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1 – 10 of over 91000Patrick Ibbotson and Lucia Moran
The overall aim of the study was to gauge the perceptions of both small businesses and banks, as to the role of banks in the growth, development and success of small…
Abstract
Purpose
The overall aim of the study was to gauge the perceptions of both small businesses and banks, as to the role of banks in the growth, development and success of small entrepreneurial Northern Irish businesses.
Design/methodology/approach
The authors employed a mixed methodological approach, involving a series of focus groups and semi‐structured interviews with SMEs and staff from three leading high street banks. A follow up survey was conducted using a sample of 250 SMEs.
Findings
Evidence suggests that banks in Northern Ireland have been, and continue to be very supportive to their small business client base and have played a major role in the growth and development of many of these small entrepreneurial firms. Many SMEs felt that their local branch manager was both understanding and sympathetic to their business needs.
Research limitations/implications
The study examined the views of a relatively small sample of SMEs and bank staff. A further investigation is planned where a much larger sample will be used.
Practical implications
The findings highlight the important role played by local branch managers in the support and development of SMEs. This is particularly important given the recent adverse publicity received by banks for “over‐charging” customers and the underlying threat faced by local bank branches.
Originality/value
The paper presents a different perspective on the relationship between banks and their small business clients, indicating that it is often positive, supportive and mutually beneficial.
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Hussein A. Hassan Al‐Tamimi and Husni Charif
The purpose of this paper is to assess performance factors in the UAE commercial banks by using multiple approaches taking into consideration the effect of the bank size.
Abstract
Purpose
The purpose of this paper is to assess performance factors in the UAE commercial banks by using multiple approaches taking into consideration the effect of the bank size.
Design/methodology/approach
The UAE banking sector is divided, for the purpose of this research, into two groups: large and small based on the total assets. The last balance sheet has been used for size classification; those with total assets of AED10 billion and above are considered large banks, whereas banks with total assets less than AED10 billion are considered small banks. This classification criteria led to a sample of 15 large and 23 small banks. The number of banks included in this study is only 38 banks due to the scarcity of available information. Data for the study cover the period from 1996 to 2005.
Findings
The main findings of this study indicate that generally large banks perform better than small banks. The results partially confirmed the hypothesis that there is a positive and significant statistical difference between the small and large banks regarding bank performance indicators. Finally, the results reveal that the ratio of total equity to total assets, which reflect the importance of capital adequacy to commercial banks, is the most important performance indicator taking into account the bank size. In other words, it was the determinative factor in the classification of banks into large or small ones.
Practical implications
The paper's findings support the proposition that in an environment where banks are highly fragmented, mostly small, and are not performing well, there is a need to consolidate the operations of some of these banks. That is, small banks, and even large ones, might be better off, if they are merged into one major institution in order to reduce waste and improve efficiency.
Originality/value
The paper will be of value to UAE banks and those interested in investment in the UAE financial markets.
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Community banks continue to offer important financial services including agricultural and small-business lending as well as residential mortgage origination. Because community…
Abstract
Purpose
Community banks continue to offer important financial services including agricultural and small-business lending as well as residential mortgage origination. Because community banks’ share of available source funds may be threatened in rural markets due to competing larger banks seeking less expensive core deposits, this study examines whether large-bank competition, market share of deposits and changing market share impact the profitability of rural, small community banks.
Design/methodology/approach
Using a Heckman-type selection model to control for sample selection bias, ordinary least squares (OLS) regression analysis with time and bank fixed effects is conducted to study the drivers of profitability in small, community banks that operate exclusively in rural markets. Profit drivers for rural, small community banks of particular interest in the study are larger-bank competition, market share of deposits and year-to-year change in market share of deposits.
Findings
The research indicates that rural, small community bank profitability decreases in concurrent market share of deposits and may increase in changing market share but that the presence of a larger competitor decreases the profitability of small community banks in rural markets as larger banks compete for deposits in these markets. The paper also finds that increased Internet access in rural markets accompanies lower performance for small community banks, indicating that online banking services may threaten rural, small community banks.
Originality/value
This paper offers new findings to the literature on the performance effects of large competitors in rural banking markets. The results suggest implications for managers of rural, small community banks and offer additional knowledge about profit drivers of rural, small community banks of which regulators should be cognizant.
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Minh Le, Viet-Ngu Hoang, Clevo Wilson and Thanh Ngo
There is ample empirical evidence to show that larger banks are more efficient than smaller banks in developed countries. However, there is very little empirical evidence to show…
Abstract
Purpose
There is ample empirical evidence to show that larger banks are more efficient than smaller banks in developed countries. However, there is very little empirical evidence to show that in small developing economies, such as Vietnam, bank size is associated with increased risk, especially credit risk. This paper aim to provide empirical evidence to fill in this gap. This paper employs a slack-based directional distance function using the intermediation approach in measuring the inefficiency of banks in Vietnam during the period 2006–2015. Non-performing loans are used as an undesirable output to capture credit risk. The results show that small banks are more efficient than large banks at the mean level and across the entire distributions of inefficiency of the two groups. Input waste, output shortage and risk surplus of big banks are nearly three times higher than those of small banks. The results are robust under constant and variable returns to scale for production technologies. The study’s empirical results contribute to the ongoing debate on the merits of enlarging bank size in a small transitional economy and suggest that policy makers should pay attention to the risk and inefficiency of large banks to enhance the performance of Vietnam's banking system as a whole.
Design/methodology/approach
This paper uses the non-radial slack-based directional technology distance function developed by Färe and Grosskopf (2010) to estimate the efficiency of banks using the data envelopment analysis technique. Data for 44 commercial banks are used.
Findings
The empirical results of the paper contribute to the ongoing debate on the merits of enlarging bank size in a small transitional economy and suggest that policy makers should pay attention to the risk and inefficiency of large banks to improve the performance of Vietnam's banking system as a whole.
Originality/value
This paper extends the extant literature by examining whether efficiency is associated with size in a typical transitional developing economy. The classic Cournot model, the structure-conduct-performance and the efficiency structure hypotheses state that larger banks are more efficient than smaller banks (Bikker and Bos, 2008). Empirical studies of Berger (2003), Mester (2005), Wheelock and Wilson (2012) lend support to the statement in developed countries. However, not much empirical literature focuses on small developing economies such as Vietnam to show that bank size is associated with increased risk, especially credit risk. The study’s empirical results show that size enlargement is not positively associated with risk-adjusted efficiency. Input waste, output shortage and risk surplus of big banks are nearly three times higher than those of small banks. The results are robust under constant and variable returns to scale for production technologies.
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An established paradigm in small business lending is segmented by bank size with large banks more likely to lend to large informationally transparent firms while small banks are…
Abstract
Purpose
An established paradigm in small business lending is segmented by bank size with large banks more likely to lend to large informationally transparent firms while small banks are more likely to lend to small informationally opaque firms. In light of banking consolidation, this market segmentation can have implications for credit availability. Federal loan guarantees, such as those provided by USDA's Farm Service Agency (FSA) may reduce the risks of lending to informationally opaque firms thereby mitigating the impacts of the bank size lending paradigm. This paper aims to discuss these issues.
Design/methodology/approach
This analysis utilized a binomial logit procedure to determine if there was any empirical evidence that smaller community banks served a unique clientele of farmers when making FSA-guaranteed loans. The analysis relied on a unique data set which incorporated detailed data on farm businesses receiving FSA-guaranteed loans, loan characteristics, as well as information about the originating bank and characteristics of the local credit markets.
Findings
Results were consistent with the bank size lending paradigm with smaller banks being less likely to engage in fixed-asset lending, and more likely to serve a riskier and less established clientele when making guaranteed loans.
Research limitations/implications
Data limitations did not permit detailed analysis of banks larger than $250 million in total assets nor for consideration of non-bank lenders. An expansion by these lender groups into serving more informationally opaque borrowers could mitigate any adverse impacts arising from fewer small community banks.
Practical implications
The results suggested that Federal guarantees do not completely eliminate the relative informational advantages of large and small size banks. And, continued bank consolidation, such that there are fewer small community banks, could result in less credit availability among smaller, less creditworthy farm businesses.
Social implications
While FSA guarantees may not enhance a large banks propensity to serve informationally opaque farm borrowers, they may enhance the ability of smaller community banks to serve groups specifically targeted through FSA lending programs; the provision of credit to family farmers who, despite being creditworthy, are unable to obtain credit at reasonable rates and terms.
Originality/value
The analysis examines relationship between bank size and the use of FSA guarantees using a unique data set which incorporated information on FSA-guaranteed loans, farm financial characteristics, along with characteristics of commercial banks which participated in the FSA-guarantee program.
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Maggie Foley, Richard J. Cebula, John Downs and Xiaowei Liu
The purpose of the current study is to identify variables that, when integrated into the random effects parametric survival model, could be used to forecast the failure rate of…
Abstract
Purpose
The purpose of the current study is to identify variables that, when integrated into the random effects parametric survival model, could be used to forecast the failure rate of small banks in the USA. A bank’s income production, efficiency and costs were taken into consideration when choosing the internal components. The breakout of the financial crisis, bank regulations that affect how the banking sector operates and the federal funds rate are the primary external variables.
Design/methodology/approach
This study uses the random effects parametric survival model to investigate the causes of small bank failures in the USA from 1996 to 2019. The study identifies several characteristics that failed banks frequently display. The main indications that may help to identify the elevated risk of small bank failures include the ROA, the cost of funds, the ratio of noninterest income to assets, the ratio of loan and lease losses to assets, noninterest expenses and core capital (leverage) ratio to assets. Economic disruptions, financial market distress and industry-based regulatory redress by the government exacerbate the financial distress borne by small banks.
Findings
The study revealed that a failed bank typically demonstrates a certain number of characteristics. The key factors that might assist identify which bank would be most likely to collapse include the cost of funding earning assets, the yield on earning assets, core Capital (leverage) ratio to assets, loan and lease loss provision to assets, noninterest expense and noninterest income to assets. Additionally, when a financial crisis occurs or the government changes regulations that could raise the cost of compliance for small banks, the likelihood that a bank will fail increases.
Originality/value
Models based on survival theories are more suitable when the authors examine bank failure as a unique event that happens gradually. The authors use a random effects parametric survival model to investigate the internal and external factors that may influence prospective small bank failure. This model has been developed and used in the medicinal research field. The authors do not choose the Cox proportional hazards model because it does not work well with panel data.
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Armin Varmaz, Christian Fieberg and Jörg Prokop
This paper aims to analyze the impact of conjectural “too-big-to-fail” (TBTF) guarantees on big and small US financial institutions’ stock prices during the 2008-2009 banking…
Abstract
Purpose
This paper aims to analyze the impact of conjectural “too-big-to-fail” (TBTF) guarantees on big and small US financial institutions’ stock prices during the 2008-2009 banking crisis.
Design/methodology/approach
The paper analyzes shocks to stock market investors’ expectations of government aid to banks in distress and respective spillover effects using an event study approach. We focus on three major events in late 2008, namely, the Lehman bankruptcy, the Citigroup bailout and the first announcement of the Capital Purchase Program (CPP) by the US Government.
Findings
The authors found significant differences in market reactions to the respective events between small and large banks. For both the Lehman and the CPP event, abnormal returns on big banks’ stocks are negative, while small banks’ stocks tend to generate positive abnormal returns. In contrast, large banks strongly outperform small banks in the case of the Citigroup bailout. Results for a control group of non-financial firms indicate that this behavior may be specific to the banking industry. The authors observed significant spillover effects to both competitors and non-competitors of Lehman and Citigroup, and concluded that while the Lehman event shook the widely held belief in an implicit TBTF subsidy to large banks, the TBTF doctrine was reinstated shortly thereafter.
Originality/value
This paper shows that conjectural TBTF guarantees are priced in by equity investors. While government aid to large banks in distress may prevent negative effects on the stability of the financial system, it may also create negative externalities by putting small banks at a competitive disadvantage. The findings suggest that US and European regulators’ recent policy measures directed at establishing reliable bank resolution schemes should be a step in the right direction to level the playing field for small and large financial institutions.
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Li Ma, Junxun Dai and Xian Huang
The purpose of this paper is to analyze how the financial supervision authority utilizes the restrictions of capital constraints imposing on commercial banks the need to develop…
Abstract
Purpose
The purpose of this paper is to analyze how the financial supervision authority utilizes the restrictions of capital constraints imposing on commercial banks the need to develop the macro economy.
Design/methodology/approach
This paper uses multilateral game to deduce the loan characteristics of banks, vector and void coordinates to analyze the behavior choices of banks under capital supervision, sets up an index to describe the risk preference of banks, and analyzes the process with Chinese data empirically.
Findings
This paper finds big banks have a loan preference for big enterprises and small banks have a preference for establishing a bank syndicate to pursue large projects. Further, the paper notes the conditions by which the heterology banks choose loans across the border and proves that changes of capital requirements would force the credit structure of the commercial banks to adjust along an efficient frontier broken line or an efficient frontier plane under the conditions of interest rate regulation or interest rate marketization, respectively.
Research limitations/implications
It is very complex to describe the choices of risk behavior of banks and the simple supervision method needs to be adjusted.
Practical implications
This paper finds that banks show risk preferences of credit structure, and capital constraints would affect it greatly; regulators should guard against capital constraint softening.
Originality/value
It is the first time that the conditions of banks beyond the loan border have been studied and the behavior adjustment of banks using the vector and void coordinate analyzed.
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This paper reviews the strategic responses of successful local Chinese banks (LCBs) in the changeable Hong Kong banking sector over the past decades. Given the mixed outlook of…
Abstract
This paper reviews the strategic responses of successful local Chinese banks (LCBs) in the changeable Hong Kong banking sector over the past decades. Given the mixed outlook of the industry resulting from the handover of sovereignty, financial internationalization, and regional and domestic economic developments, this paper also discusses the benefits of using strategic alliance as a means for LCBs to meet current and future challenges. Based on case reviews, the paper demonstrates the values of strategic management concepts for small banks to cope with an externally oriented and politically uncertain operating environment.
Allen N. Berger and Philip Ostromogolsky
The purpose of this paper is to identify which small businesses are most “debt sensitive”, or most likely to be affected by banking market conditions.
Abstract
Purpose
The purpose of this paper is to identify which small businesses are most “debt sensitive”, or most likely to be affected by banking market conditions.
Design/methodology/approach
For the primary debt sensitivity categories, the paper hypothesizes that bank conditions are most likely to have significant effects on firms in size classes and industries that are “on the bubble” for credit availability (probability of credit close to 0.50), rather than those with “relatively easy” or “relatively difficult” access to credit (probability much higher or lower, respectively). The secondary classifications also require that loans fund a substantial proportion of assets for the firms in the category that have loans. These hypotheses are tested using a comprehensive data set of US small businesses by size class and industry matched with variables measuring bank market power, market structure, and efficiency in the firm's local markets.
Findings
Findings show that the data are consistent with the hypotheses, with the strongest support for the hypotheses occurring using the secondary classifications. In terms of policy implications, the findings suggest that the credit availability of small, debt‐sensitive firms may be reduced by within‐market mergers that increase concentration in rural markets, but that the more common type of recent consolidation – creating larger banks that operate in more markets – may be associated with an increase in credit availability for these sensitive firms. Such an increase in credit availability would be magnified if consolidation resulted in increased bank operating efficiency.
Originality/value
The paper offers insights into the effect of banks on “debt‐sensitive” small businesses.
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