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Over the last decade, foreign currency indebtedness in Hungary has become a systemic financial problem, and its crippling impact on the real economy has been aggravated by its significant constraints on economic policy. In international comparative terms, however, there are certain specific features relating to Hungary which make this issue particularly problematic, and during the financial crisis both exchange rates and interest rates were important factors in increasing the burden on individual households. We present here a case study whereby our research focuses on the causes and determining factors of the pricing of Swiss franc-denominated mortgage loans. Our empirical exercise examines four potential price shocks which might have affected the pricing decisions of credit institutions: foreign currency interest rates, the country risk premiums (measured by Credit Default Swap (CDS) spread), the deteriorating quality of the loan portfolio and the taxes levied on banks. The questions which arise concern the relationship of these costs to the changes in interest rates and the extent to which these cost shocks were passed on by banks to their clients. Empirical evidence based on Vector Error Correction Model (VECM) shows a significant long-run relationship between cost factors and CHF denominated mortgage loans interest rates — with a reasonable sign and magnitude of parameters, but also with moderate forecasting power. Finding a tractable solution to the foreign currency debt trap is only possible if a fair distribution of burdens is achieved, and this should be supported by empirical facts. At the end of the day, all three affected parties (debtors, banks, and the Hungarian State) had made their contribution, but how fair and reasonable the distribution was remains an open issue for further research.

Changes in consumers’ awareness of interest rates (deposits and loans) are important for making financial decisions, particularly in the banking industry. However, little is known about the effect of consumer awareness on customer orientation and loyalty. The purpose of this paper is to examine how changes in consumers’ awareness of interest rates in Korea can influence customer loyalty, considering banks’ efforts to improve customer orientation. The authors explicitly rationalize the fact that consumers’ awareness of interest rates can play an important role in moderating the strength of the relationship between customer orientation and loyalty.

The data were collected from participants (n=327) who had made banking transactions based on their real income in Seoul. Participants mainly focused on personal loans and debts, and most people had banked with a specific bank (one of the main Korean banks) for longer than three years. The authors tested the effect of interest rates using two methodologies, namely, a field study using SEM and an experimental design.

The study tested these relationships with survey data and two simulated experiments. The findings indicated that the influence of customer orientation on customer loyalty decreased with the increase in loan interest rate awareness. Moreover, the customer orientation-loyalty link weakened with the increase in awareness of central bank base rates. Conversely, the awareness that loan rates were decreasing strengthened the relationship.

Banks need to know the importance of periodic consultation services with valuable consumers who transact with one or more banks because changes in the consumer awareness of interest rates influence customer loyalty (or switching behavior), particularly when their awareness of loan interest rates increases.

This paper is, to the best of the authors’ knowledge, the first to investigate the consequence of such a change in consumers’ awareness of both deposit and loan interest rates with regard to the relationship between customer orientation and loyalty.

The purpose of this paper is to examine how specific macroeconomic indicators and conditions impact short- and long-run loan delinquency rates among US commercial banks under various economic episodes.

The study employs an autoregressive distributed lag framework (ARDL) and error correction model in its examination of how loan delinquency rates are impacted by specific macroeconomic variables and conditions.

This study finds that in both the short and long run, a percentage growth in macroeconomic indicators, such as industrial productivity and private domestic investments, reduces loan delinquency rates among commercial banks, given all things being equal. Additionally, this study also finds that adverse macroeconomic conditions, such as inflation, economic policy uncertainty and volatility, associated with specific macroeconomic variables, such as investment growth, etc., tend to worsen loan delinquency rates. Empirical results further suggest that among the various macroeconomic conditions examined, inflationary pressures tend to have the most significant heightening impact on loan delinquency rates among commercial banks.

The uniqueness of this study, compared to similar studies found in the literature, has to do with its verification of potential association between loan delinquency rates and specific hitherto unexamined macroeconomic conditions. Compared to similar studies on loan delinquency, this study collectively examines how conditions of uncertainty, volatility and expectations of macroeconomic conditions shape loan delinquency rates among commercial banks.

Regional rates of return in the United States differed widely following the Civil War and some differences persisted until well after World War II. Our understanding of the evolution of short-term interest rates is based primarily on portfolio rates of return estimated from bank accounting data. This paper uses new national bank loan rate series for 1887–1975 to present a revised view of the evolution of regional short-term interest rates. Two findings are of particular interest. The organization of the Federal Reserve System was accompanied by significant convergence in regional bank loan rates. Rates in the postbellum South were lower than previously thought.

Over the past two decades, institutions that make microloans to low-income borrowers in developing and transition economies have focused increasingly on making their lending operations financially sustainable by charging interest rates that are high enough to cover all their costs. They argue that doing so will best ensure the permanence and expansion of the services they provide. Sustainable (i.e., profitable) microfinance providers can continue to serve their clients without needing ongoing infusions of subsidies and can fund exponential growth of services for new clients by tapping commercial sources, including deposits from the public.

The purpose of this paper is to analyze the effect of political instability on rural credit in Lima between 1835 and 1865. In particular, it explores the effects of wars on interest rates for the agricultural sector.

The paper relies on primary sources for the study of the early credit market of Lima. In particular, the study relies on a sample of more than 800 notarized loans for 1835–1865, collected from the National Archives of Peru, to determine the effect of wars on the cost of credit.

The evidence shows that wars increased interest rates on rural loans and that the impact of wars on the cost of credit was greater when the State lacked fiscal resources. Political instability made funding more costly for landlords and farmers, especially in the late 1830s and early 1840s.

This paper is one of the few historical studies on the role of wars on rural credit in Latin America. It contributes to our understanding of the linkages between political instability and financial development.

The transmission of monetary policy rates to lending rates is viewed as a crucial path of monetary policy. As an integral part of the financial system and the recent financial crisis, securitized assets have the potential to affect the interest rate pass-through process and monetary policy effectiveness. This paper aims to investigate the influence of securitization on the transmission of policy rate changes to lending rates and how rate transmission has changed since the recent financial crisis. Emphasis is placed on differences among the mortgage, consumer credit and business loan securitization markets and between agency and private-label securitization transactions.

The empirical framework is an error-correction model augmented to directly measure the influence of securitization. Monetary policy effectiveness is measured by the size and speed of transmitted policy rate changes to lending rates. An efficiency measure of relative adjustment accounts for differences in the size of long-run responses across loan markets and changes in efficiency from securitization within loan markets.

The size and speed of interest rate pass-through tend to increase with securitization. Liquidity, capital relief and funding from securitization help to make lending rates more responsive. Increases in pass-through with securitization are less in the consumer credit and business loan markets after the recent financial crisis relative to before the crisis. In contrast, mortgage markets tend to have larger pass-through after the financial crisis. Differences in rate transmission after the recent financial crisis point to the role on nonbanks in consumer credit and business loans and asset purchase programs of the Federal Reserve in mortgage markets. Securitization tends to make the adjustment process more efficient, and gains in efficiency from securitization are larger after the financial crisis.

A key contribution of the study differentiates securitization across markets and types to determine the effects on the interest rate pass-through process. The results show that increases in the efficiency of the adjustment process from securitization tend to be greater in mortgage markets and for all private-label securitized assets. These findings have implications for proposed government-sponsored entity (GSE) reform to reduce the role of GSEs in the housing market, promote private-label mortgage credit and strengthen securitization deals.

If banks solve an inter-temporal problem under adverse selection and moral hazard, then bank specific factors, regulatory and supervisory features, market structure, and macroeconomic factors can be expected to affect banks’ loan interest rates and their spread over deposit interest rates. To examine interest rate pass-through for Indian banks in a period following extensive financial reform, after controlling for all these factors, we estimate the determinants of commercial banks’ loan pricing decisions, using the dynamic panel data methodology with annual data for a sample of 33 banks over the period 1996–2012. Results show commercial banks consider several factors apart from the policy rate. This limits policy pass-through. More competition reduces policy pass-through by decreasing the loan rate as well as spreads. If managerial efficiency is high then an increase in competition increases the policy pass-through and the vice-versa. Reform has had mixed effects, while managerial inefficiency raised rates and spreads, product diversification reduced both. Costs of deposits are passed on to loan rates. Regulatory requirements raise loan rates and spreads.

This chapter investigates a shock transmission path between a home country (a country where globalized banks’ headquarters are located) and a host country (Indonesia as the emerging market) through the lending channel of global banks’ local branches (i.e., the internal transfer channel). Using novel data of monthly individual foreign bank’s balance sheet in Indonesia, the author finds the evidence that shocks to a parent bank and a home economy are transmitted to a host economy through the foreign banks’ internal capital market. With the Indonesia banks’ capital injections and their difficulty in financing dollar funds without risk premiums since the 1998s crisis, the foreign banks’ dollar lending in Indonesia is a good showcase of internal capital markets. A change in a home stock market index and industrial production appears to have a negative effect on growth rates in foreign currency loans of foreign banks in the host market. On the other hand, high growth rates in the parent bank’s stock price in the home market lead to an increase in foreign banks’ US dollar lending in the host country. This effect does not appear in local currency lending because limited hedging instruments against foreign exchange risk results in immobility of bank capital in the local currency.