Essays on banking: modelling and forecasting default rates, impact of competition οn capitalization and time and cross patterns analysis of loans charge offs, recoveries and net charge offs

Abstract

The thesis focuses on the banking sector and consists of five chapters. Using data provided by the U.S. FDIC we analyze the default rates for U.S. commercial and saving banks, banking competition and its impact on banking institutions’ capitalization, and the time and cross patterns on loan charge offs, recoveries and net charge offs. In the first chapter, we model and forecast the default process of U.S. commercial banks. Based on the CAMEL taxonomy, we construct three empirical models for U.S. States banking sectors' default rates utilizing State-level aggregate data. In addition, we conduct out-of-sample predictions. In the second chapter, we extend the analysis to U.S. saving banks. Based on State-level data, we identify the CAMEL risk factors proxies which have the strongest impact on the default rate. The third chapter examines the impact of competition on bank capital ratios which is not straightforward to date, as both economic theory and empirical research are divided. By establishing two alternative models we find that across all model specifications competition is a significant determinant of banks’ capitalization, as all four proxies for market power which we employ are found statistically significant. All measures carry a positive coefficient, suggesting that there is a negative relationship between competition and capital. In addition to banks’ capitalization, asset quality constitutes another significant determinant of banking institutions’ financial soundness. As one of the metrics to assess the quality of a bank’s asset portfolio, regulators and market participants commonly use banks’ loan charge offs, recoveries and net charge offs. In this framework, the fourth and fifth chapter analyze time patterns and cross patterns for net charge offs and its two components, charge offs and loan recoveries, for all depository institutions in the U.S. banking sector for total loans and also for ten types of loans.

Η διδακτορική διατριβή επικεντρώνεται στον τραπεζικό τομέα και αποτελείται από πέντε κεφάλαια. Στα πρώτα δύο κεφάλαια πραγματοποιείται μοντελοποίηση και πρόβλεψη των ρυθμών χρεοκοπιών τραπεζών στις Ηνωμένες Πολιτείες Αμερικής με βάση τη μεθοδολογία CAMEL. Στο πρώτο κεφάλαιο, επικεντρωνόμαστε στις εμπορικές τράπεζες ενώ στο δεύτερο εξετάζουμε saving banks. Στο τρίτο κεφάλαιο εξετάζεται η επίδραση του ανταγωνισμού στην κεφαλαιοποίηση των τραπεζών, ενώ στα δύο τελευταία κεφάλαια γίνεται ανάλυση των επισφαλειών τραπεζικών δανείων στο σύνολό τους αλλά και για δέκα τύπους δανείων ξεχωριστά.