Weekly Research Rundown – June 7 2019

Weekly Research Rundown – June 7 2019

Does Scale Matter in Community Bank Performance? Evidence Obtained by Applying Several New Measures of Performance

Concerns about small business access to credit are widespread among politicians, regulators, industry participants and academics. This paper aims to address the issue of bank size with respect to relationship lending. The authors find that while small community banks (those of assets less than $1 billion) might offer more valuable investment opportunities, large community banks and mid-size banks achieve better financial performance, have lower average operating costs and exhibit more efficient lending.

Read More: http://www.sas.rutgers.edu/virtual/snde/wp/2019-01.pdf


The Anatomy of the Transmission of Macroprudential Policies

Using supervisory loan level and house price data in Ireland, the authors of this paper aim to analyze the effect of macroprudential policies on mortgage credit, housing prices and the allocation of bank capital. By looking at the implementation of loan-to-income and loan-to-value limits, the authors find that credit shifts from low- to high-income borrowers and from high- to low-house appreciation areas. Interestingly, this means that macroprudential tools can help banks cool down housing markets. In addition, banks more affected by the limits shift credit towards securities holdings and corporate credit business.

Read More: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3388963


The Regulation of Private Money

The National Bureau of Economic Research published a report that takes a broad view of the definition of money, stating that short-term debt can be considered private money as agents issue debt under the promise of paying it back in the short term. This type of debt is inherently vulnerable to runs and at the root of the problem of a financial crisis. This essay discusses how bank regulation can either chose to impose high-quality collateral to back short-term debt or offer government guarantees. Explicit and implicit limitations on entry into banking can create an incentive for banks to abide by regulations and not take excessive risk.

Read More: https://www.nber.org/papers/w25891?utm_campaign=ntwh&utm_medium=email&utm_source=ntwg10


Steering Consumers to Affiliated Financial Services: Evidence from Brokered Housing Transactions

Does steering exist in the housing market? The authors of this report use artificial intelligence to try and identify this practice in housing transactions. They find that over 16% of homes for sale had constraints that required buyers to be cross-qualified by an affiliated lender increasing the cost by $5,600 or 3.7% for the average house. They find evidence that steering also seems to reduce access to credit to African Americans, Hispanics and women.

Read More: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3365347