Bent Vale - Academia.edu (original) (raw)
Papers by Bent Vale
Hansmann (1996) points out that a surprisingly large number of nonprofit firms operate in develop... more Hansmann (1996) points out that a surprisingly large number of nonprofit firms operate in developed economies, often in sectors where they compete with for-profit firms. In this paper, we shed new light on the viability of nonprofit firms by studying the survival of nonprofit savings banks in the Norwegian banking industry after branching deregulations in the mid-1980s. We propose that banks' survival is related to the level of social capital in the local communities in which the banks operate. Using newspaper readership and charity donations to proxy for the amount of social capital, we estimate that an increase in social capital from the minimum to the maximum level observed in the sample increases the probability of survival for the average bank by approximately 10 percentage points at the time of deregulation. The result is robust to controls for, among others, bank equity, bank competition, population age and education. Our findings suggest that social capital may facilitate collective decision-making and the alignment of stakeholders' preferences.
Journal of Banking and Finance, Mar 1, 2005
Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch ge... more Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public.
Social Science Research Network, 2002
Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch ge... more Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public.
Staff Memos present reports and documentation written by staff members and affiliates of Norges B... more Staff Memos present reports and documentation written by staff members and affiliates of Norges Bank, the central bank of Norway. Views and conclusions expressed in Staff Memos should not be taken to represent the views of Norges Bank.
Innskyterpreferanse innebærer at dersom kreditorene i en bank må ta tap, gis innskyterne fortrinn... more Innskyterpreferanse innebærer at dersom kreditorene i en bank må ta tap, gis innskyterne fortrinnsrett, slik at innskuddene først blir nedskrevet etter at all øvrig gjeld er fullstendig nedskrevet. Artikkelen drøfter fordeler og problemer ved eventuelt å innføre innskyterpreferanse i Norge. Innskyterpreferanse vil redusere den subsidieringen av bankene som skyldes manglende risikoprising av innskuddsgarantien og den implisitte statsgarantien. Det vil også kunne gi større sikkerhet for ikke-finansielle foretak med tidvis store bankinnskudd. Innskyterpreferanse kan imidlertid gjøre eventuell markedsfinansiering vesentlig dyrere for banker som i liten grad benytter slik finansiering. Det vil i hovedsak gjelde mindre banker. Det kan også bidra til at flere små banker vil velge å foreta betalingsoppgjørene i Norges Bank fremfor hos de private oppgjørsbankene. Artikkelen drøfter videre problemer knyttet til gjeld som er utestående ved innføringstidspunktet for innskyterpreferanse. I en si...
I dette notatet gis først en kort innføring i noen grunnleggende trekk ved et tosidig marked som ... more I dette notatet gis først en kort innføring i noen grunnleggende trekk ved et tosidig marked som kortmarkedet. Deretter gjennomgås noe av den teoretiske litteraturen om betalingskort. Vi ser spesielt på om gebyrstrukturen i kortmarkedet avviker fra det samfunnsøkonomisk optimale og hvorvidt det kan gi grunnlag for regulering av kortmarkedet. Det diskuteres også i hvilken grad de ulike teorimodellene passer på det norske BankAxept-systemet. Til slutt drøftes kort hvorledes bankenes insentiv til å investere i forbedret kortteknologi påvirkes av gebyrsystemet
Research Papers in Economics, 1998
The growth of electronic payments can substantially reduce the social cost of a country's pay... more The growth of electronic payments can substantially reduce the social cost of a country's payment system. We provide an estimate of the potential savings in social cost and determine the responsiveness of payment users when relative prices are used to speed up the substitution of electronic for paper-based payments. While some countries (Norway, Japan) have encouraged their banking systems to establish explicit prices to promote electronic payments, others (the United States) have not. For the first time ever, survey data are available to permit estimation of a model of payment choice from which own price, cross price, and payment substitution elasticities are derived. The data, which are semiannual panel data, concern the use of three methods for making retail payments in Norway: cash withdrawals at ATMs, writing a check, or using a debit card at the point of sale. Our finding that payment users are quite sensitive to relative prices that reflect the relatively lower cost of electronic payments is generalizable. Both production techniques and consumer needs for payment instruments are very similar across developed countries, even though instrument usage differs.
Den siste finanskrisen har vist hvor sårbare moderne økonomier kan være som følge av at bankene h... more Den siste finanskrisen har vist hvor sårbare moderne økonomier kan være som følge av at bankene har vokst seg store. I denne Aktuelle kommentaren gir vi først en kort beskrivelse av noen av disse problemene. Deretter gir vi en oversikt over noen av de viktigste tiltakene som er blitt foreslått eller satt i verk for å redusere denne sårbarheten internasjonalt
Staff Memos present reports and documentation written by staff members and affiliates of Norges B... more Staff Memos present reports and documentation written by staff members and affiliates of Norges Bank, the central bank of Norway. Views and conclusions expressed in Staff Memos should not be taken to represent the views of Norges Bank.
In this note we seek to provide a first guide to how the economic literature explains the rationa... more In this note we seek to provide a first guide to how the economic literature explains the rationale for regulating banks. The guide is not exhaustive with respect to academic papers covered. Neither do we elaborate on how banks should be regulated; we only mention key measures in existing regulation
This report looks at the competitiveness of the Norwegian banking sector, in particular with resp... more This report looks at the competitiveness of the Norwegian banking sector, in particular with respect to banking regulation and taxation. How do Norwegian banks perform relative to other European banks and relative to other firms in Norway? Do Norwegian banks have a competitive handicap compared with banks from neighbouring European countries, due to stricter regulation in Norway? And if so, what is the cost of this to the Norwegian economy? This review shows that Norwegian banks have performed well. Furthermore, it concludes that Norwegian banks are, if anything, undertaxed as compared to non-financial firms in Norway and banks in other European countries. On the other hand, Norwegian banks are subject to somewhat stricter regulations than other Nordic banks. However, due to differing macroeconomic conditions and forbearance regimes, as well as barriers to free competition, in the short run the benefits of stricter regulations probably outweigh the costs
Her gjennomgås hvordan bail-in eller nedskrivning av en banks gjeldsfordringer og tvungen konvert... more Her gjennomgås hvordan bail-in eller nedskrivning av en banks gjeldsfordringer og tvungen konvertering av gjeld til egenkapital kan brukes under krisehåndtering av banken. Fremstillingen tar utgangspunkt i EUs direktiv for krisehåndtering av banker som Europaparlamentet og EU-rådet vedtok i april og mai 2014. Hvordan bail-in vil slå ut i ulike tilfeller, illustreres ved noen enkle talleksempler. Videre kommer vi inn på diskresjonære unntak som kan gjøres med tanke på hvilke gjeldsposter som skal være gjenstand for nedskrivning og eventuelt konvertering til aksjer. Dernest ser vi på bruken av midler fra kriseløsingsfondet og eventuell bruk av statlige midler i forbindelse med krisehåndtering. Det presenteres anslag for hvor mye seniorgjelden i DNB eventuelt må nedskrives ved ulike tapsnivåer. Til slutt drøftes hvorvidt bail-in og innskyterpreferanse kan gis tilbakevirkende kraft, eller om det vil være i strid med Grunnlovens bestemmelser
In this paper we present a set of error correction models in order to forecast separately the cha... more In this paper we present a set of error correction models in order to forecast separately the change in demand for each of the notes and coins issued by Norges Bank. Such forecasts can play a role in planning how many new banknotes and coins Norges Bank should order from its producers. The explanatory variables upon which we condition the forecasts inculde: households’ point of sales consumption, the number of EFTPOS terminals, money market interest rate, as well as some dummies for particular events. The estimated effects seem overall to correpsond with findings by other studies. Interstingly, we find that as consumers to a larger extent use EFTPOS cards for their point of sales consumption, holdings of the lowest value denomination coin increase, something we attribute to consumers leaving stocks of low value coins at home since they are less frequently used for paying. ∗Thanks to Trond Eklund who initiated this project and together with Karianne Sæther provided the description of...
Journal of Money, Credit and Banking, 2001
... while to follow. Bank efforts to improve the payment system have also occurred in Canada (to ... more ... while to follow. Bank efforts to improve the payment system have also occurred in Canada (to eliminate the float incentive to use checks) and Germany (to truncate checks and collect them electroni-cally). Such agreements are ...
AEA Meeting in New Orleans, 2008
Hansmann (1996) points out that a surprisingly large number of nonprofit firms operate in develop... more Hansmann (1996) points out that a surprisingly large number of nonprofit firms operate in developed economies, often in sectors where they compete with for-profit firms. In this paper, we shed new light on the viability of nonprofit firms by studying the survival of nonprofit savings banks in the Norwegian banking industry after branching deregulations in the mid-1980s. We propose that banks' survival is related to the level of social capital in the local communities in which the banks operate. Using newspaper readership and charity donations to proxy for the amount of social capital, we estimate that an increase in social capital from the minimum to the maximum level observed in the sample increases the probability of survival for the average bank by approximately 10 percentage points at the time of deregulation. The result is robust to controls for, among others, bank equity, bank competition, population age and education. Our findings suggest that social capital may facilitate collective decision-making and the alignment of stakeholders' preferences.
This Basel Committee working paper studies bank failures in eight countries: Germany, Japan, Norw... more This Basel Committee working paper studies bank failures in eight countries: Germany, Japan, Norway, Spain, Sweden, Switzerland, the United Kingdom and the U.S. It examines the reasons for the failures, how the failures were resolved, and what regulatory changes followed from the crisis. A good understanding of the reasons behind bank failures is crucial in developing a regulatory system that reduces the risk of future failures. While the paper focuses on why the banks failed, the other two issues provide interesting additional evidence. The way a crisis is resolved may have been anticipated by market participants and may thus have had an impact on the probability and severity of the crisis. The regulatory changes following a crisis are an indicator of what national authorities perceived as the underlying causes of the problems. The study is intended to be complementary to other studies. For example, an OECD study examined strategies for resolution of failure in a number of countries - whereas this study will mention how the crisis was resolved but will analyse in detail the underlying causes of failure and also examine changes in the legal and regulatory regimes that resulted from the crisis. The study will also help shed light on the frequency of failure by risk type, the type of shock that precipitated the crisis, and the impact of the event
What determines banks ’ market power? Akerlof versus Herfindahl by
Simply stating that because equity is much more expensive than debt funding, banks total funding ... more Simply stating that because equity is much more expensive than debt funding, banks total funding costs will increase accordingly if their equity ratio is increased, biases the estimated increase upwards. As recently put forwards in the literature, one has to take into account that higher equity ratio lowers the volatility of equity and hence its required return. In addition, higher equity ratio makes a bank’s debt safer and lowers the required return on debt. Taking these two effects into account the Modigliani-Miller theorem implies that a bank’s total cost of funding should not be influenced by the bank’s equity ratio. However, the existence of explicit or implicit guarantees may reduce the latter effect and cause a bank’s total funding cost to increase somewhat when the equity ratio is raised. Miles, Yang, and Marcheggiano (2011) studying UK banks find a slight increase in their funding costs if the equity ratio is increased. Applying the estimates of Miles et.al. we find that a ...
We present an empirical model of firm behavior in the presence of switching costs. Customers'... more We present an empirical model of firm behavior in the presence of switching costs. Customers' transition probabilities, embedded in firms' value maximization, are used in a multi-period model to derive estimable equations of a first order condition, market-share (demand), and supply equations. The novelty of the model is in its ability to extract information on both the magnitude and significance of switching costs, as well as on customers' transition probabilities, from conventionally available highly aggregated data which do not contain customer-specific information. As a matter of illustration, the model is applied to a panel data of banks, to assess the switching costs in the market for bank loans. The point estimate of the average switching cost is 4.1% which is about one third of the market average interest rate on loans. More than a quarter of the customer's added value is attributed to the lock-in phenomenon generated by these switching costs. About a third o...
Hansmann (1996) points out that a surprisingly large number of nonprofit firms operate in develop... more Hansmann (1996) points out that a surprisingly large number of nonprofit firms operate in developed economies, often in sectors where they compete with for-profit firms. In this paper, we shed new light on the viability of nonprofit firms by studying the survival of nonprofit savings banks in the Norwegian banking industry after branching deregulations in the mid-1980s. We propose that banks' survival is related to the level of social capital in the local communities in which the banks operate. Using newspaper readership and charity donations to proxy for the amount of social capital, we estimate that an increase in social capital from the minimum to the maximum level observed in the sample increases the probability of survival for the average bank by approximately 10 percentage points at the time of deregulation. The result is robust to controls for, among others, bank equity, bank competition, population age and education. Our findings suggest that social capital may facilitate collective decision-making and the alignment of stakeholders' preferences.
Journal of Banking and Finance, Mar 1, 2005
Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch ge... more Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public.
Social Science Research Network, 2002
Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch ge... more Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public.
Staff Memos present reports and documentation written by staff members and affiliates of Norges B... more Staff Memos present reports and documentation written by staff members and affiliates of Norges Bank, the central bank of Norway. Views and conclusions expressed in Staff Memos should not be taken to represent the views of Norges Bank.
Innskyterpreferanse innebærer at dersom kreditorene i en bank må ta tap, gis innskyterne fortrinn... more Innskyterpreferanse innebærer at dersom kreditorene i en bank må ta tap, gis innskyterne fortrinnsrett, slik at innskuddene først blir nedskrevet etter at all øvrig gjeld er fullstendig nedskrevet. Artikkelen drøfter fordeler og problemer ved eventuelt å innføre innskyterpreferanse i Norge. Innskyterpreferanse vil redusere den subsidieringen av bankene som skyldes manglende risikoprising av innskuddsgarantien og den implisitte statsgarantien. Det vil også kunne gi større sikkerhet for ikke-finansielle foretak med tidvis store bankinnskudd. Innskyterpreferanse kan imidlertid gjøre eventuell markedsfinansiering vesentlig dyrere for banker som i liten grad benytter slik finansiering. Det vil i hovedsak gjelde mindre banker. Det kan også bidra til at flere små banker vil velge å foreta betalingsoppgjørene i Norges Bank fremfor hos de private oppgjørsbankene. Artikkelen drøfter videre problemer knyttet til gjeld som er utestående ved innføringstidspunktet for innskyterpreferanse. I en si...
I dette notatet gis først en kort innføring i noen grunnleggende trekk ved et tosidig marked som ... more I dette notatet gis først en kort innføring i noen grunnleggende trekk ved et tosidig marked som kortmarkedet. Deretter gjennomgås noe av den teoretiske litteraturen om betalingskort. Vi ser spesielt på om gebyrstrukturen i kortmarkedet avviker fra det samfunnsøkonomisk optimale og hvorvidt det kan gi grunnlag for regulering av kortmarkedet. Det diskuteres også i hvilken grad de ulike teorimodellene passer på det norske BankAxept-systemet. Til slutt drøftes kort hvorledes bankenes insentiv til å investere i forbedret kortteknologi påvirkes av gebyrsystemet
Research Papers in Economics, 1998
The growth of electronic payments can substantially reduce the social cost of a country's pay... more The growth of electronic payments can substantially reduce the social cost of a country's payment system. We provide an estimate of the potential savings in social cost and determine the responsiveness of payment users when relative prices are used to speed up the substitution of electronic for paper-based payments. While some countries (Norway, Japan) have encouraged their banking systems to establish explicit prices to promote electronic payments, others (the United States) have not. For the first time ever, survey data are available to permit estimation of a model of payment choice from which own price, cross price, and payment substitution elasticities are derived. The data, which are semiannual panel data, concern the use of three methods for making retail payments in Norway: cash withdrawals at ATMs, writing a check, or using a debit card at the point of sale. Our finding that payment users are quite sensitive to relative prices that reflect the relatively lower cost of electronic payments is generalizable. Both production techniques and consumer needs for payment instruments are very similar across developed countries, even though instrument usage differs.
Den siste finanskrisen har vist hvor sårbare moderne økonomier kan være som følge av at bankene h... more Den siste finanskrisen har vist hvor sårbare moderne økonomier kan være som følge av at bankene har vokst seg store. I denne Aktuelle kommentaren gir vi først en kort beskrivelse av noen av disse problemene. Deretter gir vi en oversikt over noen av de viktigste tiltakene som er blitt foreslått eller satt i verk for å redusere denne sårbarheten internasjonalt
Staff Memos present reports and documentation written by staff members and affiliates of Norges B... more Staff Memos present reports and documentation written by staff members and affiliates of Norges Bank, the central bank of Norway. Views and conclusions expressed in Staff Memos should not be taken to represent the views of Norges Bank.
In this note we seek to provide a first guide to how the economic literature explains the rationa... more In this note we seek to provide a first guide to how the economic literature explains the rationale for regulating banks. The guide is not exhaustive with respect to academic papers covered. Neither do we elaborate on how banks should be regulated; we only mention key measures in existing regulation
This report looks at the competitiveness of the Norwegian banking sector, in particular with resp... more This report looks at the competitiveness of the Norwegian banking sector, in particular with respect to banking regulation and taxation. How do Norwegian banks perform relative to other European banks and relative to other firms in Norway? Do Norwegian banks have a competitive handicap compared with banks from neighbouring European countries, due to stricter regulation in Norway? And if so, what is the cost of this to the Norwegian economy? This review shows that Norwegian banks have performed well. Furthermore, it concludes that Norwegian banks are, if anything, undertaxed as compared to non-financial firms in Norway and banks in other European countries. On the other hand, Norwegian banks are subject to somewhat stricter regulations than other Nordic banks. However, due to differing macroeconomic conditions and forbearance regimes, as well as barriers to free competition, in the short run the benefits of stricter regulations probably outweigh the costs
Her gjennomgås hvordan bail-in eller nedskrivning av en banks gjeldsfordringer og tvungen konvert... more Her gjennomgås hvordan bail-in eller nedskrivning av en banks gjeldsfordringer og tvungen konvertering av gjeld til egenkapital kan brukes under krisehåndtering av banken. Fremstillingen tar utgangspunkt i EUs direktiv for krisehåndtering av banker som Europaparlamentet og EU-rådet vedtok i april og mai 2014. Hvordan bail-in vil slå ut i ulike tilfeller, illustreres ved noen enkle talleksempler. Videre kommer vi inn på diskresjonære unntak som kan gjøres med tanke på hvilke gjeldsposter som skal være gjenstand for nedskrivning og eventuelt konvertering til aksjer. Dernest ser vi på bruken av midler fra kriseløsingsfondet og eventuell bruk av statlige midler i forbindelse med krisehåndtering. Det presenteres anslag for hvor mye seniorgjelden i DNB eventuelt må nedskrives ved ulike tapsnivåer. Til slutt drøftes hvorvidt bail-in og innskyterpreferanse kan gis tilbakevirkende kraft, eller om det vil være i strid med Grunnlovens bestemmelser
In this paper we present a set of error correction models in order to forecast separately the cha... more In this paper we present a set of error correction models in order to forecast separately the change in demand for each of the notes and coins issued by Norges Bank. Such forecasts can play a role in planning how many new banknotes and coins Norges Bank should order from its producers. The explanatory variables upon which we condition the forecasts inculde: households’ point of sales consumption, the number of EFTPOS terminals, money market interest rate, as well as some dummies for particular events. The estimated effects seem overall to correpsond with findings by other studies. Interstingly, we find that as consumers to a larger extent use EFTPOS cards for their point of sales consumption, holdings of the lowest value denomination coin increase, something we attribute to consumers leaving stocks of low value coins at home since they are less frequently used for paying. ∗Thanks to Trond Eklund who initiated this project and together with Karianne Sæther provided the description of...
Journal of Money, Credit and Banking, 2001
... while to follow. Bank efforts to improve the payment system have also occurred in Canada (to ... more ... while to follow. Bank efforts to improve the payment system have also occurred in Canada (to eliminate the float incentive to use checks) and Germany (to truncate checks and collect them electroni-cally). Such agreements are ...
AEA Meeting in New Orleans, 2008
Hansmann (1996) points out that a surprisingly large number of nonprofit firms operate in develop... more Hansmann (1996) points out that a surprisingly large number of nonprofit firms operate in developed economies, often in sectors where they compete with for-profit firms. In this paper, we shed new light on the viability of nonprofit firms by studying the survival of nonprofit savings banks in the Norwegian banking industry after branching deregulations in the mid-1980s. We propose that banks' survival is related to the level of social capital in the local communities in which the banks operate. Using newspaper readership and charity donations to proxy for the amount of social capital, we estimate that an increase in social capital from the minimum to the maximum level observed in the sample increases the probability of survival for the average bank by approximately 10 percentage points at the time of deregulation. The result is robust to controls for, among others, bank equity, bank competition, population age and education. Our findings suggest that social capital may facilitate collective decision-making and the alignment of stakeholders' preferences.
This Basel Committee working paper studies bank failures in eight countries: Germany, Japan, Norw... more This Basel Committee working paper studies bank failures in eight countries: Germany, Japan, Norway, Spain, Sweden, Switzerland, the United Kingdom and the U.S. It examines the reasons for the failures, how the failures were resolved, and what regulatory changes followed from the crisis. A good understanding of the reasons behind bank failures is crucial in developing a regulatory system that reduces the risk of future failures. While the paper focuses on why the banks failed, the other two issues provide interesting additional evidence. The way a crisis is resolved may have been anticipated by market participants and may thus have had an impact on the probability and severity of the crisis. The regulatory changes following a crisis are an indicator of what national authorities perceived as the underlying causes of the problems. The study is intended to be complementary to other studies. For example, an OECD study examined strategies for resolution of failure in a number of countries - whereas this study will mention how the crisis was resolved but will analyse in detail the underlying causes of failure and also examine changes in the legal and regulatory regimes that resulted from the crisis. The study will also help shed light on the frequency of failure by risk type, the type of shock that precipitated the crisis, and the impact of the event
What determines banks ’ market power? Akerlof versus Herfindahl by
Simply stating that because equity is much more expensive than debt funding, banks total funding ... more Simply stating that because equity is much more expensive than debt funding, banks total funding costs will increase accordingly if their equity ratio is increased, biases the estimated increase upwards. As recently put forwards in the literature, one has to take into account that higher equity ratio lowers the volatility of equity and hence its required return. In addition, higher equity ratio makes a bank’s debt safer and lowers the required return on debt. Taking these two effects into account the Modigliani-Miller theorem implies that a bank’s total cost of funding should not be influenced by the bank’s equity ratio. However, the existence of explicit or implicit guarantees may reduce the latter effect and cause a bank’s total funding cost to increase somewhat when the equity ratio is raised. Miles, Yang, and Marcheggiano (2011) studying UK banks find a slight increase in their funding costs if the equity ratio is increased. Applying the estimates of Miles et.al. we find that a ...
We present an empirical model of firm behavior in the presence of switching costs. Customers'... more We present an empirical model of firm behavior in the presence of switching costs. Customers' transition probabilities, embedded in firms' value maximization, are used in a multi-period model to derive estimable equations of a first order condition, market-share (demand), and supply equations. The novelty of the model is in its ability to extract information on both the magnitude and significance of switching costs, as well as on customers' transition probabilities, from conventionally available highly aggregated data which do not contain customer-specific information. As a matter of illustration, the model is applied to a panel data of banks, to assess the switching costs in the market for bank loans. The point estimate of the average switching cost is 4.1% which is about one third of the market average interest rate on loans. More than a quarter of the customer's added value is attributed to the lock-in phenomenon generated by these switching costs. About a third o...