Journal of Banking and Financial Economics

JBFE No 1/2014

Macroprudential Banking Regulation: Does One Size Fit All?
Doris Neuberger, Roger Rissi



The macroprudential regulatory framework of Basel III imposes the same minimum capital and liquidity requirements on all banks around the world to ensure global competitiveness of banks. Using an agent-based model of the financial system, we find that this is not a robust framework to achieve (inter)national financial stability, because efficient regulation has to embrace the economic structure and behaviour of financial market participants, which differ from country to country. Market-based financial systems do not profit from capital and liquidity regulations, but from a ban on proprietary trading (Volcker rule). In homogeneous or bank-based financial systems, the most effective regulatory policy to ensure financial stability depends on the stability measure used. Irrespective of financial system architecture, direct restrictions of banks’ investment portfolios are more effective than indirect restrictions through capital, leverage and liquidity regulations. Applying the model to the Swiss financial system, we find that increasing regulatory complexity excessively has destabilizing effects.These results highlight for the first time a necessary change in the regulatory paradigm to ensure the effectiveness and efficiency of financial regulations with regards to fostering the resilience of the financial system.

JEL classification: C63, G01, G11, G21, G28
Key words: financial stability, systemic risk, financial system, banking regulation, agent-based model
DOI: 10.7172/2353-6845.jbfe.2014.1.1

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Access to credit as a growth constraint.
Matjaž Volk, Polona Trefalt



From a sample of 75,854 Slovenian firms in the period 1995-2011, we examine the effects of a firm's access to bank credit on its growth. The results suggest that as the external financing constraint relaxes and firm gets access to credit, the reliance on internal funds to finance growth decreases. By exploring the role of available collateral in gaining access to bank credit, we find that collateral only helps larger firms to obtain credit more easily. On the other hand, collateral does not reduce micro firms' dependence on internal funds to finance growth, which suggests that even if they have collateral, banks are still unprepared to finance them, possibly due to the level of risk. It could also be that in approving credit to micro firms, other factors such as liquidity or cash flow are more highly considered by banks than the value of collateral.

JEL classification: G30, G21, C23
Key words: Financial constraints, Access to credit, Firm growth, Collateral, Dynamic panel
DOI: 10.7172/2353-6845.jbfe.2014.1.2

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Do institutional and political factors matter for the efficiency of banking sectors?
Patrycja Chodnicka, Małgorzata Olszak



This paper investigates the relevance of banking- sector- specific and macroeconomic determinants of profitability of 21 banking sectors over the years 1995-2009.  In the analysis we apply the Arellano and Bond GMM-estimator to aggregated data collected in a harmonized way by the OECD, to find out whether banking-sector-specific and macroeconomic determinants which significantly affect the efficiency of individual banks, are also of great importance to the profitability (proxied by ROA and ROE ratios) of banking sectors. Our results suggest that banking-sector-specific determinants affect the efficiency of banks in the anticipated way. Macroeconomic variables have a statistically-significant impact on both ROA and ROE. The sensitivity of efficiency to both groups of determinants depends on institutional and political criteria. 

JEL classification:  G23, G21, G34
Key words: banking sector, business cycle, risk
DOI: 10.7172/2353-6845.jbfe.2014.1.3

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Volatility Transmission between Stock and Foreign Exchange Markets: Evidence from Nigeria.
Emenike Kalu O.


The direction of volatility transmission between stock and foreign exchange markets is important for hedging strategy, portfolio management and financial market regulation. This paper examines volatility transmission between stock and foreign exchange markets by applying the multivariate GARCH model in the  BEKK framework to Nigerian stock returns and the Naira/USD exchange rate data from January 1996 to March 2013. Results of the empirical analysis show evidence of volatility clustering in both stock and foreign exchange markets. The results also show bi-directional shock transmission between stock and foreign exchange markets, suggesting that information flow in the foreign exchange market impact the stock market and vice versa. Finally, the results show evidence of a uni-directional volatility transmission from the foreign exchange market to the stock market. The implication is for investors vigilantly to monitor and dissect all information in the two markets as part of their investment strategy.

JEL classification: G11, C32 
Key words: Stock market, Foreign exchange market, Volatility transmission, BEKK-GARCH-model 
DOI: 10.7172/2353-6845.jbfe.2014.1.4

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 The Effect of the Introduction of a »Pay Per Use« Option within motor TPL insurance.
Stefan Trappl, Karl Zehetner, Robert Pichler



In this paper the effects of the introduction of the so called “pay per use” -insurance products are examined. These products collect data of kilometers driven by policy holders. As a result of this data, policy holders can get a refund on the insurance-premium paid. Since there is a positive correlation between mileage and the risk of causing an accident the refund is granted to low-mileage drivers, so in theory the “pay per use” product is more attractive to low-mileage drivers than to long-distance drivers. The authors examine empirical evidence to find out whether or not it is mainly low-mileage-drivers who choose the “pay per use” product. Secondly, the authors examine  whether there  are other significant differences between characteristics of “pay per use” policy-holders and “traditional” policy- holders. Therefore a random sample of 4,000 car-insurance - clients (2,000 “pay per use” policy- holders and 2,000 “traditional” policy-holders) is reviewed.  In addition the effects of the introduction of “pay per use” products are discussed, in case of a selection effect between low- and high -mileage drivers is observed.

JEL classification: D82, G12, G22
Key words: Insurance, Pay per Use, Pay as you Drive, Adverse Selection, Selection Effects
DOI: 10.7172/2353-6845.jbfe.2014.1.5

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