Credit Crunch Caused by Bank Failures and Self-Selection Behavior in Lending Markets

Minamihashi, Naoaki

doi:10.1111/j.1538-4616.2010.00368.x

Cited by 13 publications

(9 citation statements)

References 30 publications

(37 reference statements)

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“…They find that poorly capitalized banks do not increase loans when the Federal Reserve pursues an expansionary policy. Peek and Rosengren (2000), Calomiris and Mason (2003), Ashcraft (2005), Minamihashi (2011), andDell'Ariccia, Detragiache, andRanjan (2008) show that banking crises reduce real economic activity. Peek and Rosengren demonstrate the impact of loan supply on the real economy.…”

Section: Literaturementioning

confidence: 99%

The U.S. Treasury's Capital Purchase Program: Treasury's Selectivity and Market Returns Across Weak and Healthy Banks

Carow

Salotti

2014

J of Financial Research

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We evaluate firms that voluntarily participated in the Treasury's Capital Purchase Plan (CPP), focusing on the market impact of their decision to participate. For healthy firms, abnormal stock returns are negative. For weak firms, CPP was a cheap source of funding, as demonstrated by their significant positive returns. Despite gains for weak firms, not all were permitted to participate. The Treasury made funding available to institutions with low levels of capital only if they also had better performing loan portfolios. Providing further evidence of the Treasury's selectivity, weak firms not participating in the CPP had significantly lower long‐term returns than did weak firms that participated.

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Section: Literaturementioning

confidence: 99%

The U.S. Treasury's Capital Purchase Program: Treasury's Selectivity and Market Returns Across Weak and Healthy Banks

Carow

Salotti

2014

J of Financial Research

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“…3, we only partially control the financial stability of correspondent financial institutions with the credit rating, which is one of the covariates we control. Some studies have argued that financial distress of banks reduces their client firms' investments (e.g., Gibson 1995;Minamihashi 2011). Thus, there is a possibility that the financial health of correspondent financial institutions affects firm bankruptcy.…”

Section: Robustness Checksmentioning

confidence: 99%

Banking relationship numbers and new business bankruptcies

Ogane

2015

Small Bus Econ

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This paper examines the effect of the number of correspondent financial institutions for small and medium-sized enterprises (SMEs) at the first settlement of accounts on subsequent firm bankruptcy risk using survival models. We use a unique firm-level data set of 2667 unlisted SMEs incorporated in Japan between April 2003 and December 2009. Moreover, in the nature of the analysis, we focus on firms that transact with at least one financial institution and disclose information about profit at the first settlement. We find that more correspondent financial institutions for SMEs at the first settlement increase subsequent firm bankruptcy risk. Furthermore, we check the robustness of this result with the method of instrumental variables (IV methods) and obtain similar results; in other words, the risk of firm bankruptcy increases with the number of correspondent financial institutions.Keywords Correspondent financial institutions Á Multiple bank relationships Á Bankruptcy Á Small and medium-sized enterprises

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“…Bank failure consequences can be financial, economic, and social or even political (Okeahalam,[19]). Additionally, Minamihashi [20] postulate that bank failure affects client firms of failed banks since they cannot borrow from the failed banks causing them to suffer from a credit crunch something that may stagnate the activities of such clients. Müller and Trümpler [21] opine that failure of banks precede a significant drop in output and an upsurge of unemployment.…”

Section: Bank Failurementioning

confidence: 99%

“…Daley, Matthews and Whitfield [4] contend that bank failure includes closure, bankruptcy, supervised merger, or direct government assistance. Minamihashi [5] consider a bank to be a failure if it suspends issuance of new loans or credit to its clients. According to Bennett and Unal [6] liquidity, undercapitalization, safety, soundness, and fraud are some of the causes of bank failure.…”

Section: Introductionmentioning

confidence: 99%

The Relationship between Liquidity Risk and Failure of Commercial Banks in Kenya

Fredrick¹,

Jeremiah²,

Onsomu³

2018

ujaf

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This study sought to establish the relationship between liquidity risk and failure of commercial banks in Kenya in the years 2013 to 2016. Additionally, the study endeavoured to establish the effect of capital adequacy, asset quality, management quality, earnings, sensitivity to market and size on the failure of banks in Kenya. To achieve this goal, secondary data was collected from the websites of operational banks while data for failed banks was collected from reports published by the central bank of Kenya, corroborated with publications in past years newspapers. Panel logit regression was used to analyze the data using Eviews 9.5 student version. The results of the regression revealed that there was a positive and significant relationship between liquidity risk and bank failure, implying that liquidity increased the likelihood of failure. The study also found a positive and significant relationship between bank failure and asset quality and earnings indicating that they increased the likelihood of failure. The study found a negative and significant relationship between bank failure and management quality and sensitivity to market implying that they decreased the likelihood of bank failure. Capital adequacy and bank size were found to have insignificant relationship with the failure of commercial banks in Kenya. These findings are valuable to managers in understanding how the variables of the study increase or decrease the likelihood of failure so that they may come up with appropriate strategies for managing the various risks facing their banks

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Credit Crunch Caused by Bank Failures and Self-Selection Behavior in Lending Markets

Cited by 13 publications

References 30 publications

The U.S. Treasury's Capital Purchase Program: Treasury's Selectivity and Market Returns Across Weak and Healthy Banks

The U.S. Treasury's Capital Purchase Program: Treasury's Selectivity and Market Returns Across Weak and Healthy Banks

Banking relationship numbers and new business bankruptcies

The Relationship between Liquidity Risk and Failure of Commercial Banks in Kenya

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