Elsevier S & T

Handbook of Financial Intermediation and Banking

Thakor, Anjan V.; Boot, Arnoud

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Table of contents
  • Cover
  • Handbook of Financial Intermediation and Bankingiii
  • Copyrightiv
  • Contentsv
  • List of Contributorsxiii
  • Prefacexv
  • Introduction to the Seriesxxv
  • Section 1: Design of Contracts and Securities1
  • Chapter 1. The Design of Debt Contracts5
  • 1. Introduction6
  • 2. Debt Contracts and Costly State Verification8
  • 2.1. Multiperiod Contracts11
  • 2.2. Stochastic Monitoring12
  • 3. Debt Contracts and the Allocation of Control Rights13
  • 4. Debt Contracts and the Provision of Incentives17
  • 5. Debt Contracts under Asymmetric Information18
  • 6. The Structure of Debt Contracts24
  • 6.1. Seniority24
  • 6.2. Maturity Structure26
  • 6.3. Collateral32
  • 6.4. The Number of Creditors34
  • 7. Concluding Remarks36
  • References36
  • Chapter 2. Subordination Levels in Structured Financing41
  • 1. Introduction42
  • 2. Structured Financing and the Pooling and Tranching of Assets43
  • 3. CMBS Structure44
  • 3.1. CMBS Subordination45
  • 4. Research Question and Empirical Approach46
  • 4.1. The Deal Subordination Regression47
  • 4.2. The Chow Test for Structural Change47
  • 5. Data48
  • 6. Results51
  • 6.1. Regression Results51
  • 6.2. Structural Change and Chow Tests53
  • 7. Conclusion58
  • References59
  • Section 2: Market Structure and Structure of Financial Markets61
  • Chapter 3. Limit Order Markets: A Survey63
  • 1. Introduction64
  • 2. Modeling Limit Orders68
  • 2.1. Static Equilibrium Models71
  • 2.2. Equilibrium Models with Static Order Choice and a Terminal Penalty73
  • 2.3. Dynamic Optimal Control Models for Single Agents74
  • 2.4. Multiperiod Equilibrium Models74
  • 2.5. Limit Orders and Private Information82
  • 3. Market Design84
  • 3.1. Competition and Limit Order Markets84
  • 3.2. Imperfect Competition87
  • 3.3. Dealer Markets88
  • 3.4. Welfare89
  • 3.5. Robustness90
  • 3.6. Transparency90
  • 4. Questions for Future Research92
  • References93
  • Section 3: Financial Intermediary Structure97
  • Chapter 4. Bank Structure and Lending: What We Do and Do Not Know107
  • 1. Introduction108
  • 2. Bank Size and Lending109
  • 2.1. Do Large Banks Lend More Than Small?109
  • 2.2. Do Large Banks Lend Differently from Small Banks?111
  • 2.3. Bank Size, Organization Structure, and Lending116
  • 2.4. How Does Bank Size Affect Credit Availability?117
  • 3. Deposit–Lending Synergies121
  • 3.1. Do Deposits Make Banks Better Lenders?121
  • 3.2. Banks as Liquidity Providers123
  • 4. Conclusion125
  • References128
  • Chapter 5. Optimal Industrial Structure in Banking133
  • 1. Introduction and Motivation134
  • 2. Efficiency Concepts137
  • 3. Empirical Implementation140
  • 3.1. Bank Production140
  • 3.2. Cost Minimization141
  • 3.3. Profit Maximization144
  • 3.4. More Complicated Objectives145
  • 4. Measurement148
  • 4.1. Estimation Techniques148
  • 4.2. Functional Form, Variable Selection, and Variable Measurement150
  • 4.3. Special Issues in Banking151
  • 5. Empirical Findings in the Literature153
  • 5.1. Scale Economies153
  • 5.2. Scope Economies157
  • 5.3. X-Efficiency158
  • 5.4. Productivity159
  • 6. Conclusion160
  • References160
  • Chapter 6. Commercial Banks in Investment Banking163
  • 1. Introduction164
  • 2. Tradeoffs in Combining Lending and Underwriting168
  • 2.1. Costs of Combining Lending and Underwriting168
  • 2.2. Benefits of Combining Lending and Underwriting170
  • 2.3. Theory171
  • 2.4. Empirical Evidence from Debt Underwritings171
  • 2.5. Empirical Evidence from Equity Underwritings175
  • 2.6. Organizational Form of Underwriting178
  • 3. Competitive Effects of Commercial Bank Entry into Securities Underwriting182
  • 3.1. Theory182
  • 3.2. Empirical Evidence on Commercial Bank Entry in 1989182
  • 3.3. Empirical Evidence on the Financial Modernization Act of 1999184
  • 4. Conclusion186
  • References186
  • Section 4: Mutual Funds189
  • Chapter 7. Performance Measurement and Evaluation191
  • 1. Introduction192
  • 2. Theoretical Benchmarks194
  • 2.1. Sources of Benchmarks197
  • 2.2. A First Pass at Performance Measurement199
  • 3. Performance Measurement and Market Timing202
  • 3.1. Alternative Models of Market Timing205
  • 3.2. Observable Information Signals218
  • 4. Performance Measurement and Attribution with Observable Portfolio Weights220
  • 4.1. Should Investors Hold Mutual Funds?229
  • 4.2. Determining the Optimal Holdings in Mutual Funds231
  • 5. The Cross Section of Managed Portfolio Returns233
  • 5.1. Inference in the Absence of Performance Ability234
  • 5.2. Power of Statistical Tests for Individual Funds241
  • 5.3. Inference for Multiple Funds244
  • 5.4. Empirical Specifications of Alpha Measures247
  • 6. Bayesian Approaches249
  • 6.1. Asset Mispricing and Investment in Mutual Funds252
  • 7. Conclusion255
  • References256
  • Chapter 8. The Behavior of Mutual Fund Investors259
  • 1. Introduction260
  • 2. Examining Investor Behavior Using Fund Flows261
  • 2.1. Estimating Mutual Fund Flows261
  • 2.2. The Decision to Choose Among Mutual Funds262
  • 2.3. Mutual Fund Flows and Aggregate Market Returns271
  • 3. Investment Performance of Mutual Fund Investors272
  • 4. Investor Externality274
  • 4.1. Liquidity Costs275
  • 4.2. Stale-Price Arbitrage277
  • 5. Strategies of Mutual Funds277
  • 6. Conclusion280
  • References280
  • Chapter 9. Incentives in Funds Management: A Literature Overview285
  • 1. Introduction286
  • 2. Theories of Incentives for Fund Managers and Informative Experts287
  • 2.1. Principal-Agent Models: Effort Choice, Delegation, and Screening287
  • 2.2. Optimal Contracts Based on Verifiable Portfolio Composition Choices and Returns288
  • 2.3. Returns-Based and Relative Performance-Based Contracts289
  • 2.4. Conformist Trading: The Roles of Career Concerns292
  • 2.5. Fund Manager Incentives and Uninformed Trading295
  • 2.6. General Equilibrium Implications of Fund Manager Incentives297
  • 3. Evidence on the Choices and Rewards of Analysts and Fund Managers299
  • 4. Conclusion301
  • References301
  • Section 5: Regulation305
  • Chapter 10. Consolidation in the U.S. Banking Industry: Is the Long, Strange Trip ŽAbout to End?309
  • 1. Overview of Structural Change in the U.S. Banking Industry 1984–2003311
  • 1.1. Industry Size311
  • 1.2. Industry Concentration315
  • 2. Fundamental Causes of Consolidation318
  • 2.1. Environmental Factors318
  • 2.2. Microeconomic Factors in Merger Decisions324
  • 3. The Effects of Consolidation325
  • 4. Projections of Banking Industry Structure333
  • 4.1. Review of Previous Projections and Their Methodologies333
  • 4.2. New Linear Extrapolations: A Comparison with the Literature336
  • 4.3. Beyond Linear Extrapolations338
  • 5. Conclusion341
  • References343
  • Chapter 11. Safety, Soundness, and the Evolution of the U.S. Banking Industry347
  • 1. Introduction348
  • 2. The Evolution of the U.S. Banking Industry349
  • 2.1. Financial Innovation and Technological Change350
  • 2.2. Regulatory Reaction to Financial Innovation and Technological Change353
  • 2.3. Widespread Technology Adoption and Industry Transformation353
  • 3. A Stylized View of Banking Strategies356
  • 3.1. Prederegulation358
  • 3.2. Postderegulation358
  • 4. Evidence Consistent with the Strategic Map360
  • 5. Further Implications of Strategic Change363
  • 5.1. Industry Structure363
  • 5.2. Noninterest Income366
  • 5.3. Financial Performance368
  • 6. Is the Industry Safe and Sound Today?369
  • References371
  • Chapter 12. What Caused the Bank Capital Buildup of the 1990s?375
  • 1. Introduction376
  • 2. Determining a Bank’s Optimal Leverage378
  • 3. Rising U.S. Bank Capitalization, 1986–2001381
  • 3.1. The Supervisors’ Focus: Book Capital Ratios381
  • 3.2. Investors’ Focus: Market Capital Ratios383
  • 3.3. BHC Portfolio Volatility and Default Risks384
  • 3.4. Possible Causes of the Increased Capitalization386
  • 4. Regression Model388
  • 4.1. Lags in Adjusting Toward Target Capitalization390
  • 4.2. Econometric Issues392
  • 4.3. Data393
  • 5. Estimation Results395
  • 5.1. Decomposing the Change in BHC Capitalization398
  • 6. Do Higher Market Ratios Reflect Stricter Regulatory Constraints?401
  • 7. Robustness404
  • 7.1. Adjust for Possible Safety Net Subsidies in MKTRAT405
  • 7.2. Alternative Instrument for BHCs’ Realized Stock Return405
  • 7.3. Estimates for the 20 Largest Banks405
  • 7.4. Estimate for 80 Next LargestŽ Banks407
  • 7.5. Excluding the Charter Value Proxy407
  • 8. Summary and Implications407
  • References408
  • Appendix411
  • Chapter 13. Basel II: A Case for Recalibration413
  • 1. Introduction414
  • 2. A Review of the AIRB Capital Framework415
  • 2.1. Discussion418
  • 3. The AIRB and Financial Stability420
  • 4. Establishing a Sound Benchmark for Risk Measurement Practices423
  • 4.1. The Need for Capital for Bank Interest Expenses423
  • 4.2. Procyclicality of the AIRB Soundness Standard427
  • 4.3. Incorporating Portfolio Interest Income428
  • 4.4. Capital for Systematic Risk in PD and LGD430
  • 4.5. Random Loss Given Default and DownturnŽ LGD431
  • 4.6. Asymptotic Portfolio Loss Distribution432
  • 4.7. Random Exposures at Default (EADs)436
  • 5. Conclusion437
  • References438
  • Section 6: Competition and Regulation in Banking441
  • Chapter 14. Competition and Regulation in Banking449
  • 1. Introduction450
  • 2. Bank Instability and the Need of Regulation452
  • 2.1. Bank Fragility: Individual Runs and Systemic Crises452
  • 2.2. Excessive Risk Taking457
  • 2.3. The Need of Regulation458
  • 3. Competition in Banking461
  • 3.1. Competition Under Asymmetric Information461
  • 3.2. Competition and Switching Costs463
  • 3.3. Competition and Networks464
  • 4. Competition and Stability: A Positive or a Negative Link?466
  • 4.1. Market Structure and Financial Fragility467
  • 4.2. Market Structure and Risk Taking470
  • 5. Competition and Regulation473
  • 6. Conclusion479
  • References479
  • Chapter 15. Competition and Regulation in the Banking Sector: A Review of the Empirical Evidence on483
  • 1. Introduction485
  • 2. Measuring Banking Competition488
  • 2.1. Traditional Industrial Organization488
  • 2.2. New Empirical Industrial Organization492
  • 3. Competition: Conduct and Strategy499
  • 3.1. Market Structure and Conduct499
  • 3.2. Market Structure and Strategy: Product Differentiation and Network Effects509
  • 4. Switching Costs510
  • 4.1. Evidence on the Existence, Magnitude, and Determinants of Switching Costs511
  • 4.2. Switching Costs and Conditions: Relationships as a Source of Bank Rents?521
  • 4.3. Market Structure and Market Presence: Bank Orientation and Specialization527
  • 5. Location530
  • 5.1. Distance Versus Borders530
  • 5.2. Distance and Conditions: Spatial Pricing531
  • 5.3. Distance and Conditions: Availability532
  • 5.4. Distance and Strategy: Branching533
  • 5.5. Borders and Conduct: Segmentation533
  • 5.6. Borders and Strategy: Entry and M&As534
  • 6. Regulation537
  • 6.1. Regulation and Market Structure537
  • 6.2. Regulation and Conduct538
  • 6.3. Regulation and Strategy538
  • 6.4. Regulation and Financial Stability and Development539
  • 7. Conclusion540
  • References542
  • Index555
Book details
  • Vendor Elsevier S & T
  • SKU 9780444515582
  • ISBN-13 9780080559926
  • Author Thakor, Anjan V.; Boot, Arnoud
  • Category Business & Economics
  • Subject Banks & Banking

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The growth of financial intermediation research has yielded a host of questions that have pushed "design" issues to the fore even as the boundary between financial intermediation and corporate finance has blurred. This volume presents review articles on six major topics that are connected by information-theoretic tools and characterized by valuable perspectives and important questions for future research. Touching upon a wide range of issues pertaining to the designs of securities, institutions, trading mechanisms and markets, industry structure, and regulation, this volume will encourage bold new efforts to shape financial intermediaries in the future.

* Original review articles offer valuable perspectives on research issues appearing in top journals
* Twenty articles are grouped by six major topics, together defining the leading research edge of financial intermediation
* Corporate finance researchers will find affinities in the tools, methods, and conclusions featured in these articles