Mergers of community banks across economic market areas potentially reduce both idiosyncratic and local market risk. A merger may reduce idiosyncratic risk because the larger post-merger bank has a larger customer base. Negative credit and liquidity shocks from individual customers would have smaller effects on the portfolio of the merged entity than on the individual community banks involved in the merger.
The number of U.S. commercial banks has declined by some 40 percent since 1984, primarily through mergers of solvent institutions. The relaxation of legal impediments to branching has enabled this consolidation, but specific characteristics of banks that engage in mergers reflect the regulatory process and market structure, as well as the bank's own condition.
This article examines the potential contribution to bank supervision of a model designed to predict which banks will have their supervisory ratings downgraded in future periods. Bank supervisors rely on various tools of off-site surveillance to track the condition of banks under their jurisdiction between on-site examinations, including econometric models.
Since 1990, federal bank supervisors have publicly announced formal enforcement actions. This change in regime provides a natural laboratory to test two propositions: (1) claims by economists that putting confidential supervisory information in the public domain will enhance market discipline and (2) claims by bank supervisors that releasing such data will spark runs.
One interesting aspect of the financial services industry is that for-profit institutions such as commercial banks compete directly with not-for-profit financial intermediaries such as credit unions. In this article, we analyze competition among banks and between banks and credit unions using a dynamic model of spatial competition.
This paper investigates how well regulator examinations predict bank failures, and how best to incorporate examination information into an econometric model of time-to-failure. We estimate proportional hazard models with time-varying covariates and find that examiner ratings help explain the failure hazard.
This paper investigates whether the services of the Federal Reserve System improved the efficiency of the system in the United States for collecting checks relative to the efficiency of the system used by banks just prior to the formation of the Federal Reserve.
Previous time series applications of qualitative response models have ignored features of the data, such as conditional heteroscedasticity, that are routinely addressed in time-series econometrics of financial data. This article addresses this issue by adding Markov-switching heteroscedasticity to a dynamic ordered probit model of discrete changes in the bank prime lending rate and estimating via the Gibbs sampler.
Over the last few decades, the co-operative banking sector in Germany has steadily increased its market share at the expense of other types of banks. This outcome is surprising from the standpoint of traditional economic thinking about co-operatives, which suggests that they are most appropriate for "backward" economies.
Based on a switching-cost model, we examine empirically the hypotheses that bank loan mark-ups are countercycical and asymmetric in their responsiveness to recessionaly and expansionary impulses. The first econometric model treats changes in the mark-up as a continuous variable. The second treats them as an ordered categorical variable due to the discrete nature of prime rate changes.
Numerous studies have found that banks exhaust scale economies at low levels of output, but most are based on the estimation of parametric cost thnctions which misrepresent bank cost. Here we avoid specification error by using nonparametric kernel regression techniques.
Central banks and private banks alike have advocated greater use of interbank netting agreements in recent years in order to reduce potential for transmitting economic shocks through interbank markets.
This paper examines the determinants of individual bank failures and acquisitions in the United States during 1984-1993. We use bank-specific information suggested by examiner CAMEL-rating categories to estimate competing-risks hazard models with time-varying covariates.
This paper models an economy in which risk-averse savers and risk-neutral entrepreneurs make investment decisions. Aggregate investment in high-yielding risky projects is maximized when risk-neutral agents bear all nondiversifiable risks.
Numerous studies have found that US commercial banks are quite inefficient, and we find that, on average, banks became more technically inefficient between 1984 and 1993. Our analysis of productivity change, however, shows that technological improvements adopted by a few banks pushed out the efficient frontier, and that, on average, commercial banks experienced productivity gains.
This article tests for asymmetry in the behavior of bank lending rates by testing the hypothesis that the prime rate responds more fully and quickly to increase than decreases in market interest rates. The econometric methodology used is better suited to the discreteness and rigidity of the prime rate than that of previous studies.
This paper recognizes two main factors that cause the capital requirement to affect the weighted average cost of capital and hence the investment behavior of banks: underpriced debt resulting from the deposit insurance and information asymmetry between managers and the stock market. For a bank enjoying a low cost of debt (deposits), an increased proportion of equity financing raises the weighted average cost of capital.
This paper uses micro-level historical data to examine the causes of bank failure. For state charactered Kansas banks during 19 10-28, time-to-failure is explicitly modeled using a proportional hazards framework.
Excess capacity, or “overbanking,” was cited by contemporaries as leading cause of bank failure during the 1920s. Many states that had high numbers of banks per capita in 1920 had high bank failure rates subsequently.
This paper studies the effects of deposit insurance on bank behavior using individual bank data from Kansas in the 1920s. Kansas banks were severely stressed by the collapse of agricultural prices in 1920 and resulting increase in farm mortgage defaults.
This article examines the contribution of government policies to the high number of bank failures in the United States during the l920s. I consider the state of Kansas, which had a system of voluntary deposit insurance and where branch banking was strictly prohibited, and find that bank failure rates were highest in counties suffering the greatest agricultural distress and where deposit insurance system membership was the highest.
The sharp increase in depository institution failures in recent years has drawn attention to the moral hazard created by under-priced deposit insurance. To identify possible reforms, researchers have begun to consider alternative deposit insurance arrangements. This paper contributes to that literature by examining the deposit insurance system of Kansas, which operated from 1909 to 1929.
In the free banking period in the United States, banks issued private banknotes without discretionary restriction of entry into banking. Previous research suggests that specific aspects of the free banking laws account for banks' difficulties, losses to noteholders, and the attendant relatively large number of banks closed.