Cazan S.A., Brexit Implications over the England Banking System – An Event Study Approach, Journal of Public Administration, Finance and Law nr. 11/2017
The UK economic and political environment has been seriously challenged this year. The most significant event was the possibility of leaving the European Union. From February 2016, when the date of the referendum has been settled, the pro and cons of this scenario have been much debated on social media. The study aims to identify the BREXIT implications over the England banking system. In order to assess whether the referendums results have influenced in a positive or negative way the investors’ behavior, we have conducted an event study on a panel of 11 financial institutions listed on the London Stock Exchange. The results have shown that in the post event window, the values of the abnormal and cumulative abnormal returns have dropped significantly, the market impact being negative. The outcome of the study has been completed by a quantitative analyses, revealing the short term implications over the banking system. Nevertheless, the BREXIT effects over the UK economy have been mostly negative, the investigation showing a decrease of the financial stability.
Books
Bogdan CĂPRARU, Marius Constantin APOSTOAIE, Sabina Andreea CAZAN, Nicoleta-Livia PINTILIE, Paula Andreea TERINTE Competition, risk taking and financial stability in banking – a literature survey, “Al. I. Cuza” University of Iaşi Publishing House, 2017, 164p. ISBN 9786067143805
Articles
Andrieș A.M., Capraru B.S., Ihnatov I., Tiwari A.K. The Relationship between Exchange Rates and Interest Rates in a Small Open Emerging Economy: The case of Romania, Economic Modelling, 2016, DOI: 10.1016/j.econmod.2016.12.025
In this study we investigate and identify the patterns of comovement of interbank interest rates and exchange rate in Romania between February 1999 and December 2014 using the cross-wavelet power, the crosswavelet coherency and the phase difference methodologies. The cross wavelet transform plots show that the relation between the interest rates and exchange rate is significant only in case of turmoil or policy change. The cross-wavelet coherency plots exhibit that at the beginning of turmoil generally the exchange rate movements take the lead for the first month, but afterwards the monetary authorities take the lead. Political events reflect, also, on the lead-lag relationship. During election years the monetary authorities are more active, in that case the interest rate leads. The alternative analysis that uses the exchange rates and the differentials of interest rate show quite similar results.
Căpraru B., Moise N., Nistor S., Petria N. Financial Stability and Concentration: Evidence from Emerging Europe, Transformations in Business & Economics, 2016, Volume 13, Issue 3C(39C), 376-395
This paper investigates the impact of banking sector concentration on financial stability, across a sample of 134 commercial banks from 17 countries of Central and Eastern Europe during the period 2007-2012. Empirical findings highlight the concentration-fragility hypothesis, indicating that a high level of concentration in the banking sector is associated with a higher probability of default among banks, especially for the smaller ones. We also show that the negative influence of concentration might be reduced through a tight supervisory framework: (i) stringent official supervisory power of the banking sector, but also, (ii) differences between host and home country in terms of supervisory power, can significantly reduce the negative impact of concentration on banks’ probability of default.
Asandului M., Cazan S.A., Căpraru B., Ihnatov I. The Impact of Bank Mergers and Acquisition over the Banks Performance and Risk Taking Behavior, Transformations in Business & Economics, 2016, Volume 13, Issue 3C(39C), 580-596
This study assesses the main implications of M&As over the bank performance and risk taking behavior using a dataset covering 156 banks from 17 countries of Central and Eastern Europe during 2005-2012. In the last years, the trend of completed M&As has risen significantly, being considerate an important instrument of growth and power on the financial markets. We found robust evidence that there is a negative impact of M&As on the profitability. The M&As are drivers for credit risk reduction, as they negatively impact on the lending growth. The credit risk taking is augmented in the post-merger period if the banks are state owned, have a weak mechanism of internal governance and are part of a banking system that confronts with supervision quality problems. The post-M&A performance is not affected by ownership or governance, but is enhanced by the lax supervision framework.
Căpraru B., Moise N., Radulescu A., The monetary policy of the National Bank of Romania in the inflation targeting era. A Taylor rule approach, Review of Economic & Business Studies, Volume VIII, Issue 2, 2015
In this paper we analyse the monetary policy of the National Bank of Romania during 2005-2015 by estimating the Taylor rule, on a quarterly basis. We determined the potential GDP by employing the Hodrick-Prescott filter, in order to distinguish between the cyclical and the structural components of the output. Then, we estimated the traditional Taylor rule function (with a classic OLS regression), but slightly modified, as to take into account the forward-looking attitude of the NBR. The results confirm the //direct correlation between the monetary policy rate and the output gap on the one hand, and the inflation differential (inflation – inflation target) on the other hand. Also, the results show us that NBR paid a higher attention to the dynamics of the inflation versus its target than to the output gap. Last, but not least, the central bank has been also sensitive to the financial stability, as reflected by the results of the incorporation of the ROBOR-EURIBOR spread in the classical Taylor rule.
Capraru B.S., Ihnatov I., Sprincean N., Changes of Executives and Ownership in a Romanian Small Bank: an Event Study Approach, EuroEconomica, Vol 35, No 1 (2016)
The aim of this paper is to study the impact of four different events on the evolution of stock prices of Banca Comercială Carpatica, using event study methodology. The series of events ended with a substantial change of the bank ownership. In determining the expected returns, we employ two different models: Market Model and Capital Asset Pricing Model (CAPM). Our results show that in three out of four events there is a significant impact of the event, both in the pre- and in the post-event days from the event window.
Capraru B.S., Ihnatov I., Sprincean N., The Effect of Major Events on Bank Share Price in Romania, The Annals of the University of Oradea Economic Sciences, Tom XXV, 1st Issue / July 2016
The aim of this paper is to investigate three main events which have influenced Banca Transilvania’s stock price movements. This paper employs the event study methodology. The expected returns are computed by using two different models: Market Model and Capital Asset Pricing Model (CAPM). Our results show that only for one event out of three the abnormal returns (ARs) were positive and statistically significant in the event day.
Terinte P., Onofrei M., Firtescu B., Internal Audit Implications on Bank Profitability. The Romanian Case, The Annals of the University of Oradea Economic Sciences, Tom XXV, 1st Issue / July 2016
The aim of this paper is to determine the implications of the internal audit on bank profitability. We have conducted a Multiple Linear Regression Model using data from 15 Romanian commercial banks. The data used in our model is for a ten years period (2003-2012) as reported by the Bureau Van Dijk database and the annual reports of the banks from our sample. The result of fixed effects (within) regression suggests that fixed model is a better choice than ordinary least squares models for estimating influence on ROAA. The results showed that independent auditors and CEO duality (as dummy variables) influence (being statistically significant and having expected sign of coefficients) bank profitability regarding the commercial banks in Romania in the analyzed period of time.
Terinte P., Content Analysis of CEO Statement and Auditor`s Recommendation: A Case Study of Banca Transilvania, Journal of Public Administration, Finance and Law, Issue 9/2016
The aim of this paper is to determine if recommendations of auditors are implemented by the management and are described in the CEO statements and if they have the same purpose, namely, extending the performance of the bank. The study provides important information on the quality of audit performed in Romania of a bank that is an independent bank holding the majority Romanian stake and investigates the relationship between internal audit and the bank`s management. We conducted a content analysis of 6 annual independent auditors` reports and 5 annual CEO statements of Banca Transilvania using emergent coding. For our analysis, we retrieved data from the Annual Reports of Banca Transilvania for the period between 2008 and 2013. The results were significant; the management of the bank takes into consideration auditors' recommendations and implements them, which validates our research question. After implementing the recommendations of auditors in 2009 and 2010, CEO statements present positive financial results of the bank. The study found out that the analysed reports have a very specific structure.
Căpraru B., Pintilie L.N., Competition and market power in the Romanian banking sector, Acta Universitatis Danubius. Œconomica, Vol 13, No 2 (2017)
The current paper analyses the competition degree among Romanian banks during 2005-2015. We determine the bank-level competition for loans and deposits using efficiency-adjusted Lerner index, while Boone indicator shows how competitive these two markets are. Marginal costs (MC) are estimated with a Fourier flexible form cost function with two bank products, that generate the largest portion of revenues, (i.e. loans and deposits) and three input prices (i.e. labour, funds and physical capital). We use DFA for efficiency-improved Lerner index and Generalized Method of Moments with one-, two- or three-year lagged values of marginal costs as instrumental variables for Boone indicator. The results are compared to the values of HHI and C5, provided by European Central Bank. Overall, bank competition in Romania improves as a direct result of decreasing market power and concentration. On the loan market, we can notice that starting with 2014 banks have changed their behaviour by focusing more on optimizing their portfolios through a complex process of balance sheet cleaning, instead of acquiring additional market share and be more competitive.
Andrieș A.M., Capraru B.S., Nistor S., Corporate Governance and Efficiency in Banking: Evidence from Emerging Economies
This paper investigates the impact of corporate governance on bank efficiency, across a sample of 139 commercial banks from 17 countries of Central and Eastern Europe during the period 2005-2012. The empirical findings indicate that implementing a rigorous corporate governance structures are associated with higher costs for banks and a lower level of efficiency. But, during the crisis a tight governance mechanism significantly increases banks’ cost and technical efficiencies. Also, tight risk management is associated with both higher cost and technical efficiency for more capitalized banks, while rigid supervisory boards are linked with higher technical efficiency for more capitalized banks.
Andrieș A.M., Căpraru B., Nistor S., Minguez Vera A., Gender diversity and bank efficiency across Eastern European banking systems
This paper investigates the impact of gender on bank efficiency, across a sample of 130 commercial banks from 17 countries of Central and Eastern Europe during the period 2005-2012. Empirical findings indicate that banks which chairman of board of directors or supervisory board is a female are associated with lower efficiency scores. But, during banking crisis banks with females in the position of chairman of managing board present a significantly higher level of efficiency than the others. Also, in countries with rigorous supervisor power regulations, high shares of women among members of bank's board and bank's managing board increase banks’ technical and cost efficiencies.
Stoica O., Căpraru B., Ihnatov I., The impact of reforms on Commonwealth of Independent States’ (CIS) banking profitability
In this paper we assess the impact of reforms on bank profitability for 10 banking systems from CIS (except Russia) or former CIS members- Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Turkmenistan, Tajikistan, Ukraine and Uzbekistan. We also include Georgia in assess because of the similarities of its economy with other CIS members, taking into account its roots from the former URSS and its membership in CIS for sixteen years. We use as proxy for bank profitability two ratios: the return on average equity (ROAE), computed as a ratio of the net profit to average equity and the return on average assets (ROAA), computed as a ratio of the net profit to the bank’s average assets. In order to measure the reforms of the banking sector, we use two proxies – financial freedom index and index of banking sector reform. Financial freedom is a measure of banking efficiency as well as a measure of independence from government control and interference in the financial sector. The source for this variable is Heritage Foundation Database. The index of banking sector reform summarizes the progress made in the establishment of banks solvency, prudential supervision, banking competition and interest rate liberalization and is computed by EBRD. The estimations show that Financial freedom and Banking sector reform indicators have a strong statistical significance and negatively impact the bank profitability. This could be explained by the fact that reforms increased competition with the consequence of diminishing profit margins and abnormal returns. However, the Regulatory quality indicator had no statistical significance, meaning that the laws are not enforced, even though most CIS countries have capital market and creditor rights legislation that is comparable with the European Union standards. Our secondary result is that business model has a negative significant impact on ROAE, while management efficiency negatively influences both ROAA and ROAE.
Andrieș A.M. Căpraru B., Pintilie L.N., Competition and risk in EU28 banking systems
The current paper provides new insights on the relationship between competition and risk-taking in the banking sectors of European Union (28 states) during 2000-2015, taking into account the impact of business environment and financial regulations. The risk indicators refer not only to credit risk (Z-index and NPL ratio), but also to the exposures to changes in liquidity (liquid assets to total assets ratio) and capital (total asset-to-capital ratio). Lerner index, Boone indicator and Herfindahl-Hirschman index represent the relevant measures of competitiveness. The methodology consists in two-step difference and system General Method of Moments and it is preferred since it solves endogeneity and heteroscedasticity issues. The difference-in-differences technique helps identifying the mechanisms through which competition influences the risk. Given the different subsamples under review (new vs old members of EU, OECD vs non-OECD states, Eurozone vs non-Eurozone countries, analysis based on country classification by income level and region) and the various indexes that account for competition and risk, mixed results are expected.
Asandului, M., Lupu D., Effectiveness of Monetary Policy in Romania
Effectiveness of monetary policy at macroeconomic level involves studying the Taylor relationship: interest rate changes lead to changes in actual and estimated inflation rate as well as actual and potential GDP. This article studies the effectiveness of monetary policy in Romania, between 1995 Q1-2015Q4, using ARDL methodology. Results show that monetary policy has been adaptive in the past 20 years; over the years the rate cut led to lower inflation and reductions in GDP, monetary policy having less efficiency than expectancies
Căpraru B., Pintilie L.N., Measuring competition in the European Union banking sector
The current paper provides new insights on the competition level in the banking sectors of European Union countries (28 states) during 2005-2015, taking into account the impact of financial crisis. The sample consists in commercial, cooperative and saving banks, as the study focuses on the financial institutions that involve in traditional activities. Bank-level adjusted Lerner index and Boone indicator measure the degree of competition, given three main outputs of the financial entities: loans, deposits and securities. Marginal costs result from solving a Fourier equation evaluated at the mean of the data being used for estimation. Given the different subsamples under review (new vs old members of EU, OECD vs non-OECD states, Eurozone vs non-Eurozone countries, analysis based on country classification by income level) and the various indexes that account for competition, mixed results are expected. Overall, the banks included in the sample are very competitive. Given the external macroeconomic conditions, the level of competition varies across time. As for bank specialisation, commercial and cooperative banks display the highest competitiveness degree. Non-OECD, upper-middle income and Eurozone states have more competitive banking sectors comparing to their counterparts.