Syllabus: Empirical Banking

Transcription

1 Syllabus: Empirical Banking This course is designed for PhD students and advanced master students in banking and finance. It covers major themes in empirical banking and teaches students how to define a question and conduct research using banking data. In addition, you will learn how to write a referee report and present your paper. Grading is based on a proposal using available banking data in Iran (40%), one replication of papers denoted by ** (using the same dataset but for different time interval 25%), one presentation of papers denoted by + (15%, presentation between minutes), a referee report (10%), and two homework (each 5%). For the replication part you should familiarized yourself with the different dataset, including Call Report, available in Chicago Fed website. Data from & at lete_1976_2000.cfm lete_2001_2010.cfm Codebook at The second homework will be based on Survey of Small Business Finance that can be found at: I will go over these datasets with great details. I encourage you thinking of writing one chapter of your thesis using these datasets. The proposal should include preliminary analyses, so it is necessary you start working on your proposal in the early stage of the semester. It should report couple tables of findings and an outline for the future steps. It is only called proposal since you do not need to get publishable results, otherwise it should be ready for presentation and working paper. You can replicate one of the papers taught You should write the referee report for this paper: Berger, Allen N., and Raluca A. Roman. "Did Tarp Recipients Get a Competitive Advantage? And Empirical Study on Competition Banking I recommend start reading paper and try to write up your referee as soon as possible. The grading is based on your 1

2 Session Topic Content 1 Banking Concepts Financial Intermediary 2 Banking Theory Diamond Dybvig (82), Green Lin (00) Jacklin (87) (Bank Run) 3 Transmission Mechanism Federal Reserve Introduction, Monetary Policy, Bernanke-Blinder (92) 4 Kashyap Stein (00), +Jimenes, Ongena (12) STATA and Call Report HW1 5 Relation Banking Peterson Rajan (95), +Rajan Peterson (94) 6 Brick Palia (07), +Peterson Rajan (02) HW2 7 La Porta et al. (03), +Berger Udell (95) 8 Regulation TBA 9 TBA Due Referee Report 10 TBA TBA Due Working Paper 2

3 References: Banking Concepts * Mishkin, Frederic S. The economics of money, banking, and financial markets. Pearson education, Demand for Liquidity and Liquidity Creation Banking Theory *Diamond, Douglas and Philip Dybvig (1983), Bank Runs, Deposit Insurance, and Liquidity, Journal of Political Economy 91, *Jacklin, C. (1987). Demand Deposits, Trading Restrictions, and Risk Sharing, in E. Prescott and N. Wallace, eds., Contractual Arrangements for Intertemporal Trade, University of Minnesota Press, Minneapolis, MN. Hellwig, M. "Banks, Markets, and the Allocation of Risks in an Economy", Journal of Institutional and Theoretical Economics 154 (1998), Wallace, Neil (1988), Another Attempt to Model an Illiquid Banking System: The Diamond-Dybvig Model with Sequential Service Taken Seriously, Federal Reserve Bank of Minneapolis Quarterly Review Holmstrom, B. and J. Tirole, Public and Private Supply of Liquidity, Journal of Political Economy 106 (1998), Bryant, John, A model of reserves, bank runs and deposit insurance, Journal of Banking and Finance 4 (1980): Diamond, Douglas W., (2004), Committing to Commit: Short-term Debt When Enforcement is Costly, AFA Presidential address, Journal of Finance, August Shin, Hyun Song (2008), Reflections on Modern Bank Runs: A Case Study of Northern Rock, Princeton University August Madiès, Philipp 2006, An Experimental Exploration of Self-Fulfilling Banking Panics: Their Occurrence, Persistence, and Prevention, Journal of Business. Garratt, Rod and Todd Keister, Bank runs as coordination failures: An experimental study, Journal of Economic Behavior & Organization, Volume 71, Issue 2, August 2009, Pages

4 Bank Functioning Monetary Policy & Banking Diamond, Rajan, "Money in a Theory of Banking", AER, 2006 (theory) * Bernanke, Ben S. and Blinder, Alan S. The Federal Funds Rate and the Channels of Monetary Transmission. American Economic Review, September 1992, 82(4), pp (lending channel using macro evidence) Kashyap, Stein The Impact of Monetary Policy on Bank Balance Sheets. Carnegie-Rochester Conference Series on Public Policy, June 1995, 42, pp (bank lending by size) Bernanke, Gertler, "Inside the Black Box: The Credit Channel of Monetary Policy Transmission", J.E. Perspective, 1995 (introduction of balance sheet channel) ** Kashyap, Stein What Do A Million Observations on Banks Have To Say About the Monetary Transmission Mechanism?", American Economic Review, 2000, 90(3), pp (monetary policy and liquidity of bank by size) +Jiménez, Gabriel, and Steven Ongena. "Credit supply and monetary policy: Identifying the bank balance-sheet channel with loan applications." The American Economic Review (2012): * Ongena, Steven, Jose Luis Peydro-Alcalde, and Jesús Saurina. Hazardous times for monetary policy: what do twenty-three million bank loans say about the effects of monetary policy on credit risk?. Centre for Economic Policy Research, (forthcoming) Bank Relationship + Rajan, Peterson, "The Benefits of Firm-Creditor Relationships: Evidence from small business data", 1994, JoF +Berger, Allen N., and Gregory F. Udell. "Relationship lending and lines of credit in small firm finance." Journal of Business 68.3 (1995): 351. Petersen, Mitchell A., and Raghuram G. Rajan. "The benefits of lending relationships: Evidence from small business data." The journal of finance 49.1 (1994): * Brick, Ivan E., and Darius Palia. "Evidence of jointness in the terms of relationship lending." Journal of Financial Intermediation 16.3 (2007): ** Peterson, Rajan, "The Effect of Credit Market Competition on Lending Relationship", 1995, QJE * LaPorta, Rafael, Florencio Lopez-de Silanes, and Guillermo Zamarripa, 2003, Related lending, Quarterly Journal of Economics 118,

5 Sharpe, S.A., Asymmetric information, bank lending and implicit contracts: A stylized model of customer relationships. Journal of Finance 45, Von Thadden "Asymmetric information, bank lending and implicit contracts: the winner s curse", 2004, Finance Research Letters Giovanni Dell'Ariccia "Asymmetric information and the structure of the banking industry" European Economic Review, 2001 Information and Bank Size (Theory) Stein "Information Production and Capital Allocation: Decentralized versus Hierarchical" Firms Journal of Finance, Vol. LVII, No.5 October 2002 * Berger, A. N. Miller, N. H. Petersen, M. A. Rajan, R. G. Stein, J. C., 2005, "Does function follow organizational form? Evidence from the lending practices of large and small banks" Aghion, Phillipe, and Jean Tirole, 1997, Formal and real authority in organizations, Journal of Political Economy 105, Distance Banking (Theory) Hauswald, Marquez, Competition and Strategic Information Acquisition in Credit Markets, 2006, The Review of Financial Studies, +Peterson, Rajan, "Does Distance Still Matter? The Information Revolution in Small Business Lending", 2002, JoF Mian, Distance Constraints: The Limits of Foreign Lending in Poor Economies, 2006, JoF Degryse, Ongena, "Distance, Lending Relationships, and Competition", JoF, 2005, Why Collateral (Theory) Bernanke, Gertler, Gilchrist, "The Financial Accelerator in a Quantitative Business Cycle Framework", Handbook Of Macroeconomics, 1999 Bernanke, Gertler, "Agency Cost, Net Worth, and Business Fluctuations", AER, 1989 Carlstrom C. and T. Fuerst (1997) Agency Costs, Net Worth and Business Fluctuations: A Computable General Equilibrium Analysis, American Economic Review, 87, Christiano, Lawrence, Roberto Motto and Massimo Rostagno, Financial Factors in Economic Fluctuations, Ordonez, G (2009) Larger Crises, Slower Recoveries: The Asymmetric Effects of Financial Frictions, mimeo, Yale. Chari V.V. and P. Kehoe (2009). Confronting Models of Financial Frictions with the Data, Mimeo, Minnesota. 5

6 (Theory) Besanko, David and Anjan V. Thakor Competition, Collateral, and Sorting Equilibria in the Credit Market. International Economic Review. 28(3): (Thoery) Stiglitz J. and A. Weiss (1981), Credit Rationing in Markets with Imperfect Information, American Economic Review, 71, Berger, Udell, ''Collateral, Loan Quality, and Bank Risk'', Journal of Monetary Economics,vol. 25 (January 1990), pp Allen N. Berger, W. Scott Frame, and Vasso Ioannid Reexamining the Empirical Relation between Loan Risk and Collateral: The Roles of Collateral Characteristics and Types FEDERAL RESERVE BANK of ATLANTA +Berger, Espinosa-Vega Scott Frame Nathan H. Miller Why Do Borrowers Pledge Collateral? New Empirical Evidence on the Role of Asymmetric Information Journal of Financial Intermediation 2011 Monitoring and Credit Scoring (Theory) Diamond (1991), "Monitoring and Reputation: The Choice Between Bank Loans and Directly Placed Debt", JPE (Empirical, we will skip) Gorton, He, "Bank Credit Cycles" Merger and Acquisition +Focarelli, D., Panetta, F. (2003). Are mergers beneficial to consumers? Evidence from the market for bank deposits. American Economic Review 93, Prager, R.A., Hannan, T.H. (1998). Do substantial horizontal mergers generate significant price effects? Evidence from the banking industry. Journal of Industrial Economics 46, (Substantial merging reduce the deposit interest rates, but less substantial reverse) 'The Effects of Bank Mergers and Acquisitions on Small Business Lending'' (with Anthony Saunders, Joseph M. Scalise, and Gregory F. Udell), Journal of Financial Economics, vol. 50 (November 1998), pp Branch Banking +Carlson, Mitchener "Branch Banking as a Device for Discipline: Competition and Bank Survivorship during the Great Depression'', Journal of Poltical Economy, vol. 117 (April 2009), pp Interbank Relation Rochet, J., and J. Tirole (1996a). Interbank Lending and Systemic Risk. Journal of Money, Credit, and Banking 28, (Peer Monitoring, Big to fail) Rochet, J., and J. Tirole (1996b). Controlling Risk in Payment Systems. Journal of Money, Credit, and Banking 28,

7 Freixas, X., B. Parigi, and J. Rochet (2000). Systemic Risk, Interbank Relations and Liquidity Provision by the Central Bank. Journal of Money, Credit, and Banking 32, Foreign Bank Gormley, Todd A. The Impact of Foreign Bank Entry in Emerging Markets: Evidence from India, Journal of Financial Intermediation, 19(1), 2010, pp Gormley, Todd A. Costly Information, Foreign Entry, and Credit Access",.. +Detragiache, Tressel and Gupta "Foreign Banks in Poor Countries: Theory and Evidence", JoF, 2008 Dell'Ariccia, Marques, "Lending Booms and Lending Standards" JoF, 2006 *Mian, Atif, 2006, Distance constraints: The limits of foreign lending in poor economies, Journal of Finance 61, Berger, Allen N., Leora F. Klapper, and Gregory F. Udell, 2001, The ability of banks to lend informationally opaque small businesses, Journal of Banking and Finance 25, Martin Brown, Ralph De Haas "Foreign banks and foreign currency lending in emerging Europe", 2012, Foreign Policy Secondary Market and Securitization (Theory) Chari, Shourideh, Zetlin-Jones, "Collapse of Reputation in Secondary Loan Markets" (Reputation in secondary markets) (Theory) Gorton, "The Subprime Panic" Rajan, Seru, Vig, "Statistical Default Models and Incentives", AER, 2010 Shin, Securitisation and Financial Stability Economic Journal, 119, (2009), International Banking +Victoria Ivashina, David S. Scharfstein, Jeremy C. Stein Dollar Funding and the Lending Behavior of Global Banks NBER Working Paper No Issued in November 2012 OTC (Thoery) Andrew G. Atkeson, Andrea L. Eisfeldt, Pierre-Olivier Weill The Market for OTC Derivatives NBER Working Paper No CDS Chernov, Mikhail, Alexander S. Gorbenko, and Igor Makarov. "CDs Auctions." Rev. Financ. Stud. (2013) 26(3):

8 Barth, A. and Schnabel, I. (2013), Why banks are not too big to fail evidence from the CDS market. Economic Policy, 28: Bank Regulation (History) Alejandro Komai, Gary Richardson A Brief History of Regulations Regarding Financial Markets in the United States: 1789 to 2009 (History) EFRAIM BENMELECH and TOBIAS J. MOSKOWITZ The Political Economy of Financial Regulation: Evidence from U.S. State Usury Laws in the 19th Century THE JOURNAL OF FINANCE VOL. LXV, NO. 3 JUNE 2010 (History) Matthew S. Jaremski National Banking's Role in U.S. Industrialization, NBER Working Paper No Issued in February 2013 Zombie Lending * Caballero, R; T. Hoshi and A. Kashyap (2008), Zombie Lending and Depressed Restructuring in Japan, American Economic Review, 98, (Japan on early 1990 forced banks to lend to insolvent firms/projects, which is mentioned as a cause for a decade of stagnation) On the Real Effects of Bank Bailouts: Micro Evidence from Japan Giannetti, Mariassunta; Simonov, Andrei American Economic Journal: Macroeconomics, Volume 5, Number 1, January 2013, pp (33 Joe Peek and Eric S. Rosengren Collateral Damage: Effects of the Japanese Bank Crisis on Real Activity in the United States : The American Economic Review, Vol. 90, No. 1 (Mar., 2000), pp Published Deposit Insurance (Theory) Farhi, E., M. Golosov and A. Tsyvinski (2009) A Theory of Liquidity and Regulation of Financial Intermediation, Review of Economic Studies, 76, (For consumption smoothing in a competitive market) (Theory) Allen, F and D. Gale (2004) Financial Intermediaries and Markets, Econometrica, 72, ( comes from incomplete market) Allen, F and D. Gale (2003) Reserve Regulation: In Search of a Rationale, in R. Arnott, B. Greenwald, R. Kanbur and B. Nalebuff (eds.) Economics for an Imperfect World: Essays in Honor of Joseph Stiglitz (Cambridge, MA: MIT Press) TF Hellmann, KC Murdock, JE Stiglitz, Liberalization, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough?", The American Economic Review, Vol. 90, No. 1 (Mar., 2000), pp

9 +Keeley, M. (1990). Deposit Insurance, Risk and Market Power in Banking. American Economic Review 80, Oliver D. Hart, Luigi Zingales Inefficient Provision of Liquidity Overhang Problem and Credit Easing (Central bank Policy in crisis) (Policy Paper) Kocherlakota, "Assessing resolutions of the banking crisis", 2009 (Theory) Williamson, Liquidity, Financial Intermediation, and Monetary Policy in a new monetarist model, 2011 Gorton, Metrick "Securitized Banking and the Run on Repo" Bernanke, Ben S The Crisis and the Policy Response. Speech presented as the Stamp Lecture, London School of Economics, London. Shleifer, Vishny, "Asset Fire Sales and Credit Easing", AER, 2010 Branch Deregulation * Randall S. Kroszner & Philip E. Strahan, 1999.What Drives Deregulation? Economics And Politics Of The Relaxation Of Bank Branching Restrictions, The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages , November Banking & Competition Boyd, John H., and Gianni De Nicolo. "The theory of bank risk taking and competition revisited." The Journal of finance 60.3 (2005): (Theory) Great Depression Financial Crisis Bernanke, "Non-Monetary Effects of the financial Crisis in the Propagation of the Great Depretion", AER, 1983 Itay Goldstein, Assaf Razin Review of Theories of Financial Crises NBER Working Paper No Issued in January Bernanke and James (1991), Case: the Great Depression Stability and Competitiveness (Theory) Boyd, J., and G. De Nicolo Bank Risk-Taking and Competition Revisited. Allen, Gale, "Competition and Financial Stability"Journal of Money, Credit, and Banking, Vol. 36, No. 3, June 2004, (Section 3,4) 9

10 Christopher Hanes, Paul W. Rhode Harvests and Financial Crises in Gold-Standard America NBER Working Paper No Issued in December 2012 Bubbles (Theory) Tirole J. (1982), On the Possibility of Speculation under Rational Expectations, Econometrica, 50, (Myopic REE and Heterogeneous Prior Belief and Possibility of Insurance) Allen, Morris and Shin (2006), Beauty Contests and Iterated Expectations in Asset Markets, Journal of Financial Studies, 19, Tirole, J (1985) Asset Bubbles and Overlapping Generations, Econometrica,53, Abreu, D and M. Brunnermeier (2003) Bubbles and Crashes Econometrica, 71, Harrison J. and D. Kreps, (1978), Speculative Investor Behavior in a Stock Market with Heterogeneous Expectations, Quarterly Journal of Economics, 92, Angeletos G.M. and I. Werning (2006) Crises and Prices: Information Aggregation, Multiplicity and Volatility American Economic Review, 96, Hellwig, C and G. Lorenzoni (2009), Bubbles and Self-Enforcing Debt, Econometrica, 77, Allen, F. and G. Gorton (1993), Churning Bubbles, Review of Economic Studies, 60, Panics Allen F. and D. Gale (1998), Optimal Financial Crises, Journal of Finance, Papers and Proceedings, 53, Goldstein, Pauzner, "Demand Deposit Contracts and the Probability of Bank Runs", JF, 2005 Morris, S. and H.S. Shin (2003), Global Games: Theory and Applications, EighthWorld Congress of the Econometric Society Morris, S. and H.S. Shin (1998) Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks, American Economic Review, 88, (Very nice Paper on currency crisis and not banking) Morris, S. and H.S. Shin (2000) Rethinking Multiple Equilibria in Macroeconomics, NBER Macroeconomics Annual, (See also the discussions by Andy Atkeson and Helene Rey). Gorton G. and L. Huang, (2006) Bank Panics and the Endogeneity of Central Banking, Journal of Monetary Economics, 53, Williamson, S (1988), Liquidity Banking and Bank Failures, International Economic Review, 29, Banerjee, A. (1992) A Simple Model of Herd Behavior Quarterly Journal of Economics, 107,

11 Caplin, A. and J. Leahy (1994) Business as Usual, Market Crashes, and Wisdom After the Fact, American Economic Review, 84, Chari and Jagannathan, "Banking Panics, Information and Rational Expectation Equilibrium" Journal of Finance, 88 Jacklin, Bhattacharya, (1988), "Distinguishing Panics and Information Based Banks Runs: Welfare and Policy Implications", JPE, 96, 3 (Risky Long Run Asset, Portion Receive Signals and Update Belief, If Variance of Output be High more Bank Runs) +Kaminsky, Graciela L., and Carmen M. Reinhart. "The twin crises: the causes of banking and balanceof-payments problems." American economic review (1999): Martinez Peria, Maria Soledad, and Sergio L. Schmukler. "Do depositors punish banks for bad behavior? Market discipline, deposit insurance, and banking crises." The Journal of Finance 56.3 (2001): Mark Carlson, Kris James Mitchener and Gary Richardson "Arresting Banking Panics: Federal Reserve Liquidity Provision and the Forgotten Panic of 1929" Journal of Political Economy Vol. 119, No. 5 (October 2011), pp Contagion (Interbank Relation, Self-Fulfilling and currency crisis, financial market) (Theory) Allen, F., and D. Gale (2000). Financial Contagion. Journal of Political Economy 108,1 33. Van Rijckeghem, C., and B.Weder (2000). Spillovers through Banking Centers: a Panel Data Analysis. Saez, L., and X. Shi (2004). Liquidity Pools, Risk Sharing and Financial Contagion. Journalof Financial Services Research 25, Itay Goldstein and Ady Pauzner, Contagion of Self-Fulfilling Financial Crises due to Diversification of Investment Portfolios, Journal of Economic Theory, vol. 119(1), pp , November 2004 Glick, R., and A. Rose (1999). Contagion and Trade: Why are Currency Crises Regional? In The Asian Financial Crisis: Causes, Contagion and Consequences, edited by P. Age nor, M. Miller, D. Vines, and A. Weber, chap. 9. Cambridge, UK: Cambridge University Press. +King, M., and S. Wadhwani (1990). Transmission of Volatility between Stock Markets. Review of Financial Studies 3, Kyle, A., and W. Xiong (2001). Contagion as a Wealth Effect. Journal of Finance 56, Kodres L., and M. Pritsker (2002). A Rational Expectations Model of Financial Contagion. Journal of Finance 57, Managin Risks +Kashyap, Anil K., Raghuram Rajan, and Jeremy C. Stein. "Banks as liquidity providers: An explanation for the coexistence of lending and deposit taking." The Journal of Finance 57.1 (2002):

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