Andrieș A.M., Nistor S., Ongena, S., Sprincean N. (2020) On Becoming an O-SII ('Other Systemically Important Institution') Journal of Banking & Finance, 111: 105723.
How have financial markets reacted to the disclosure of the list of Other Systemically Important Institutions by the European Banking Authority? With an event study of bank stock prices, we document that the immediate reaction of the stock market is negative, suggesting that the included financial institutions are perceived to be less profitable because they are subject to tighter regulation. However, within a few days, investors change their perception in the case of both euro-zone and noneuro-zone banks, which can be attributed to their too-big-to-fail status. CDS spreads react similarly, increasing first before decreasing almost immediately thereafter. On the day of the event, abnormal returns are more negative for banks selected using supervisory judgement and for large banks. In the long run, the market reacts more positively in the case of financial institutions selected using discretionary information and those with a lower capitalization.
Andrieș A.M., Mehdian, S., Stoica O. (2020) Gender Diversity, Banks` Performance, and Stability across Central and Eastern European Countries, Journal for East European Management Studies, 25 (3): 468 – 501
This paper investigates the impact of board diversity on the performance and risk of banks across Central and Eastern European (CEE) countries. We put an emphasis on identifying features of the board structure that could increase performance and lower the possible losses of banks. Using a unique, hand-collected dataset of 156 banks from Central and Eastern Europe during 2005-2012, we assess whether banks with more female directors or chairwoman display lower risk and higher performance. The analysis first shows that banks with a chairwoman and a higher proportion of female among the members of a bank's board record a higher level of profitability and tend to have a lower level of credit losses. Additionally, the results suggest that the higher proportion of female among members of the bank's boards, on average, the higher the bank stability during the financial crisis. Our results also reveal that the regulatory framework in the host-country affects the relationship between board gender diversity and bank performance and risk.
Andrieș A.M., Balutel D., Ihnatov I., Ursu S. (2020) The nexus between corporate governance, risk taking, and growth, PLoS ONE, 15(2): e0228371
IIn this study we assess the impact of corporate governance on the risk investment behavior of firms and its implications on firms’ growth rate. Using a sample of non-financial companies from 10 countries over a period leading to the recent global financial crisis, we documented that the corporate governance has a nonlinear (inverted U-shape) impact on the companies’ investment risk, meaning that the investment risk is increasing up to a level of corporate governance of 0.61 (as measured by our comprehensive index), while at higher levels of corporate governance the investment risk is decreasing. For the models of sales growth and assets growth it is shown that predicted investment risk has a positive effect on firms’ growth measures. Moreover, the two growth models are not moving independently and a shock to one of the growth measures (sales or assets) affects the other growth measure in the same direction. Additionally, we evaluated the effect of financial crisis on both the growth measures and the risk measure. The effect of financial crisis was captured in both measures in 2009, with higher impact on the growth of sales.
Andrieș A.M., Galașan E. (2020) Measuring financial contagion and spillover effects with a state-dependent sensitivity value-at-risk model, Risks, 8(1), 5
In this paper, we measure the size and the direction of the spillover effects among European commercial banks, with respect to their size, geographical position, income sources and systemic importance for the period from 2006 to 2016, using a state-dependent sensitivity value-at-risk model, conditioning on the state of the financial market. Low during normal times, the same shocks cause notably spillover effects during the volatile period. The results suggest a high level of interconnectedness across all the European regions, highlighting the importance of large and systemic important banks that create considerable systemic risk during the entire period. Regarding the non-interest income banks, the outcomes reveals an awareness sign concerning the spillovers spread to interest income banks.
Andrieș A.M., Nistor S., Sprincean N. (2020) The Impact of Central Bank Transparency on Systemic Risk. Evidence from Central and Eastern Europe, Research in International Business and Finance, 51: 100921
The aim of this paper is to analyze the impact of central bank transparency on systemic risk in emerging banking markets using a sample composed of 34 banks from Central and Eastern Europe for a period spanning from 2005 through 2012. Results indicate a positive and significant relationship between central bank transparency and financial institutions’ contribution to systemic risk. On the other side, increased central bank transparency significantly reduces the idiosyncratic risk of banks. The relationship is influenced by the restrictiveness of regulatory framework. We argue that a more transparent central bank is beneficial for the banking sector from a microprudential perspective. However, it may create incentives for financial institutions to engage in risky activities and through herd behavior may increase individual contribution to the risk of the banking system.
Căpraru B., Ihnatov I., Pintilie N.L. (2020) Competition and Diversification in the European Banking Sector, Research in International Business and Finance, 51: 100963
This paper provides new insights into the relationship between competition and diversification based on a sample of 1,570 commercial banks located in 28 European Union member states over the period of 2000 through 2016. The adjusted Lerner index and income diversification are the main indicators that account for bank-level competition and non-traditional activities. As robustness checks, we used Boone indicator along with diversification that was measured by the share of off-balance sheet items in total assets. We ran the estimations using multilevel analysis at country- and bank-level. Overall, competition stimulates bank diversification as financial institutions are continuously searching for additional sources of income to finance their competitive strategies. Bank performance, efficiency and R&D expenditure have positive effects on diversification. Opposite impacts characterize the market capitalization of listed domestic companies and GDP growth.
Melnic F. Juravle, D. (2020) Governance and access to finance, Review of Economic and Business Studies, 13(1): 151-168
This paper reviews the literature on institutional quality and corporate governance and it assesses the impact of the two levels of governance on firms’ access to finance. The literature sustains that both institutional quality and corporate governance are important drivers of bank lending activity and equity financing. Among the institutional quality indicators that proved to be most effective are creditor rights, transparency and contract enforcement. The corporate governance attributes that manifest important effects on firms’ financing are the board size, ownership and monitoring of managerial decisions that reduces agency costs. The legal institutional framework and firms’ corporate governance influences the level of a country’s financial development a complementary manner
Lupu D. (2019) Financial development and economic growth in Eastern Europe, Journal of Public Administration, Finance and Law , 16: 157-165
This article analyzes for two countries in Eastern Europe, Romania and Bulgaria, the impact of financial development on economic growth, for the period 1993-2019. The methodology used is Markov Switching model and the results show that financial development influences at all times, low and growth, economic growth. However, there are differences between the two countries: for Bulgaria, the regimes and amplitudes are lower, while for Romania they are higher
Andrieș A.M., Melnic F. (2019) Macroprudential policies and economic growth, Review of Economic and Business Studies, 12(1): 95 - 112
In this paper we assess the effectiveness of macroprudential policies in ensuring a sustainable contribution of the financial sector to economic growth. Our results sustain that macroprudential policies have beneficial effects on economic growth, expressed by the GDP per capita growth rate. Macroprudential policies, adopted to strengthen the resilience of the financial system and decrease the buildup of systemic risks, contribute to the economic growth by assuring a stable financial system, and, therefore, a healthier financial-macro relationship. Macroprudential policies that target financial institutions have greater impact on real economy compared with borrower-related macroprudential policies.
Nistor S. , Băluță A.S. (2019) Systemically important banks in Europe: risk, complexity and cross-jurisdictional activities, Review of Economic and Business Studies, 12(1): 163 - 182
This paper aims to investigate the effects of the assets and liabilities structure of financial institutions considered for regulatory purposes on their probability of default, across a sample of European banks that are designated as Global Systemically Important Banks (G-SIBs). Our analysis spans from 1995 to 2018. The empirical findings of a Fixed Effects panel model indicate that characteristics like size, complexity and cross jurisdictional activities have a considerable impact on banks’ distance to default. This study also finds that financial institutions with greater Capital Tier1 ratios are more likely to have a lower probability of default, a result that highlights the importance of implementing the BASEL III Capital Accord specifications.
Masca S.G., Nistor S. , Vaidean V.L. (2019) Do government arrangements matter for CEE countries’ growth? A two-piece puzzle perspective, Applied Economics Letters, DOI: 10.1080/13504851.2019.1591582
Confronted with an economic decline or slower growth rates in crisis and post-crisis periods, CEE governments have searched for new means to re-launch growth. The aim of this work is to evaluate the extent to which government arrangements sustain economic growth in CEECs. The centralized economy legacy and crisis related pressures on public budgets make this objective to be challenging. Results indicate an idiosyncratic relationship between government arrangements and economic growth in CEE countries, compared to other countries. We found that government size is the key piece of government settings in CEE. It exerts a strong negative influence upon growth by reducing total factor productivity. On the other hand, government effectiveness, in spite of its positive evolution, does not represent a relevant CEE growth determinant when considered alone. Public sector quality induces growth only when it is accompanied by a small government size. The paper presents the implications of our research and provides some policy suggestions.
Sprincean N. (2019) Early warning indicators for macrofinancial activity in Romania, Review of Economic and Business Studies, 12(1): 137 - 162
Overheating of economic and financial activities leads to macrofinancial imbalances that may disrupt financial stability, and can be detected by studying relevant indcators. In this study we developed an aggregate early warning index of macrofinancial activity for Romania over the 1998q1-2020q4 period, employing data from six categories: (i) macroeconomic risks, (ii) bank risks, (iii) activity of corporations and households, (iv) monetary and financial conditions, (v) risk appetite and (vi) external shocks. We determine the utility of these variables from two perspectives: (i) whether these indicators are able to detect overheating of macrofinancial activity in Romania in two periods characterized by systemic crises and (ii) whether these variables successfully minimize various statistical errors involved in forecasting future events. Comparing the evolution of our index with a series of indicators that measure investors’ perception of macrofinancial stability or the probability of default of Romanian economy, we note the positive correlation between these two, but our index exhibits a more pronounced early warning component, making it extremely useful in anticipating future systemic crises.
Andrieș A.M., Marcu N., Oprea F., Tofan M. (2018) Financial Infrastructure and Access to Finance for European SMEs, Sustainability, 10(10), 3400; DOI: 10.3390/su10103400
In this article we assess credit rationing across European countries by analyzing the impact of banking competition on the access to finance of firms. The importance of the financial sector in promoting the sustainable economy is recognized by the European Union, that has taken the lead in efforts to build a financial system that supports sustainable growth. However, it should be acknowledged that in highly competitive business environments, it is not easy to challenge the existing paradigms, since companies need to be profitable in addition to improving their environmental performance. Using data from European firms Survey on the Access to Finance of small- and medium-sized enterprises (SMEs), our results, using Probit regression, support the Market Power Hypothesis, outlining that more concentrated banking markets are characterized by higher levels of credit rationing. Also, our results reveal that small firms are more credit rationed compared to large firms. The analysis shows that financial constraints are stronger in the countries more affected by the financial crisis.
Andrieș A.M., Melnic F., Nistor S.. (2018) Effects of Macroprudential Policy on Systemic Risk and Bank Risk Taking, Czech Journal of Economics and Finance, 68(3): 202-244
Using an international sample of 95 banks from 21 European and North American countries spanning from 2008 to 2014, this paper assesses the effectiveness of a large set of general and housing macro-prudential policies in controlling banks’ systemic importance and risk-taking incentives. Empirical findings indicate that tightening the general capital requirements, sector specific capital buffers, along with housing countercyclical capital requirements and Debt-Service-to-Income lending criteria significantly reduce banks’ contribution to systemic risk and their individual risk-taking. A similar effect has been obtained for loosening real estate loans loss provisioning. Furthermore, the nexus between macroprudential policies and banks’ risk is shaped through several channels like bank size, the share of foreign bank assets, banking sector competition and the independence of supervisory authority.
Andrieș A.M., Copaciu A., Popa R., Vlahu R. Triggers of mortgage loan defaults: Evidence from changes in laws governing the housing market
In this paper we analyze the impact of requesting Datio in Solutiom on debtor decision to default. Datio in solutum law was introduced in 2016 and allows the borrowers to fully settle their liability by transferring to the banks the ownership right over mortgages used as collateral for loans. New regulation applies only to loans that have dwellings as collateral and were contracted by ‘consumers’. The law would apply to all existing contracts (retroactive applicability) with some restrictions. Our results reveal that permitting borrowers to default without recourse encouraged strategic behavior of debtors with negative equity and low levels of indebtedness
Andrieș A.M., Pleșcău I. The Risk-Taking Channel of Monetary Policy: Do Macroprudential Regulation and Central Bank Independence Influence the Transmission of Interest Rates?
This study focuses on the risk-taking channel of monetary policy and its interaction with a supervisory-independence channel for commercial banks from Central and Eastern Europe, during the 2005-2011 period. Our results support the existence of an inverse relationship between expansionary monetary policy and bank risk-taking, meaning that very low interest rates lead to higher bank risk-taking. Also, our results show that the tight macroprudential regulation framework mitigates the negative impact of low rates. Furthermore, we show that central bank independence exert the same beneficial effect on the bank risk-taking channel because results show a dampening effect of central bank independence on the relation between expansionary monetary policy and bank risk-taking. Moreover, our results demonstrate that the risk-taking channel of monetary policy is even stronger in times of financial crisis.
Andrieș A.M., Ongena S., Sprincean N. , Tunaru, R. Systemic risk spillovers and interconnectedness between systemically important banks
In this paper we assess the degree of interconnectedness and quantify the linkages between systemically important institutions and the system. We document an increase in interconnectedness during the crisis, especially between G-SIBs and the system. As we expected, G-SIBs are the main contributors to system wide distress being at the same time the most exposed to systemic risk. However, on average, the O-SIIs have a greater idiosyncratic risk, reiterating again the drawbacks of a micro-prudential supervision. Also, G-SIBs and the system appear to be the transmitters of return spillovers, whereas O-SIIs are the receivers of return spillovers.
Andrieș A.M., Lazăr S., Bank-specific effective tax rates under loan loss provisions. Lessons from European Union banks
The paper investigates the impact of loan loss provisions on bank-specific effective tax rates using data of 3830 banks from European Union during 2007-14. Empirical findings indicate that provisions negatively affects bank entities specific tax rates, the effect being greater for savings banks as oppose to commercial and cooperative banks. As control variables we used size, equity, fixed assets and ROA, while the specific country-year tax reforms were captured using Devereux-Griffith effective tax rates. The results prove robust to different model specifications, which suggests that provisions act systematically towards the reduction of the bank entities’ corporate tax burden. In the context of expected loss model implemented by the new IFRS 9 rules, the results are especially useful for policy makers who should act in advance in order to preserve tax money that originate from banks entities and to enforce an equitable tax system for all, while, at the same time, safeguarding the financial stability of the banking industry.
Andrieș A.M., Balutel D. The impact of national culture on systemic risk
This paper investigates the effects of national culture on systemic risk using a comprehensive dataset for the period 2000-2016. Our results reveal that between national culture and systemic risk measures exists a statistical significant and nonlinear relationship driven by the duality information found in indexes of culture but also driven by the skewness of the systemic risk measures. Moreover, using the quantile analysis we test how culture affects bank risk in period of crises and our empirical results show that during the crisis, when are recorded higher values of systemic risk, the impact of national culture is diminished. Finally, we show that systemic risk measures (MES and CoVaR) are linked via cultural values.
Andrieș A.M., Sprincean N. , Podpiera, A. Central Bank Independence and Systemic Risk
In this study we investigate the relationship between central bank independence and banks’ measures of systemic relevance. We find a robust, negative and significant impact of central bank independence on banks’ contribution and exposure, respectively, to systemic risk as well on stand-alone bank risk. These results lend support for maintaining the independence of central banks. However, the results also show that the degree of central bank independence could exacerbate the effect of a crisis on systemic risk exposure and contribution. In parallel, we find that in environments dominated by high market power, systemic risk contribution of the banks is enhanced, but the effect is reduced if the central bank acts independently. Therefore, preserving central bank independence is important for financial stability even if at times additional interaction with governments is needed.
Andrieș A.M., Sprincean N. Cyclical Behavior of Systemic Risk in the Banking Sector
This paper examines cyclical behavior of banks’ systemic risk contribution and exposure. Using data on 787 banks from OECD and European Union countries members for 2000 - 2017 period, we document that both systemic risk contribution and exposure are positively related to business cycle. Our results show that systemic risk starts to accumulate in the financial sector during periods of boom when the output gap is positive. Furthermore, during periods of robust economic growth, the level of credit tends to increase dramatically, going hand in hand with asset and property prices developments. We also find that contribution and exposure to system-wide distress move pro-cyclically during credit and house cycles, meaning that during upturns in credit and house cycles bank interconnectedness increases, but tend to fall during downturns. Additionally, the empirical analysis shows that both bank-specific and macroeconomic factors influence banks’ systemic distress. Particularly, banks` size, credit risk and inflation boost systemic risk contribution and exposure of the banks, whereas capitalization, assets and income structure and economic freedom help banks in reducing their systemic importance.
Andrieș A.M., Melnic F. The nexus between macroprudential policy and credit growth
In this paper we asses the effectiveness of macroprudential policies in controlling short term and long term credit growth. Using an sample of 414 banks located in 61 countries, our results indicate that macroprudential policies manifest a stabilizing effect on short term, reducing credit growth, while on long term tight macroprudential policies increase credit growth. Our results confirm the importance of macroprudential instruments in managing excessive credit growth. In addition, using a difference-in-difference approach, we explore if there is heterogeneity in the relationship among macroprudential policy and credit growth across different types of countries, banking systems, policy regimes and banks’ characteristics.