Information reusability, competition and bank asset quality

SSRN Electronic Journal

We examine the relationship between bank asset and informational quality. We use a diversified panel of 699 banks from 84 countries and measure opacity (lack of informational quality) with rating disagreements between issuer-specific ratings by three credit rating agencies (S&P, Moody's and Fitch). Results from panel ordered logit regressions show that poor asset quality increases the probability of greater credit rating disagreements. Considering that the recent regulatory frameworks require from banks to reduce the worrying levels of non-performing loans and to increase transparency in their risk-taking, our findings have important policy implications.

Emerging Markets Finance and Trade, 2014

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Policy Research Working Papers, 2013

2015

Non-performing loans (NPLs) that turn into bad debt or dead loans are a problem for Italy's banking industry. To some extent, this is unavoidable. Previously, Italian banks have given the impression that their risk controls for loans are unsuccessful because the banks own a disproportionate amount of NPLs. These banks are now paying more attention to the management of these risks. (Vaidya, 2013). "Information Technology (IT) is a critical component in creating value in banking industries. It provides decision makers with an efficient means to report information about risk, profitability and precedent conditions for loan" (Huaiqing, Mylopoulus and Liao, 2002). The purpose of this work is, through a case study, to highlight the possibility of Information System (IS) to support a new integrated process of credit monitoring to prevent the impairment of asset quality, providing increasingly reliable data, availability on demand and real-time information, and facilitating the creation of the development of global knowledge and new reporting tools, as well as integration of areas of risk and business operating processes. The findings show that the system implemented in a small Italian bank provides enough information on credit monitoring activities to improve the quality of the loans held in portfolio.

The main purpose of the article is to present the role of information in bank management, in the aspect of credit risk accompanying the bank performance. To prepare relevant risk analyses, comprehensive, reliable and up-to-date information is needed. This should be obtained from numerous sources and by means of various techniques. Sources of information can be both internal and external. Any professional information should be up-to-date, accurate, complete, unambiguous, operational and continual – and these requirements apply equally to both internal and external information.

Journal of Economics and Business, 2001

A number of studies and banking practitioners have questioned the ability of small banks to survive in a deregulated environment. We consider the hypothesis that small community banks actually have an information advantage in evaluating and monitoring loan quality. We call this the information advantage hypothesis (IAH). We evaluate four loan quality measures for a sample of all Florida banks for the period 1986 to 1996. There is no systematic evidence that loan quality is greater at small banks. Both net chargeoffs and loan loss provisions are lower at small banks in non metropolitan areas than at other banks, which is consistent with the IAH. However, other measures of loan qualitynonperforming loans and other real estate owned-are higher at small banks.

Risk Disclosure Constituents in the Banking Book and the Financial Performance, 2023

Abstract The Global Financial Crisis had a profound impact on risk management practices, prompting significant changes in risk identification, measurement, disclosure, and control on a global scale. Basel III and other relevant regulatory measures were introduced to enhance risk-based capital management frameworks and establish additional liquidity buffers to withstand internal and external shocks, prioritizing the protection of depositors in retail banking over shareholders' interests. The new risk and regulatory environment brought forth challenges that continue to evolve, including emerging risks such as ESG risk, cyber security risk, and risk model validation. The dynamic nature of the banking sector necessitates ongoing updates and day-to-day management. However, increasing capital requirements often pose challenges in generating adequate returns on capital investments as mandated by the capital framework. Empirical studies examining the profitability of banks and the impact of Basel III regulatory requirements have yielded mostly negative and inconclusive results, although some argue that efficiency gains from the new standards can positively influence financial performance. This research utilizes panel data from the top ten accounting firms, which account for over 94% of the UK banking sector assets, spanning the years 2015 to 2022. Industry data, as well as data from the World Bank and IMF, are employed to conduct descriptive analysis to assess the financial soundness of the UK banking sector within the context of the capital framework and to compare UK financial indicators with EU data. However, due to data availability constraints, the descriptive analysis is limited to the range of 2005 to 2020. The research findings support the existing knowledge that the Basel III framework has enhanced risk measurement and the financial soundness of the UK banking sector, but it has also had a detrimental impact on financial performance. Moreover, the measurement criteria of Basel III appear to be controversial, as they have led to variations among banks in their model assumptions, validation, misapplication, and misinterpretation of the Basel Framework. This underscores the need for constant regulatory updates to effectively address the ongoing challenges posed by the Basel Framework. Key Words: Banking Regulation, Basel III, Global Financial Crisis, Panel Data Analysis, Risk Management, Risk Measurement Techniques, Risk Model Validation, UK banking sector.

Journal of Banking & Finance, 1992

This study analyzes data from the US hospital industry for evidence that banks enjoy informational advantages over direct lenders. In a multivariate analysis, we find a strong positive relationship between bank loans (as a share of total borrowing) and profitability among hospitals widely perceived as linancially weak. Thus, among such hospitals, reliance on bank loans suggests the presence of hidden factors that enhance the hospital's financial standing. This supports the view that linancial intermediaries are information specialists. Banks and other financial intermediaries are commonly viewed as 'delegated monitors', performing special informational roles in capital markets. According to one such view, banks often have access to information not available to other lenders. As a result, a bank may be able to observe hidden factors that enhance a borrower's credit standing. The present study analyzes data from the hospital industry for evidence that banks provide such informational services. Two groups of hospitals, public hospitals and non-accredited hospitals, are taken as proxies for hospitals widely perceived as financially weak. We find that bank loans (as a share of total borrowing) correlate with return-on-assets among these two types of hospitals, after controlling for factors commonly observed to affect

2013

The objective of this paper is to study the determinants of credit risk in banking sector. Through the study on banking institutions on the period 2003-2011, we found that performance, audit opinion, and audit quality are the fundamental determinants of the banking credit risk level. However, information quality proxied by discretionary accruals is not related to credit risk. In the literature, we find the importance of banking regulation and its enforcement to improve market discipline, and efficient resource allocation.

Journal of Financial Economics, 2004

We assess the market microstructure properties of U.S. banking firms' equity, to determine whether they exhibit more or less evidence of asset opaqueness than similar-sized nonbanking firms. The evidence strongly indicates that large banks (traded on the NYSE) have very similar trading properties to their matched nonfinancial firms, but smaller banks (traded on NASDAQ) trade much less frequently despite having very similar spreads. We also estimate the impact of portfolio composition on a bank's market microstructure characteristics. Problem (noncurrent) loans tend to raise the frequency with which the bank's equity trades, as well as the equity's return volatility. The implications for regulatory policy and future market microstructure research are discussed. We thank Bart Danielsen and John Banko for their help in constructing the data sets for this paper, and