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Session Overview
FIIE-12: Bank Lending
Thursday, 24/Aug/2017:
3:30pm - 5:00pm

Session Chair: Hans Degryse, KU Leuven
Location: O151

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Sharing the Surplus with Clients: Evidence from the Protection of Bank Proprietary Information

Yupeng Lin1, Zilong Zhang2, Liping Zhao3

1National University of Singapore; 2City University of Hong Kong; 3Hong Kong University of Science and Technology

Discussant: Karolin Kirschenmann (Centre for European Economic Research (ZEW))

We examine the effect of an increased protection of banks’ proprietary information on bank–borrower relationships. Our identification strategy relies on the passage of the inevitable disclosure doctrine (IDD), which prevents a bank’s former employees from leaking proprietary information to rivals. We show that, after the passage of the IDD, banks offer loans with lower interest rates and longer time to maturity, and the loan interest rate is further lowered for bank-borrower pairs that have a prior lending relationship. Moreover, IDD adoptions result in a prolonged lending relationship. Further results show that banks whose trade secrets are protected by the IDD can sell loans at higher loan bidding prices and lower bid-ask spreads in the secondary loan market. Our findings suggest that the protection of proprietary information increases the value of establishing long-run lending relationships for banks; in response, banks share part of the surplus with their borrowers in the primary loan market.

EFA2017-1728-FIIE-12-Lin-Sharing the Surplus with Clients.pdf

Bank Lending in the Knowledge Economy

Giovanni Dell'Ariccia1, Dalida Kadyrzhanova2, Camelia Minoiu1, Lev Ratvnovski1

1International Monetary Fund; 2Georgia State University

Discussant: Diane Pierret (University of Lausanne)

We study bank portfolio allocations during the transition of the real sector to a knowledge economy in which firms use less tangible capital and invest more in intangible assets. We show that, as firms shift toward intangible assets that have lower collateral values, banks reallocate their portfolios away from commercial and industrial (C&I) loans toward other assets, primarily residential real estate loans. This effect is more pronounced for large and less well capitalized banks and is robust to controlling for non-C&I loan demand. Our results suggest that increased firm investment in intangible assets can explain up to 20% of bank portfolio reallocation from commercial to residential lending over the last four decades.

EFA2017-544-FIIE-12-DellAriccia-Bank Lending in the Knowledge Economy.pdf

Does Competition Affect Bank Risk?

Liangliang Jiang1, Ross Levine2, Chen Lin3

1Hong Kong Polytechnic University; 2UC Berkeley; 3University of Hong Kong

Discussant: Olivier De Jonghe (Tilburg University)

Although policymakers often discuss tradeoffs between bank competition and stability, past research provides differing theoretical perspectives and empirical results on the impact of competition on risk. In this paper, we employ a new approach for identifying exogenous changes in the competitive pressures facing individual banks and discover that an intensification of competition materially boosts bank risk. With respect to the mechanisms, we find that competition reduces bank profits, charter values, and relationship lending and increases banks’ provision of nontraditional banking services.

EFA2017-1824-FIIE-12-Jiang-Does Competition Affect Bank Risk.pdf

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