We analyse the development of foreign bank penetration in Central and Eastern Europe (CEE) and it... more We analyse the development of foreign bank penetration in Central and Eastern Europe (CEE) and its influence on the stability of bank credit. We measure both cross-border credit and activities of foreign bank subsidiaries within CEE. By combining BIS statistics and BankScope data into a unique database we are able to make a clear distinction between these two kinds of activities. Our analysis shows that the relative importance of foreign bank subsidiaries in CEE has increased considerably during recent years. However, in Estonia, Hungary and Poland foreign banks were also important during the first transition years, as they provided substantial amounts of cross-border credit. We do not find evidence of foreign banks deserting CEE, e.g. during adverse economic times. Although cross-border credit did decrease during some periods, our results show that foreign banks acquired new local subsidiaries or expanded the credit supply of existing subsidiaries at the same time.
We study how information sharing between banks influences the geographical clustering of branches... more We study how information sharing between banks influences the geographical clustering of branches. We construct a spatial oligopoly model with price competition that explains why bank branches cluster and how the introduction of information sharing impacts clustering. Dynamic data on 59,333 branches operated by 676 banks in 22 countries between 1995 and 2012 allow us to test the hypotheses derived from this model. Consistent with our model, we find that information sharing spurs banks to open branches in localities that are new to them but that are already relatively well served by other banks. Information sharing also allows firms to borrow from more distant banks.
We use an RCT to analyze the impact of microcredit on poverty reduction, child and teenage labour... more We use an RCT to analyze the impact of microcredit on poverty reduction, child and teenage labour supply, and education in Bosnia and Herzegovina. The study population consists of loan applicants that regular screening would have marginally rejected. Access to credit allowed borrowers to start and expand small-scale businesses. Households that already had a business and where the borrower had more education, ran down savings, presumably to complement the loan and achieve the minimum investment amount. However, in less-educated households consumption went down. A key new finding is a substantial increase in the labor supply of children aged 16-19 year old together with a reduction in their school attendance, raising important questions about the unintended intergenerational consequences of relaxing liquidity constraints for self-employment and business creation or expansion.
We survey non-executive directors in emerging markets to obtain detailed information about the in... more We survey non-executive directors in emerging markets to obtain detailed information about the inner workings of corporate boards across a variety of institutional settings. We document substantial variation in the structure and conduct of boards as well as in directors’ perceptions about the local legal environment. Further analysis indicates that directors who feel adequately empowered by local legislation are less likely to actively vote against board proposals. They also form boards that play a stronger role in the company’s strategic decision-making. This suggests that a supportive legal environment allows directors to focus more on their advisory, as opposed to their monitoring, role.
This article explores several recent developments in the hedge funds industry and the way supervi... more This article explores several recent developments in the hedge funds industry and the way supervisory authorities have responded.
We examine the strategic reaction of banks to the current global financial crisis. In particular,... more We examine the strategic reaction of banks to the current global financial crisis. In particular, we test whether banks predominantly react by diversifying their loan portfolio or by stepping up their screening and monitoring. To this end we analyze information on nearly 17,000 syndicated loans that were granted to private borrowers in 60 countries over the period 2005-2008. We exploit the variation in lender and borrower characteristics to examine whether banks’ risk-mitigating strategies differ across borrower types. Our results show that during a financial crisis arranging banks retain larger portions of loans and form more concentrated syndicates, reflecting an increased need to screen and monitor borrowers. During a crisis, agency problems are attenuated in syndicates that lend to repeat borrowers and that are composed by experienced arrangers.
We interview 361 European bank CEOs to identify their banks’ main competitors. We then provide ev... more We interview 361 European bank CEOs to identify their banks’ main competitors. We then provide evidence on the drivers of bilateral bank competition, construct a novel competition measure at the locality level, and assess how well it explains variation in firms’ credit constraints. We find that banks identify another bank as a main competitor in small-business lending when their branch networks overlap, when both are foreign owned or relationship oriented, or when the potential competitor has fewer hierarchical layers. Intense bilateral bank competition increases local credit constraints, especially for small firms, as competition may impede the formation of lending relationships.
This article reviews the origin and spread of the distressed debt problem in the transition regio... more This article reviews the origin and spread of the distressed debt problem in the transition region. We argue that while the crisis was triggered abroad, the current high level of distressed debt in various transition countries mainly reflects home-grown vulnerabilities. As in the West, the root causes of the debt problem were abundant and cheap funding and a gradual relaxation of banks’ lending standards – in particular an excessive reliance on rising real estate values. We document a strong positive relationship between pre-crisis house price increases, house price collapses during the crisis and subsequent increases in non-performing loans (NPLs). Policy options to deal with distressed debt range from decentralised approaches in which banks restructure NPLs on a case-by-case basis to more centralised options, such as a “London approach”, bad banks, or asset management companies. Centralised options may be called for if case-by-case debt restructuring is suboptimal from a system-wi...
We collect information about multinational banks’ i nternal capital markets from interviews with ... more We collect information about multinational banks’ i nternal capital markets from interviews with over 400 bank CEOs across emerging Europe. Usi ng these unique data, we document substantial variation in how banks financially mana ge foreign subsidiaries and then assess how this variation affected local credit growth dur ing the Great Recession. We show that subsidiaries grew faster if the parent bank set exp licit growth targets; supported these targets with relatively cheap funding; and was less involved in local risk management. We then combine our data with firm-level information about credit constraints during the crisis. In line with our bank-level evidence, we find that in local ities where foreign banks received cheap parent funding, firms were less credit constrained. These results point to the importance of banks’ business models—over and above funding struc ture—as a determinant of crisis transmission in integrated banking markets. JEL codes : F36, F65, G21, G32
This paper explores how bank characteristics and the institutional environment influence the comp... more This paper explores how bank characteristics and the institutional environment influence the composition of banks’ loan portfolios. Using a new data set based on the recent EBRD Banking Environment and Performance Survey (BEPS), which was conducted in 2005 for 220 banks in 20 transition countries, we show that bank characteristics such as ownership and size are important determinants of bank customer focus. In particular, we find that foreign banks are relatively strongly involved in mortgage lending and lending to subsidiaries of foreign companies, while lending relatively less to large domestic firms. We also find that small banks lend relatively more to SMEs than large banks do, while large banks appear to have a comparative advantage in lending to large customers. We do not find much evidence for the hypothesis that better legal credit protection changes bank portfolio composition. An exception is that banks that perceive pledge and mortgage laws to be of high quality focus more...
We implement a lab-in-the-field experiment with 334 Turkish loan officers to test for the presenc... more We implement a lab-in-the-field experiment with 334 Turkish loan officers to test for the presence, and learn about the mechanisms, of gender discrimination in small business lending. Each officer reviews multiple real-life loan applications in which we randomize the applicant's gender. While provisional approval rates are the same for male and female applicants, we detect a more subtle form of discrimination. Loan officers are 30 percent more likely to make approval conditional on the presence of a guarantor when we present an application as coming from a female instead of a male entrepreneur. This discrimination is concentrated among young, inexperienced, and gender-biased loan officers. Discrimination is also most pronounced for loans that performed well in real life, making it costly to the bank.
We examine whether the global financial crisis has prompted banks to tighten lending standards. B... more We examine whether the global financial crisis has prompted banks to tighten lending standards. By analyzing nearly 31,000 syndicated loans to private borrowers in 65 countries over the period 2005-2009, we find that banks not only cut lending during a crisis but also increase their screening and monitoring. Lending standards are tightened in particular for uncollateralized loans, loans to first-time borrowers, and financial-sector borrowers in developed countries. While in developed countries screening and monitoring increases less for loans to rated borrowers and for loans structured by well-known arrangers, we show that the attenuating impact of credit ratings and arranger reputation does not extend to emerging markets.
We merge data on spatial variation in the presence of convicts across eighteenth and nineteenth c... more We merge data on spatial variation in the presence of convicts across eighteenth and nineteenth century Australia with results from the country's 2017 poll on same-sex marriage and with household survey data. These combined data allow us to identify the lasting impact of convict colonization on social norms about marriage. We find that in areas with higher historical convict concentrations, more Australians recently voted in favor of same-sex marriage and hold liberal views about marriage more generally. Our results highlight how founder populations can have lasting effects on locally held social norms.
We study theoretically and empirically the demand for microcredit under different liability arran... more We study theoretically and empirically the demand for microcredit under different liability arrangements and risk environments. A theoretical model shows that the demand for joint-liability loans can exceed that for individual-liability loans when risk-averse borrowers value their long-term relationship with the lender. Joint liability then offers a way to diversify risk and reduce the chance of losing access to future loans. We also show that the demand for loans depends negatively on the riskiness of projects. Using data from a randomised controlled trial in Mongolia we find that these model predictions hold true empirically. In particular, we use innovative data on subjective risk perceptions to show that expected project risk negatively affects the demand for loans. In line with an insurance role of joint-liability contracts, this effect is muted in villages where joint-liability loans are available.
We analyse the development of foreign bank penetration in Central and Eastern Europe (CEE) and it... more We analyse the development of foreign bank penetration in Central and Eastern Europe (CEE) and its influence on the stability of bank credit. We measure both cross-border credit and activities of foreign bank subsidiaries within CEE. By combining BIS statistics and BankScope data into a unique database we are able to make a clear distinction between these two kinds of activities. Our analysis shows that the relative importance of foreign bank subsidiaries in CEE has increased considerably during recent years. However, in Estonia, Hungary and Poland foreign banks were also important during the first transition years, as they provided substantial amounts of cross-border credit. We do not find evidence of foreign banks deserting CEE, e.g. during adverse economic times. Although cross-border credit did decrease during some periods, our results show that foreign banks acquired new local subsidiaries or expanded the credit supply of existing subsidiaries at the same time.
We study how information sharing between banks influences the geographical clustering of branches... more We study how information sharing between banks influences the geographical clustering of branches. We construct a spatial oligopoly model with price competition that explains why bank branches cluster and how the introduction of information sharing impacts clustering. Dynamic data on 59,333 branches operated by 676 banks in 22 countries between 1995 and 2012 allow us to test the hypotheses derived from this model. Consistent with our model, we find that information sharing spurs banks to open branches in localities that are new to them but that are already relatively well served by other banks. Information sharing also allows firms to borrow from more distant banks.
We use an RCT to analyze the impact of microcredit on poverty reduction, child and teenage labour... more We use an RCT to analyze the impact of microcredit on poverty reduction, child and teenage labour supply, and education in Bosnia and Herzegovina. The study population consists of loan applicants that regular screening would have marginally rejected. Access to credit allowed borrowers to start and expand small-scale businesses. Households that already had a business and where the borrower had more education, ran down savings, presumably to complement the loan and achieve the minimum investment amount. However, in less-educated households consumption went down. A key new finding is a substantial increase in the labor supply of children aged 16-19 year old together with a reduction in their school attendance, raising important questions about the unintended intergenerational consequences of relaxing liquidity constraints for self-employment and business creation or expansion.
We survey non-executive directors in emerging markets to obtain detailed information about the in... more We survey non-executive directors in emerging markets to obtain detailed information about the inner workings of corporate boards across a variety of institutional settings. We document substantial variation in the structure and conduct of boards as well as in directors’ perceptions about the local legal environment. Further analysis indicates that directors who feel adequately empowered by local legislation are less likely to actively vote against board proposals. They also form boards that play a stronger role in the company’s strategic decision-making. This suggests that a supportive legal environment allows directors to focus more on their advisory, as opposed to their monitoring, role.
This article explores several recent developments in the hedge funds industry and the way supervi... more This article explores several recent developments in the hedge funds industry and the way supervisory authorities have responded.
We examine the strategic reaction of banks to the current global financial crisis. In particular,... more We examine the strategic reaction of banks to the current global financial crisis. In particular, we test whether banks predominantly react by diversifying their loan portfolio or by stepping up their screening and monitoring. To this end we analyze information on nearly 17,000 syndicated loans that were granted to private borrowers in 60 countries over the period 2005-2008. We exploit the variation in lender and borrower characteristics to examine whether banks’ risk-mitigating strategies differ across borrower types. Our results show that during a financial crisis arranging banks retain larger portions of loans and form more concentrated syndicates, reflecting an increased need to screen and monitor borrowers. During a crisis, agency problems are attenuated in syndicates that lend to repeat borrowers and that are composed by experienced arrangers.
We interview 361 European bank CEOs to identify their banks’ main competitors. We then provide ev... more We interview 361 European bank CEOs to identify their banks’ main competitors. We then provide evidence on the drivers of bilateral bank competition, construct a novel competition measure at the locality level, and assess how well it explains variation in firms’ credit constraints. We find that banks identify another bank as a main competitor in small-business lending when their branch networks overlap, when both are foreign owned or relationship oriented, or when the potential competitor has fewer hierarchical layers. Intense bilateral bank competition increases local credit constraints, especially for small firms, as competition may impede the formation of lending relationships.
This article reviews the origin and spread of the distressed debt problem in the transition regio... more This article reviews the origin and spread of the distressed debt problem in the transition region. We argue that while the crisis was triggered abroad, the current high level of distressed debt in various transition countries mainly reflects home-grown vulnerabilities. As in the West, the root causes of the debt problem were abundant and cheap funding and a gradual relaxation of banks’ lending standards – in particular an excessive reliance on rising real estate values. We document a strong positive relationship between pre-crisis house price increases, house price collapses during the crisis and subsequent increases in non-performing loans (NPLs). Policy options to deal with distressed debt range from decentralised approaches in which banks restructure NPLs on a case-by-case basis to more centralised options, such as a “London approach”, bad banks, or asset management companies. Centralised options may be called for if case-by-case debt restructuring is suboptimal from a system-wi...
We collect information about multinational banks’ i nternal capital markets from interviews with ... more We collect information about multinational banks’ i nternal capital markets from interviews with over 400 bank CEOs across emerging Europe. Usi ng these unique data, we document substantial variation in how banks financially mana ge foreign subsidiaries and then assess how this variation affected local credit growth dur ing the Great Recession. We show that subsidiaries grew faster if the parent bank set exp licit growth targets; supported these targets with relatively cheap funding; and was less involved in local risk management. We then combine our data with firm-level information about credit constraints during the crisis. In line with our bank-level evidence, we find that in local ities where foreign banks received cheap parent funding, firms were less credit constrained. These results point to the importance of banks’ business models—over and above funding struc ture—as a determinant of crisis transmission in integrated banking markets. JEL codes : F36, F65, G21, G32
This paper explores how bank characteristics and the institutional environment influence the comp... more This paper explores how bank characteristics and the institutional environment influence the composition of banks’ loan portfolios. Using a new data set based on the recent EBRD Banking Environment and Performance Survey (BEPS), which was conducted in 2005 for 220 banks in 20 transition countries, we show that bank characteristics such as ownership and size are important determinants of bank customer focus. In particular, we find that foreign banks are relatively strongly involved in mortgage lending and lending to subsidiaries of foreign companies, while lending relatively less to large domestic firms. We also find that small banks lend relatively more to SMEs than large banks do, while large banks appear to have a comparative advantage in lending to large customers. We do not find much evidence for the hypothesis that better legal credit protection changes bank portfolio composition. An exception is that banks that perceive pledge and mortgage laws to be of high quality focus more...
We implement a lab-in-the-field experiment with 334 Turkish loan officers to test for the presenc... more We implement a lab-in-the-field experiment with 334 Turkish loan officers to test for the presence, and learn about the mechanisms, of gender discrimination in small business lending. Each officer reviews multiple real-life loan applications in which we randomize the applicant's gender. While provisional approval rates are the same for male and female applicants, we detect a more subtle form of discrimination. Loan officers are 30 percent more likely to make approval conditional on the presence of a guarantor when we present an application as coming from a female instead of a male entrepreneur. This discrimination is concentrated among young, inexperienced, and gender-biased loan officers. Discrimination is also most pronounced for loans that performed well in real life, making it costly to the bank.
We examine whether the global financial crisis has prompted banks to tighten lending standards. B... more We examine whether the global financial crisis has prompted banks to tighten lending standards. By analyzing nearly 31,000 syndicated loans to private borrowers in 65 countries over the period 2005-2009, we find that banks not only cut lending during a crisis but also increase their screening and monitoring. Lending standards are tightened in particular for uncollateralized loans, loans to first-time borrowers, and financial-sector borrowers in developed countries. While in developed countries screening and monitoring increases less for loans to rated borrowers and for loans structured by well-known arrangers, we show that the attenuating impact of credit ratings and arranger reputation does not extend to emerging markets.
We merge data on spatial variation in the presence of convicts across eighteenth and nineteenth c... more We merge data on spatial variation in the presence of convicts across eighteenth and nineteenth century Australia with results from the country's 2017 poll on same-sex marriage and with household survey data. These combined data allow us to identify the lasting impact of convict colonization on social norms about marriage. We find that in areas with higher historical convict concentrations, more Australians recently voted in favor of same-sex marriage and hold liberal views about marriage more generally. Our results highlight how founder populations can have lasting effects on locally held social norms.
We study theoretically and empirically the demand for microcredit under different liability arran... more We study theoretically and empirically the demand for microcredit under different liability arrangements and risk environments. A theoretical model shows that the demand for joint-liability loans can exceed that for individual-liability loans when risk-averse borrowers value their long-term relationship with the lender. Joint liability then offers a way to diversify risk and reduce the chance of losing access to future loans. We also show that the demand for loans depends negatively on the riskiness of projects. Using data from a randomised controlled trial in Mongolia we find that these model predictions hold true empirically. In particular, we use innovative data on subjective risk perceptions to show that expected project risk negatively affects the demand for loans. In line with an insurance role of joint-liability contracts, this effect is muted in villages where joint-liability loans are available.
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Papers by Ralph De Haas