Three essays on banking

Bank;Credit Expansion;Market Discipline;Financial Constraint

Cho, Kyu Bong

关键词: Bank;    Credit Expansion;    Market Discipline;    Financial Constraint;   

Others  :  https://www.ideals.illinois.edu/bitstream/handle/2142/102429/CHO-DISSERTATION-2018.pdf?sequence=1&isAllowed=y

美国|英语

来源: The Illinois Digital Environment for Access to Learning and Scholarship

【 摘 要 】

The thesis titled “Essays on Banking” is comprised of three essays on the aspects of the effects of bank-level credit boom on bank performance and the effectiveness of market discipline in an emerging market, where I compare empirical results between small and large banks.The first essay demonstrates the effects of credit expansion on bank performance. By analyzing small and large U.S. banks over the period 1976~2013, I find evidence of over-optimistic lending by high-loan-growth banks: (i) banks with relatively high credit growth temporarily earn better returns and fewer loan losses, but eventually returns and credit soundness deteriorate in the subsequent one to three years; (ii) the degree of such deterioration is less severe for smaller banks; (iii) higher loan growth leads to higher leverage, especially for smaller banks; and (iv) the effects of loan growth on performance hold for subcategories of loans and are particularly strong for real estate loans and consumer loans. That these results are muted for smaller banks may be due to their limited sources of funding.The second essay explores whether market discipline is effective in the emerging market, especially for small banks. By examining the relationship between bank risk measures and yield spreads in subordinated debts issued by banks in South Korea, I find that the market discipline in the debt yields does not work well. Investors of the debts issued by commercial banks are more likely to be affected by bank size or economic conditions rather than by the bank risk measures. As for local small banks, although some risk factors and economic conditions, not bank size, are significantly related to yield spreads, not all results are consistent with a single theory of market discipline.The third essay investigates if the funding constraints of small banks are crucial to bank performance conditional on loan growth. The empirical findings suggest that the differences in loan growth as well as subsequent performance between small and large U.S. banks are in part driven by the financial constraints. The evidence indicates that when small banks have access to wholesale funding, their lending behavior and related bank performance become similar to large banks. In other words, if there is no financial constraint on small banks, they may be able to experience fast loan growth as large banks do.