as a Bertrand game with differentiated products and intrafirm product interactions. We contribute to the literature by factoring in banks’ business models in terms of their balance sheet structure. We empirically assess the implications of our conceptual framework using a unique supervisory data set of around 48,000 observations between 1998 and 2014. We estimate two panel vector autoregression models with a novel panel vector autoregression code. Apart from quantifying the contributions of the determinants (e.g., risk weighted assets, leverage ratio, loan loss provision ratio) to NIM and NFCIR, the empirical results show that interest income and fee and commission income should be regarded as strategic complements within a bank. We further conclude that portfolio separation between different loan and deposit categories does not hold.

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“…In this sense, monitoring costs are especially relevant when they are related to NPL's management. In consonance with Berger and DeYoung (1997), Altunbas et al (2000) and Van Hoose (2010), these variables are considered endogenous, and consequently they can be modelled as a function of management effort.…”

Section: Theoretical Underpinningsmentioning

confidence: 99%

“…Altunbas et al (2000) express loan portfolio quality through the ratio of non-performing loans (NPL) to total loans, which may be considered an endogenous measure of risk. According to Berger and DeYoung (1997) and Van Hoose (2010) this variable captures the quality of monitoring over loan portfolios. There also exists a stream of literature that introduces risk in non-parametric bank efficiency analysis (Park and Weber 2006;Fukuyama and Weber 2010;Barros et al 2012).…”

Section: Introductionmentioning

confidence: 99%

Monitoring bank performance in the presence of risk

Epure

¹

,

Lafuente

²

2014

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This paper devises management and accounting tools for monitoring bank performance. We first propose a multidimensional efficiency measure that integrates credit risk and is adapted to the real banking technology. Second, traditional accounting ratios complement the analysis. Third, the impact of different risk measures over efficiency and accounting ratios is shown. Fourth, we examine the effect of CEO turnover on future performance. An empirical application considers a unique dataset of Costa Rican banks during 1998-2007. Results reveal that performance improvements follow regulatory changes and that risk explains differences in performance. Non-performing loans negatively affect efficiency and return on assets, whereas the capital adequacy ratio positively affects the net interest margin. This supports that incurring monitoring costs and having higher levels of capitalisation may enhance performance. Finally, results confirm that appointing CEOs from outside the bank significantly improves performance, thus suggesting the potential benefits of new organisational practices.

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“…There remains, however, a need to unify these approaches by using risk factors as an integrating part of performance analyses. This implies that risk has endogenous components (Van Hoose 2010). Therefore, it is necessary to develop monitoring tools to thoroughly examine the relations between risk and performance.…”

Section: Introductionmentioning

confidence: 99%

Monitoring Bank Performance in the Presence of Risk

Epure

¹

,

Lafuente

²

2014

View full text Add to dashboard Cite

This paper devises management and accounting tools for monitoring bank performance. We first propose a multidimensional efficiency measure that integrates credit risk and is adapted to the real banking technology. Second, traditional accounting ratios complement the analysis. Third, the impact of different risk measures over efficiency and accounting ratios is shown. Fourth, we examine the effect of CEO turnover on future performance. An empirical application considers a unique dataset of Costa Rican banks during 1998-2007. Results reveal that performance improvements follow regulatory changes and that risk explains differences in performance. Non-performing loans negatively affect efficiency and return on assets, whereas the capital adequacy ratio positively affects the net interest margin. This supports that incurring monitoring costs and having higher levels of capitalisation may enhance performance. Finally, results confirm that appointing CEOs from outside the bank significantly improves performance, thus suggesting the potential benefits of new organisational practices.

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The Industrial Organization of Banking

Cited by 45 publications

References 378 publications

How Do Macroeconomic and Bank‐specific Variables Influence Profitability in the Austrian Banking Sector? Evidence from a Panel Vector Autoregression Analysis

How Do Macroeconomic and Bank‐specific Variables Influence Profitability in the Austrian Banking Sector? Evidence from a Panel Vector Autoregression Analysis

Monitoring bank performance in the presence of risk

Monitoring Bank Performance in the Presence of Risk

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