Handbook of Financial Intermediation and Banking (eBook)
608 Seiten
Elsevier Science (Verlag)
978-0-08-055992-6 (ISBN)
* Original review articles offer valuable perspectives on research issues appearing in top journals
* Twenty articles are grouped by six major topics, together defining the leading research edge of financial intermediation
* Corporate finance researchers will find affinities in the tools, methods, and conclusions featured in these articles
The growth of financial intermediation research has yielded a host of questions that have pushed "e;design"e; issues to the fore even as the boundary between financial intermediation and corporate finance has blurred. This volume presents review articles on six major topics that are connected by information-theoretic tools and characterized by valuable perspectives and important questions for future research. Touching upon a wide range of issues pertaining to the designs of securities, institutions, trading mechanisms and markets, industry structure, and regulation, this volume will encourage bold new efforts to shape financial intermediaries in the future. - Original review articles offer valuable perspectives on research issues appearing in top journals- Twenty articles are grouped by six major topics, together defining the leading research edge of financial intermediation- Corporate finance researchers will find affinities in the tools, methods, and conclusions featured in these articles
Front Cover 1
Handbook of Financial Intermediation and Banking 4
Copyright 5
Table of Contents 6
List of Contributors 14
Preface 16
Introduction to the Series 26
Section 1: Design of Contracts and Securities 28
Chapter 1. The Design of Debt Contracts 32
1. Introduction 33
2. Debt Contracts and Costly State Verification 35
2.1. Multiperiod Contracts 38
2.2. Stochastic Monitoring 39
3. Debt Contracts and the Allocation of Control Rights 40
4. Debt Contracts and the Provision of Incentives 44
5. Debt Contracts under Asymmetric Information 45
6. The Structure of Debt Contracts 51
6.1. Seniority 51
6.2. Maturity Structure 53
6.3. Collateral 59
6.4. The Number of Creditors 61
7. Concluding Remarks 63
References 63
Chapter 2. Subordination Levels in Structured Financing 68
1. Introduction 69
2. Structured Financing and the Pooling and Tranching of Assets 70
3. CMBS Structure 71
3.1. CMBS Subordination 72
4. Research Question and Empirical Approach 73
4.1. The Deal Subordination Regression 74
4.2. The Chow Test for Structural Change 74
5. Data 75
6. Results 78
6.1. Regression Results 78
6.2. Structural Change and Chow Tests 80
7. Conclusion 85
References 86
Section 2: Market Structure and Structure of Financial Markets 88
Chapter 3. Limit Order Markets: A Survey 90
1. Introduction 91
2. Modeling Limit Orders 95
2.1. Static Equilibrium Models 98
2.2. Equilibrium Models with Static Order Choice and a Terminal Penalty 100
2.3. Dynamic Optimal Control Models for Single Agents 101
2.4. Multiperiod Equilibrium Models 101
2.5. Limit Orders and Private Information 109
3. Market Design 111
3.1. Competition and Limit Order Markets 111
3.2. Imperfect Competition 114
3.3. Dealer Markets 115
3.4. Welfare 116
3.5. Robustness 117
3.6. Transparency 117
4. Questions for Future Research 119
References 120
Section 3: Financial Intermediary Structure 124
Chapter 4. Bank Structure and Lending: What We Do and Do Not Know 134
1. Introduction 135
2. Bank Size and Lending 136
2.1. Do Large Banks Lend More Than Small? 136
2.2. Do Large Banks Lend Differently from Small Banks? 138
2.3. Bank Size, Organization Structure, and Lending 143
2.4. How Does Bank Size Affect Credit Availability? 144
3. Deposit–Lending Synergies 148
3.1. Do Deposits Make Banks Better Lenders? 148
3.2. Banks as Liquidity Providers 150
4. Conclusion 152
References 155
Chapter 5. Optimal Industrial Structure in Banking 160
1. Introduction and Motivation 161
2. Efficiency Concepts 164
3. Empirical Implementation 167
3.1. Bank Production 167
3.2. Cost Minimization 168
3.3. Profit Maximization 171
3.4. More Complicated Objectives 172
4. Measurement 175
4.1. Estimation Techniques 175
4.2. Functional Form, Variable Selection, and Variable Measurement 177
4.3. Special Issues in Banking 178
5. Empirical Findings in the Literature 180
5.1. Scale Economies 180
5.2. Scope Economies 184
5.3. X-Efficiency 185
5.4. Productivity 186
6. Conclusion 187
References 187
Chapter 6. Commercial Banks in Investment Banking 190
1. Introduction 191
2. Tradeoffs in Combining Lending and Underwriting 195
2.1. Costs of Combining Lending and Underwriting 195
2.2. Benefits of Combining Lending and Underwriting 197
2.3. Theory 198
2.4. Empirical Evidence from Debt Underwritings 198
2.5. Empirical Evidence from Equity Underwritings 202
2.6. Organizational Form of Underwriting 205
3. Competitive Effects of Commercial Bank Entry into Securities Underwriting 209
3.1. Theory 209
3.2. Empirical Evidence on Commercial Bank Entry in 1989 209
3.3. Empirical Evidence on the Financial Modernization Act of 1999 211
4. Conclusion 213
References 213
Section 4: Mutual Funds 216
Chapter 7. Performance Measurement and Evaluation 218
1. Introduction 219
2. Theoretical Benchmarks 221
2.1. Sources of Benchmarks 224
2.2. A First Pass at Performance Measurement 226
3. Performance Measurement and Market Timing 229
3.1. Alternative Models of Market Timing 232
3.2. Observable Information Signals 245
4. Performance Measurement and Attribution with Observable Portfolio Weights 247
4.1. Should Investors Hold Mutual Funds? 256
4.2. Determining the Optimal Holdings in Mutual Funds 258
5. The Cross Section of Managed Portfolio Returns 260
5.1. Inference in the Absence of Performance Ability 261
5.2. Power of Statistical Tests for Individual Funds 268
5.3. Inference for Multiple Funds 271
5.4. Empirical Specifications of Alpha Measures 274
6. Bayesian Approaches 276
6.1. Asset Mispricing and Investment in Mutual Funds 279
7. Conclusion 282
References 283
Chapter 8. The Behavior of Mutual Fund Investors 286
1. Introduction 287
2. Examining Investor Behavior Using Fund Flows 288
2.1. Estimating Mutual Fund Flows 288
2.2. The Decision to Choose Among Mutual Funds 289
2.3. Mutual Fund Flows and Aggregate Market Returns 298
3. Investment Performance of Mutual Fund Investors 299
4. Investor Externality 301
4.1. Liquidity Costs 302
4.2. Stale-Price Arbitrage 304
5. Strategies of Mutual Funds 304
6. Conclusion 307
References 307
Chapter 9. Incentives in Funds Management: A Literature Overview 312
1. Introduction 313
2. Theories of Incentives for Fund Managers and Informative Experts 314
2.1. Principal-Agent Models: Effort Choice, Delegation, and Screening 314
2.2. Optimal Contracts Based on Verifiable Portfolio Composition Choices and Returns 315
2.3. Returns-Based and Relative Performance-Based Contracts 316
2.4. Conformist Trading: The Roles of Career Concerns 319
2.5. Fund Manager Incentives and Uninformed Trading 322
2.6. General Equilibrium Implications of Fund Manager Incentives 324
3. Evidence on the Choices and Rewards of Analysts and Fund Managers 326
4. Conclusion 328
References 328
Section 5: Regulation 332
Chapter 10. Consolidation in the U.S. Banking Industry: Is the “Long, Strange Trip ”About to End? 336
1. Overview of Structural Change in the U.S. Banking Industry 1984–2003 338
1.1. Industry Size 338
1.2. Industry Concentration 342
2. Fundamental Causes of Consolidation 345
2.1. Environmental Factors 345
2.2. Microeconomic Factors in Merger Decisions 351
3. The Effects of Consolidation 352
4. Projections of Banking Industry Structure 360
4.1. Review of Previous Projections and Their Methodologies 360
4.2. New Linear Extrapolations: A Comparison with the Literature 363
4.3. Beyond Linear Extrapolations 365
5. Conclusion 368
References 370
Chapter 11. Safety, Soundness, and the Evolution of the U.S. Banking Industry 374
1. Introduction 375
2. The Evolution of the U.S. Banking Industry 376
2.1. Financial Innovation and Technological Change 377
2.2. Regulatory Reaction to Financial Innovation and Technological Change 380
2.3. Widespread Technology Adoption and Industry Transformation 380
3. A Stylized View of Banking Strategies 383
3.1. Prederegulation 385
3.2. Postderegulation 385
4. Evidence Consistent with the Strategic Map 387
5. Further Implications of Strategic Change 390
5.1. Industry Structure 390
5.2. Noninterest Income 393
5.3. Financial Performance 395
6. Is the Industry Safe and Sound Today? 396
References 398
Chapter 12. What Caused the Bank Capital Buildup of the 1990s? 402
1. Introduction 403
2. Determining a Bank’s Optimal Leverage 405
3. Rising U.S. Bank Capitalization, 1986–2001 408
3.1. The Supervisors’ Focus: Book Capital Ratios 408
3.2. Investors’ Focus: Market Capital Ratios 410
3.3. BHC Portfolio Volatility and Default Risks 411
3.4. Possible Causes of the Increased Capitalization 413
4. Regression Model 415
4.1. Lags in Adjusting Toward Target Capitalization 417
4.2. Econometric Issues 419
4.3. Data 420
5. Estimation Results 422
5.1. Decomposing the Change in BHC Capitalization 425
6. Do Higher Market Ratios Reflect Stricter Regulatory Constraints? 428
7. Robustness 431
7.1. Adjust for Possible Safety Net Subsidies in MKTRAT 432
7.2. Alternative Instrument for BHCs’ Realized Stock Return 432
7.3. Estimates for the 20 Largest Banks 432
7.4. Estimate for 80 “Next Largest” Banks 434
7.5. Excluding the Charter Value Proxy 434
8. Summary and Implications 434
References 435
Appendix 438
Chapter 13. Basel II: A Case for Recalibration 440
1. Introduction 441
2. A Review of the AIRB Capital Framework 442
2.1. Discussion 445
3. The AIRB and Financial Stability 447
4. Establishing a Sound Benchmark for Risk Measurement Practices 450
4.1. The Need for Capital for Bank Interest Expenses 450
4.2. Procyclicality of the AIRB Soundness Standard 454
4.3. Incorporating Portfolio Interest Income 455
4.4. Capital for Systematic Risk in PD and LGD 457
4.5. Random Loss Given Default and “Downturn” LGD 458
4.6. Asymptotic Portfolio Loss Distribution 459
4.7. Random Exposures at Default (EADs) 463
5. Conclusion 464
References 465
Section 6: Competition and Regulation in Banking 468
Chapter 14. Competition and Regulation in Banking 476
1. Introduction 477
2. Bank Instability and the Need of Regulation 479
2.1. Bank Fragility: Individual Runs and Systemic Crises 479
2.2. Excessive Risk Taking 484
2.3. The Need of Regulation 485
3. Competition in Banking 488
3.1. Competition Under Asymmetric Information 488
3.2. Competition and Switching Costs 490
3.3. Competition and Networks 491
4. Competition and Stability: A Positive or a Negative Link? 493
4.1. Market Structure and Financial Fragility 494
4.2. Market Structure and Risk Taking 497
5. Competition and Regulation 500
6. Conclusion 506
References 506
Chapter 15. Competition and Regulation in the Banking Sector: A Review of the Empirical Evidence on the Sources of Bank Rents 510
1. Introduction 512
2. Measuring Banking Competition 515
2.1. Traditional Industrial Organization 515
2.2. New Empirical Industrial Organization 519
3. Competition: Conduct and Strategy 526
3.1. Market Structure and Conduct 526
3.2. Market Structure and Strategy: Product Differentiation and Network Effects 536
4. Switching Costs 537
4.1. Evidence on the Existence, Magnitude, and Determinants of Switching Costs 538
4.2. Switching Costs and Conditions: Relationships as a Source of Bank Rents? 548
4.3. Market Structure and Market Presence: Bank Orientation and Specialization 554
5. Location 557
5.1. Distance Versus Borders 557
5.2. Distance and Conditions: Spatial Pricing 558
5.3. Distance and Conditions: Availability 559
5.4. Distance and Strategy: Branching 560
5.5. Borders and Conduct: Segmentation 560
5.6. Borders and Strategy: Entry and M& As
6. Regulation 564
6.1. Regulation and Market Structure 564
6.2. Regulation and Conduct 565
6.3. Regulation and Strategy 565
6.4. Regulation and Financial Stability and Development 566
7. Conclusion 567
References 569
Index 582
Introduction to Design of Contracts and Securities
Overview by Franklin Allen
University of Pennsylvania
Financial intermediaries use contracts with their customers and sell securities in financial markets. The design of the contracts they use and the securities they issue is thus of fundamental importance. The first chapter in this section, Chapter 1, by Paolo Fulghieri and Eitan Goldman, considers the design of debt contracts. The second chapter, Chapter 2, by Xudong An, Yongheng Deng, and Anthony B. Sanders, is concerned with the design of securities. In particular, it focuses on structured financing and the determination of subordination levels.
Chapter 1, Fulghieri and Goldman’s chapter, provides a nice synthesis of the literature on the design of debt contracts. The basic question in much of this literature is to determine situations where debt contracts are optimal. The authors start by considering a static one-period framework. They consider the papers that show that debt contracts are optimal if it is costly to check whether the borrower is able to make the contractual payment or not. They then go on to consider the multiperiod case and the situation where the checking can be random rather than deterministic. While the costly state verification literature focuses on the allocation of cash flows, there is also a significant literature on the allocation of control rights. Here, if the borrower cannot make the payment, the penalty is that it is no longer possible to use the assets. A third strand of the literature considers the role of debt in providing incentives for entrepreneurs to work hard and take appropriate risks. All the literature considered up to this point in the chapter assumes that the borrower has the same information as the lender. The next section focuses on what happens if the borrower has superior information. Finally, the rationale for the structure of debt contracts in terms of maturity structure, collateral, and covenants is considered.
Chapter 2, An, Deng, and Sanders’ chapter is concerned with securitization. They consider how pools of loans can be sold in tranches to help overcome the asymmetric-information problem between issuer and investor. They start with a survey of the theoretical literature on this topic. These papers are concerned with explaining why there are different levels of subordination, with senior tranches having very low levels of risk and junior tranches much higher levels. The remainder of the chapter contains an empirical analysis of the structuring of securitizations using data from commercial mortgage-backed securities (CMBS). It is found that the deal cutoff debt service coverage ratio (DSCR) and loan-to-value (LTV) ratio, the composition of property types, and the prepayment protection explain most of the cross-sectional variation in subordination levels.
A number of factors concerning the design of contracts and securities are omitted in these two chapters. The focus is almost entirely on debt. There is also a literature analyzing the rationale for equity. For example, Fluck (1998, 1999) and Myers (2000) consider why corporations should use outside equity rather than other types of security. More recently, Dittmar and Thakor (2007) provide a theory of equity issuance based on differences in beliefs. Boot, Radhakrishnan, and Thakor (2006) consider the choice between public and private equity, given a tradeoff between managerial autonomy and the cost of capital.
A significant part of the literature on equity is concerned with corporate governance issues. Grossman and Hart (1988) and Harris and Raviv (1988, 1989) were early papers considering the allocation of voting rights to shares. They were concerned with identifying circumstances where one-share–one-vote is optimal. Full accounts of this literature are given in Harris and Raviv (1991, 1992), Allen and Gale (1994), and Allen and Winton (1995).
More recent literature has focused on the optimal design of corporate charters. Bebchuk (2002) shows how the existence of asymmetric information at the time a corporate charter is structured can explain many empirical observations that are difficult to understand in standard settings with symmetric information. For example, one puzzle has been why companies going public in the United States usually include antitakeover provisions. In an asymmetric-information context, such provisions can provide a signal. Remmers (2004) shows how mutual find shares can be designed to ensure good governance of these institutions. It is somewhat surprising that there is not more literature on corporate governance and security design. It is a rich area for future research.
Another area not covered in this section is the role of security design in an international context. Shiller (1993) suggests a wide range of markets to improve risk sharing in a variety of contexts, including between countries. Geanakoplos and Kubler (2003) use a security design approach to consider whether a country’s debt should be denominated in domestic currency or U.S. dollars. Bisin and Acharya (2005) consider the role of security design in ensuring optimal risk sharing when markets are incomplete. This is also an important area for future research.
In addition to these areas of research, there are a number of interesting contributions to the security and contract design literature that take off in new directions. Garmaise (2001) considers firms that raise money in markets where investors have diverse beliefs but are rational, in the sense that they condition on available data. It is shown that in this situation the optimal design of securities is quite different from the case where there are rational expectations and differences in beliefs are due to differences in information. In particular, under rational beliefs, optimal securities maximize differences in opinion, whereas under rational expectations, they minimize them.
Noe, Rebello, and Wang (2006) consider markets where agents initially have different beliefs and then learn adaptively. In particular, agents learn optimally using genetic algorithms. It is shown that the securities that are issued in the long run in this environment have stable payoffs in most states but involve large losses in some states. This is again very different from the standard rational expectations paradigm, where optimal securities involve payoffs in a single state.
DeMarzo, Kremer, and Skryzpacz (2005) contrast informal and formal mechanisms for selling items when the means of payment is securities rather than cash. With an informal mechanism, the bidders design the securities to offer and sellers choose the most attractive. In this case, the structure of the securities can convey information and there is effectively a signaling game. In a formal mechanism, the seller commits to consider a limited menu of offers. Among other things it is shown that informal mechanisms are the lowest generators of revenue across a wide set of possible mechanisms.
In conclusion, the two chapters in this section provide an introduction to some of the issues concerned with the design of contracts and securities. Many other issues remain, and there is much research to be done in this area.
References
Allen F., Gale D. Financial Innovation and Risk Sharing. Cambridge, MA: MIT Press; 1994.
Allen F., Winton A. Corporate Finance Structure, Incentives, and Optimal Contracting. In: Jarrow R., Maksimovic V., Ziemba W. Finance. Amsterdam: North-Holland; 1995:693-717.
Bebchuk L. Asymmetric Information and the Choice of Corporate Governance Arrangements. Harvard Law and Economics Discussion Paper No. 398. 2002.
Basin A., Acharya V. Optimal Financial-Market Integration and Security Design. Journal of Business. 2005;78:2397-2433.
Boot A., Radhakrishnan G., Thakor A. The Entrepreneur’s Choice Between Private and Public Ownership. Journal of Finance. 2006;61:803-836.
DeMarzo P., Kremer I., Skryzpacz A. Bidding with Securities: Auctions and Security Design. American Economic Review. 2005;95:936-959.
Dittmar A., Thakor A. Why Do Firms Issue Equity? Journal of Finance. 2007;Vol. 62-1:1-54. February 2007
Fluck Z. Optimal Financial Contracting: Debt Versus Outside Equity. Review of Financial Studies. 1998;11:383-419.
Fluck Z. The Dynamics of the Management-Shareholder Conflict. Review of Financial Studies. 1999;12:379-404.
Garmaise M. Rational Beliefs and Security Design. Review of Financial Studies. 2001;14:1183-1213.
Geanakoplos J., Kubler F. Dollar-Denominated Debt and Optimal Security Design. Cowles Foundation Discussion Paper No. 1449. 2003.
Grossman S., Hart O. One Share-One Vote and the Market for Corporate Control. Journal of Financial...
| Erscheint lt. Verlag | 7.7.2008 |
|---|---|
| Sprache | englisch |
| Themenwelt | Recht / Steuern ► Wirtschaftsrecht |
| Wirtschaft ► Betriebswirtschaft / Management ► Finanzierung | |
| Betriebswirtschaft / Management ► Spezielle Betriebswirtschaftslehre ► Bankbetriebslehre | |
| Wirtschaft ► Volkswirtschaftslehre | |
| ISBN-10 | 0-08-055992-1 / 0080559921 |
| ISBN-13 | 978-0-08-055992-6 / 9780080559926 |
| Haben Sie eine Frage zum Produkt? |
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