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Appleton, Nathan, -- 1779-1861 -- Examination of the banking system of Massachusetts --- Banks and banking -- Massachusetts

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The objective of this master's thesis is to study and assess the impact of the Covid-19 crisis on the stability of the Belgian banking system.
To do so, the method implemented by Reinders et al. (2020) measuring the estimated additional losses in the portfolio of European banks is applied at the Belgian level. This model allows to evaluate the amount of losses of banks in their corporate loan portfolio by determining the changes in the probability of these companies to be in default. To estimate these changes in default probability a Black and Scholes (1973) and Merton (1974) model is used to measure the impact of an asset valuation shock in the value of the equity and the debt of a firm.
The model developed allow us to calculate changes in the probability of default for the 111 publicly traded firms in the sample based on their stock market data responses between March 17, 2020, when the crisis peaked, and June 30, 2021, when data was last available. Once the change in probability of default obtained we were able to compute the potential losses in Belgian banks corporate loans portfolio by multiplying this change of the probability of default to the exposure at default of the banking sector as well as the loss given default.
Our findings point to a few key conclusions. The first is that at the peak of the Covid-19 crisis, losses in banks' corporate loan portfolios were substantial, ranging from 7.45 percent to 37.66 percent of total corporate loan exposures according to various scenarios resulting from the pandemic's impact on both equity volatility and loss given default. The second is that the stability of the Belgian banking sector appears to have been established, as well as the efficacy of monetary and fiscal assistance measures. Indeed, compared to the peak of the crisis, additional predicted losses as of June 30, 2020 have been considerably decreased to represent only a small fraction of total corporate loan exposures.
As a result, this analysis gives an estimate of the banks' potential losses and allows them to be evaluated for solvency. The approach described here may be useful for bank supervisory organizations to assess the impact of the Covid-19 shock for the business sector reflected on banks' balance sheets and take appropriate measures to ensure financial stability while keeping credit available to real-economy actors.

Financial Stability --- Banking system --- Covid-19 --- Merton Model --- Black & Scholes Model --- Sciences économiques & de gestion > Finance

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This paper studies loan conditions in a context where private banks can operate in two credit markets: a free-market with no government intervention and an earmarked market that relies on government funds and where interest rates are regulated. The paper examines the effects of earmarked lending on the spreads of free-market loans using a rich loan-level dataset on all Brazilian firms between 2005 and 2016. The evidence suggests that private banks strategically channel earmarked credit to firms that are ex ante more difficult to lock-in in the free-market-larger firms in more contested regions. The paper highlights a novel channel whereby earmarked credit is used by private banks to extract more rents. Once a firm receives an earmarked credit from its bank, its interest rates on new loans in the free-market increase while the loan volume remains mostly unaffected.

Access to Finance --- Banking System --- Directed Lending --- Finance and Financial Sector Development --- Financial Regulation and Supervision --- Government Intervention --- Market Power --- Pricing Strategy --- Public Sector Development

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China is often mentioned as a counterexample to the findings in the finance and growth literature since, despite the weaknesses in its banking system, it is one of the fastest growing economies in the world. The fast growth of Chinese private sector firms is taken as evidence that it is alternative financing and governance mechanisms that support China's growth. This paper takes a closer look at firm financing patterns and growth using a database of 2,400 Chinese firms. The authors find that a relatively small percentage of firms in the sample utilize formal bank finance with a much greater reliance on informal sources. However, the results suggest that despite its weaknesses, financing from the formal financial system is associated with faster firm growth, whereas fund raising from alternative channels is not. Using a selection model, the authors find no evidence that these results arise because of the selection of firms that have access to the formal financial system. Although firms report bank corruption, there is no evidence that it significantly affects the allocation of credit or the performance of firms that receive the credit. The findings suggest that the role of reputation and relationship based financing and governance mechanisms in financing the fastest growing firms in China is likely to be overestimated.

Access to Finance --- Alternative Financing --- Banking System --- Bankruptcy and Resolution of Financial Distress --- Banks and Banking Reform --- Corruption --- Debt Markets --- Finance and Financial Sector Development --- Financial Development --- Financial System --- Financial Systems --- Formal Bank --- Formal Financial Institutions --- Informal Finance --- International Bank

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Deteriorating public finances around the world raise doubts about countries' abilities to bail out their largest banks. For an international sample of banks, this paper investigates the impact of government indebtedness and deficits on bank stock prices and credit default swap spreads. Overall, bank stock prices reflect a negative capitalization of government debt and they respond negatively to deficits. The authors present evidence that in 2008 systemically large banks saw a reduction in their market valuation in countries running large fiscal deficits. Furthermore, the change in bank credit default swap spreads in 2008 relative to 2007 reflects countries' deterioration of public deficits. The results of the analysis suggest that some systemically important banks can increase their value by downsizing or splitting up, as they have become too big to save, potentially reversing the trend to ever larger banks. The paper also documents that a smaller proportion of banks are systemically important - relative to gross domestic product - in 2008 than in the two previous years, which could reflect private incentives to downsize.

Access to Finance --- Bank failures --- Bank mergers --- Bank risk --- Bank size --- Banking crises --- Banking system --- Banking systems --- Bankruptcy and Resolution of Financial Distress --- Banks --- Banks & Banking Reform --- Capitalization --- CDS --- Debt --- Debt Markets --- Deficits --- Deposit insurance --- Economic Theory & Research --- European central bank --- Finance and Financial Sector Development --- Financial safety nets --- Fiscal deficits --- Government finance --- Macroeconomics and Economic Growth --- Profitability --- Small banks --- Taxation