This paper argues that the existence of bank networks is important for banks ́ reaction to monetary policy. For the example of Germany, the VAR analysis shows that following a monetary contraction small banks access the interbank market indirectly through the head institutions of their respective network organisations. The interbank flows within these networks allow small banks to access funds t...

In this paper we estimate a time-series model of excess liquidity in the Egyptian banking sector. While financial liberalization and financial stability are found to have reduced excess liquidity, these effects have been offset by an increase in the number of violent political incidents arising from conflict between radical Islamic groups and the Egyptian state. The link between political event...

The capital adequacy framework Basel II aims to promote the adoption of stronger risk management practices by the banking industry. The implementation makes validation of credit risk models more important. Lenders therefore need a validation methodology to convince their supervisors that their credit scoring models are performing well. In this paper we take up the challenge to propose and imple...

The validation of probability calibration is an inherently difficult task. We develop a testing procedure for credit-scoring models. The models comprise two components to check whether the ex-ante probabilities support the ex-post frequencies. The first component tests the level of the probability calibration under dependencies. In the long term, the number of events should equal the sum of ass...

We model two dimensions of bank globalization – bank nationality (a bank from the firm’s host nation, its home nation, or a third nation) and bank reach (a global, regional, or local bank) using a two-stage nested multinomial logit model. Our data set includes over 2,000 foreign affiliates of multinational corporations operating in 20 European nations. We find that these firms frequently use ho...

Using parametric and nonparametric procedures, we identify the apparent source of cost inefficiency in banking. Unexplained inefficiencies of 20 to 25% from earlier studies are reduced to 1 to 5% when, in addition to commonly specified cost function influences, variables reflecting the external business environment and common industry indicators of "productivity" are added. While these same pro...

In many domains, the combined opinion of a committee of experts provides better decisions than the judgment of a single expert. This paper shows how to implement a successful ensemble strategy for predicting recovery rates on defaulted debts. Using data from Moody’s Ultimate Recovery Database, it is shown that committees of models derived from the same regression method present better forecasts...

The paper analyzes the information and agency cost effects of bank equity stakes in a universal banking system where banks can also be shareholders in borrowing firms. We test the agency and signaling hypotheses explaining the bank motivations for holding equity of borrowing firms in the Spanish market and we analyze the share abnormal returns around the announcements of bank equity holdings. T...

This paper discusses the incentive conflicts that arise in banking supervision in the EU in a principal-agent framework, where the regulator is the agent and the taxpayers is the principal. The regulatory agent in addition to maintaining financial stability (the objective of the principal) may pursue private interests. Incomplete information, insufficient accountability of the agent and lack of...

Does the pre-deal geographic overlap of the subsidiaries and branches of two banks affect the probability that they merge and post-merger value creation and synergies? We compile comprehensive information on U.S. bank acquisitions from 1986 through 2014, construct several measures of network overlap, and design and implement a new identification strategy. We find that greater pre-deal network o...