Essays on the banking sector: capital, structure, productivity and bank restructuring

Abstract

[eng] This dissertation thesis analyzes the determinants of the capital ratio of banks and also the dynamics of the leverage ratio, exploring the driving forces of the issuance of debt and capital instruments. My thesis contributes to shed light on how certain decisions of banks during the years prior the crisis generated latent risks in their liability side that were revealed with the outburst of the crisis, and on the implications of the restructuring for the banking system in terms of productivity, concentration and profitability. This dissertation can be divided in three well-differentiated chapters. The first two chapters focus on the years before the crisis, and the last chapter analyzes the changes in the banking sector after the crisis. Chapter 1 explores how banks choose the composition of regulatory capital, and whether different structure of regulatory capital might entangle different risks of the bank. The target is to analyze whether banks fulfill their regulatory obligations using a combination of financial instruments that do not minimize the capacity to absorb losses, but that respond to other incentives such as the minimization of financing costs. Using data of Spanish banks during the period 1998-2007, we provide evidence that the increasing weight of hybrid capital can be read as a leveraging process within the regulatory capital, since there is an increment of the debt-like instruments with respect to the common capital that responds to the same determinants than the standard leverage ratio. The second Chapter of this thesis analyzes the same problem from a dynamic perspective, focusing on the issuances of financial instruments and empirically testing a set of hypotheses on the decisions to issue different types of financial instruments. This Chapter analyzes the financing choices of banks under capital regulation during the expansion period that preceded the crisis using data from Dealogic on the issuances of financial instruments of Spanish banks to test whether financing choices respond to predictions derived from the corporate finance theory and/or to capital regulation. We find that banks financed their exponential growth with debt instruments and covered the additional regulatory capital requirements from higher risk-weighted assets with the issuance of hybrid instruments. We also find that banks choose the financial instruments that minimize asymmetric information costs. Finally, Chapter 3 of this thesis is focused on the consequences of the crisis on banks from the point of view of productivity and the effect on bank restructuring. This Chapter analyzes the effects of banking productivity on the evolution of interest rates and on the exit of banks from the Spanish banking sector during the years 2007-2015. Using a theoretical framework of competition with heterogeneity in operating costs, we propose a set of hypotheses which are tested using empirical models. The results show that the productivity of the banking industry had a moderate growth of 2% during the period analyzed, that improvements in the efficiency of the banks are transferred to a decrease in loans’ interest rates and bank fees, and that a context of low interest rates does not necessarily imply a reduction in the intermediation margin because the banks can compensate the negative margins of the deposits with an increase in the differential of their loans with respect to the interbank interest rate. The study also shows that the most productive banks could have taken advantage of the restructuring process to expand their branch network in markets where they have a low presence through the absorption of less productive banks.

[eng] This dissertation thesis analyzes the determinants of the capital ratio of banks and also the dynamics of the leverage ratio, exploring the driving forces of the issuance of debt and capital instruments. My thesis contributes to shed light on how certain decisions of banks during the years prior the crisis generated latent risks in their liability side that were revealed with the outburst of the crisis, and on the implications of the restructuring for the banking system in terms of productivity, concentration and profitability. This dissertation can be divided in three well-differentiated chapters. The first two chapters focus on the years before the crisis, and the last chapter analyzes the changes in the banking sector after the crisis. Chapter 1 explores how banks choose the composition of regulatory capital, and whether different structure of regulatory capital might entangle different risks of the bank. The target is to analyze whether banks fulfill their regulatory obligations using a combination of financial instruments that do not minimize the capacity to absorb losses, but that respond to other incentives such as the minimization of financing costs. Using data of Spanish banks during the period 1998-2007, we provide evidence that the increasing weight of hybrid capital can be read as a leveraging process within the regulatory capital, since there is an increment of the debt-like instruments with respect to the common capital that responds to the same determinants than the standard leverage ratio. The second Chapter of this thesis analyzes the same problem from a dynamic perspective, focusing on the issuances of financial instruments and empirically testing a set of hypotheses on the decisions to issue different types of financial instruments. This Chapter analyzes the financing choices of banks under capital regulation during the expansion period that preceded the crisis using data from Dealogic on the issuances of financial instruments of Spanish banks to test whether financing choices respond to predictions derived from the corporate finance theory and/or to capital regulation. We find that banks financed their exponential growth with debt instruments and covered the additional regulatory capital requirements from higher risk-weighted assets with the issuance of hybrid instruments. We also find that banks choose the financial instruments that minimize asymmetric information costs. Finally, Chapter 3 of this thesis is focused on the consequences of the crisis on banks from the point of view of productivity and the effect on bank restructuring. This Chapter analyzes the effects of banking productivity on the evolution of interest rates and on the exit of banks from the Spanish banking sector during the years 2007-2015. Using a theoretical framework of competition with heterogeneity in operating costs, we propose a set of hypotheses which are tested using empirical models. The results show that the productivity of the banking industry had a moderate growth of 2% during the period analyzed, that improvements in the efficiency of the banks are transferred to a decrease in loans’ interest rates and bank fees, and that a context of low interest rates does not necessarily imply a reduction in the intermediation margin because the banks can compensate the negative margins of the deposits with an increase in the differential of their loans with respect to the interbank interest rate. The study also shows that the most productive banks could have taken advantage of the restructuring process to expand their branch network in markets where they have a low presence through the absorption of less productive banks.

[cat] Aquesta tesi analitza els determinants de la ràtio de capital dels bancs així com la dinàmica de la ràtio d'endeutament, explorant els elements que determinen l'emissió de deute i els instruments de capital. La meva tesi contribueix a comprendre com certes decisions dels bancs durant els anys previs a la crisi van generar riscos latents en el seu passiu que es van revelar amb l'esclat de la crisi, i sobre les implicacions de la reestructuració per al sistema bancari en termes de productivitat, concentració i rendibilitat. Aquesta tesi es pot dividir en tres capítols ben diferenciats. Els dos primers, se centren en els anys previs a la crisi mentre que l'últim capítol analitza els canvis en el sector bancari posteriors a la crisi. El Capítol 1 se centra en els determinants de les estructures de capital dels bancs considerant l'existència de la regulació de capital. L'objectiu és analitzar si els bancs compleixen amb els requeriments regulatoris mitjançant una combinació d'instruments financers que no minimitzen la capacitat d'absorbir pèrdues, sinó que responen a altres incentius, com la minimització dels costos de finançament. Utilitzant dades del sistema bancari espanyol durant el període 1998-2007, aportem evidència que el pes creixent del capital híbrid pot interpretar-se com un procés de palanquejament dins el capital regulatori, ja que hi ha un increment dels instruments de característiques típiques als instruments de deute en relació al capital que respon als mateixos determinants que la ràtio de palanquejament estàndard. El segon capítol d'aquesta tesi analitza el mateix problema des d'una perspectiva dinàmica, centrant-se en les emissions d'instruments financers i contrastant empíricament un conjunt d'hipòtesis sobre les decisions d'emetre diferents tipus d'instruments financers. Aquest capítol analitza les eleccions de finançament dels bancs subjectes a la regulació de capital durant el període d'expansió que va precedir a la crisi utilitzant dades de Dealogic sobre les emissions d'instruments financers de bancs espanyols per avaluar si les opcions de finançament responen a les prediccions derivades de les teories clàssiques de finances corporatives i / o l'existència de regulació bancària. Trobem que els bancs van finançar el seu creixement exponencial amb instruments de deute cobrint els requeriments addicionals de capital regulatori amb l'emissió d'instruments híbrids. També vam concloure que els bancs trien els instruments financers que minimitzen els costos derivats de l'existència d'informació asimètrica. Finalment, el Capítol 3 es centra en les conseqüències de la crisi des del punt de vista de la productivitat i l'efecte sobre la reestructuració bancària. Aquest capítol analitza els efectes de la productivitat bancària en l'evolució dels tipus d'interès i en la sortida dels bancs del sector bancari espanyol durant els anys 2007-2015. Usant un marc teòric de competència amb heterogeneïtat en els costos operatius, proposem un conjunt d'hipòtesis que es contrasten mitjançant models empírics. Els resultats mostren que la productivitat de la indústria bancària va tenir un creixement moderat del 2% durant el període analitzat, que les millores en l'eficiència dels bancs van repercutir en una disminució en les taxes d'interès i comissions bancàries, i que un context de baixes taxes d'interès no implica necessàriament una reducció en el marge d'intermediació ja que els bancs poden compensar els marges negatius dels dipòsits amb un augment en el diferencial dels seus préstecs pel que fa a la taxa d'interès interbancària. La nostra anàlisi també mostra que els bancs més productius podrien haver aprofitat el procés de reestructuració per expandir la seva xarxa de sucursals a mercats en els que tenen una baixa presència mitjançant l'absorció de bancs menys productius.