Nikolaos I. Papanikolaou | Newcastle University (original) (raw)

Papers by Nikolaos I. Papanikolaou

SUERF Studies, 2009

On 11-12 November 2008, SUERF and Banque Centrale du Luxembourg organized a conference on Product... more On 11-12 November 2008, SUERF and Banque Centrale du Luxembourg organized a conference on Productivity in the Financial Services Sector on the occasion of the tenth anniversary of the Banque Centrale du Luxembourg. The conference addressed three main themes: first, stylized facts on banks' productivity developments and the measurement of productivity; second, sources of productivity in banking; and third, the possible repercussions and consequences of the financial crisis on financial institutions' future ...

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Munich Personal RePEc Archive No 62463, Feb 28, 2015

The rising delinquencies in the U.S. subprime mortgage market in 2006 and the succeeding collapse... more The rising delinquencies in the U.S. subprime mortgage market in 2006 and the succeeding collapse in housing prices had a considerably negative impact on the functioning of the European financial systems and the smooth operation of European economies. Indeed, in the Euro-area, what started as a financial crisis escalated to a twin crisis after being doubled by the eruption of a massive sovereign debt crisis in 2010. The lack of an established set of bank supervision and resolution strategies at the Euro-area level, the vicious circle between banks and European nation-states, the threats for the sustainability of the common currency, and the deterioration of the market conditions were the key factors which lately led to the acceleration of the steps towards the creation of a banking union in Europe. The principal aim of the European Banking Union is to shape the necessary legal and institutional framework and provide the authorities with powers and tools to deal with ailing banks in order to prevent the devastating effects that a future shock may have on the financial system, the real economy, and the society. This paper presents the formal reactions of the sovereigns and the European Central Bank to the twin crisis, and critically discusses the key problems and the inherent weaknesses which led to the establishment of a banking union for the Euro-area member states. The structure of the banking union, the various aspects of its operation, and its future prospects are also presented and discussed.

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Luxembourg School of Finance Working Paper Series 12, 2013, Nov 2013

It is a common place that during financial crises, like the one started in 2007, authorities pro... more It is a common place that during financial crises, like the one started in 2007,
authorities provide substantial financial support to some problem banks, whilst
at the same time let several others to go bankrupt. Is this happening because
some particular banks are considered important and big enough to save,
whereas some others are perceived as being ‘Too-Small-To-Survive’? Is the
size of banks the fundamental factor that makes authorities to treat them
differently, or it is also that some banks perform poorly and are not capable of
withstanding some considerable shocks whatsoever? Our study provides
concrete answers to these questions thus filling part of the void in the existing
literature. A short- and a long-run positive relationship between size and
performance is documented regardless of the level of bank soundness (healthy
vs. failed and assisted banks) under scrutiny. Importantly, we pose and lend
support to the ‘Too-Small-To-Survive’ hypothesis according to which the
impact of bank performance on failure probability strongly depends on size.
Evidence shows that authorities tend not to save banks whose size is below
some specific threshold.

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In this paper, we use a semi-parametric two-stage model to examine the effect of bank-specific, i... more In this paper, we use a semi-parametric two-stage model to examine the effect of bank-specific, industry-specific and macroeconomic determinants of bank efficiency. This method, proposed by Simar and Wilson (2007), relaxes several deficiencies of previous two-stage analyses, which regress non-parametric estimates of bank efficiency on exogenous determinants. In particular, we propose a bootstrap procedure to be used in the second stage and we compare the results obtained to the equivalents of a Tobit model. We suggest that the Tobit regressions inaccurately provide insignificant estimates for the effect of bank size, industry concentration and economic investment on bank efficiency, a fact that illustrates the power of the new method. Since the effect of these determinants has been ambiguous in previous literature, this may be a desideratum for future research.

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The aim of this study is to examine the relationship between banking sector reform and bank perfo... more The aim of this study is to examine the relationship between banking sector reform and bank performance – measured in terms of efficiency, total factor productivity growth and net interest margin – accounting for the effects through competition and bank risk-taking. To this end, we develop an empirical model of bank performance and draw on recent econometric advances to consistently estimate it. The model is applied to bank panel data from ten newly acceded EU countries. The results indicate that both banking sector reform and competition exert a positive impact on bank efficiency, while the effect of reform on total factor productivity growth is significant only toward the end of the reform process. Finally, the effect of capital and credit risk on bank performance is in most cases negative, while it seems that higher liquid assets reduce the efficiency and productivity of banks.

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Productivity in the Financial Services Sector, Dec 2009

This paper examines how banks have been diversifying away from traditional financial intermediati... more This paper examines how banks have been diversifying away from traditional financial intermediation activity into noninterest income business and how this shift has affected their efficiency and risk-taking behaviour. To this end, we construct a global best-practice efficiency frontier following the Stochastic Frontier Approach and relying on the technique of Battese and Coelli (1995), which permits the estimation of the frontier and of the coefficients of efficiency variables in a single-stage. We opt for an application of this model to the EU-27 countries performing an intra-Union comparison between the old and the new EU members that provides us with substantial information concerning the level of harmonization of the European banking systems. Results indicate that the diversification of bank output enlarges efficiency margins in both cost and profit terms without altering the way banks treat risk. Also, environment identically affects the performance of European banks. By and large, both old and new EU member states follow similar behavioural patterns that are not influenced by product diversification, which reveals a rather harmonized European banking market.

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Luxembourg School of Finance Working Paper Series 12, 2010 & Central Bank of Luxembourg, Financial Stability Report 2010, 2010

In this paper we study the relationship between leverage and risk in commercial banking market. ... more In this paper we study the relationship between leverage and risk in commercial
banking market. We employ a panel data set that consists of the biggest US
commercial banks and which extends from 2002 to 2010 thus covering both the
years before the outbreak of the current financial crisis as well as those followed.
We make clear distinctions among different leverage types like on- and off-balance
sheet leverage as well as short- and long-term leverage, which have never been
made in the relevant literature. Our findings provide evidence that excessive
leverage, both explicit and hidden off-the-balance sheet, rendered large banks
vulnerable to financial shocks thus contributing to the fragility of the whole banking
industry. In a similar vein, a direct link between short- and long-term leverage with
risk is reported before the crisis, showing that leverage has been one of the key
factors responsible for the serious liquidity shortages that were revealed after 2007
when the crisis erupted. We also demonstrate that banks which concentrate on
traditional banking activities typically carry less risk exposure than those that are
involved with modern financial instruments. Overall, our results provide a better
understanding of the role of leverage in destabilizing the whole system whereas at
the same time contribute to the current discussion on the resilience of the banking
sector through the strengthening of the existing regulatory framework.

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Luxembourg School of Finance Working Paper Series 11, 2010, Dec 2010

In this paper we construct a theoretical model of spatial banking competition that considers the... more In this paper we construct a theoretical model of spatial banking competition that
considers the differential information among banks and potential borrowers in
order to investigate how market structure affects the lending behavior of banks and
their incentives to invest in screening technology. Consistent with the prevailing
view in the relevant literature, our results reveal that competition reduces lending
cost, which, in turn, encourages the entry of new customers in the loan market.
Also, that the transportation cost that potential borrowers have to pay in order to
reach the bank of their interest is decreased with the degree of competitiveness.
Importantly, we demonstrate that market structure exerts a considerable positive
effect on banks’ incentives to screen their loan applicants since banks are found to
invest more in screening as competition in the market becomes higher. This is to
say, banks resort to screening that serves as a buffer mechanism against bad credit
which entails higher risk and which is more likely under competitive conditions.
Overall, our findings provide support to a rather close link between the degree of
competition, bank lending activity, and the investment of banks in screening
technology.