Mikhail Mamonov, Christopher Parmeter, Artem Prokhorov
arXiv 11 Aug 2024 · Econometrics · publishedJournal of Banking & Finance (2024) · 6 citations (OpenAlex)
arXiv:2408.05688 · PDF · DOI · OpenAlex · Extracted main text
We study the impact of exchange rate volatility on cost efficiency and market structure in a cross-section of banks that have non-trivial exposures to foreign currency (FX) operations. We use unique data on quarterly revaluations of FX assets and liabilities (Revals) that Russian banks were reporting between 2004 Q1 and 2020 Q2. {\it First}, we document that Revals constitute the largest part of the banks' total costs, 26.5% on average, with considerable variation across banks. {\it Second}, we find that stochastic estimates of cost efficiency are both severely downward biased -- by 30% on average -- and generally not rank preserving when Revals are ignored, except for the tails, as our nonparametric copulas reveal. To ensure generalizability to other emerging market economies, we suggest a two-stage approach that does not rely on Revals but is able to shrink the downward bias in cost efficiency estimates by two-thirds. {\it Third}, we show that Revals are triggered by the mismatch in the banks' FX operations, which, in turn, is driven by household FX deposits and the instability of Ruble's exchange rate. {\it Fourth}, we find that the failure to account for Revals leads to the erroneous conclusion that the credit market is inefficient, which is driven by the upper quartile of the banks' distribution by total assets. Revals have considerable negative implications for financial stability which can be attenuated by the cross-border diversification of bank assets.
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The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.
| Reference | Intensity | Mentions | Sections | Main text | |
|---|---|---|---|---|---|
| 1 | Berger, A.N., and Hannan, T.H (1998) The Efficiency Cost Of Market Power In The Banking Industry: A Test Of The “Quiet Life | 1.000 | 6 | 4 | 100% |
| 2 | Verner, E., and Gyongyosi G (2020) “Household Debt Revaluation and the Real Economy: Evidence from a Foreign Currency Debt Crisis." American Economic Review, forth… | 1.000 | 5 | 4 | 100% |
| 3 | Goncharenko, R., Mamonov, M., Ongena, S., Popova, S., and Turdyeva, S (2022) Quo Vadis? Evidence on New Firm-Bank Matching Following Sin Bank Closures self | 1.000 | 5 | 3 | 100% |
| 4 | Bonin, J.P., Hasan, I., and Wachtel, P (2005) Bank Performance, Efficiency and Ownership in Transition Countries | 0.874 | 5 | 2 | 100% |
| 5 | Hughes, J., and Mester, L (2013) Who said large banks don’t experience scale economies? Evidence from a risk-return-driven cost function | 0.874 | 5 | 2 | 100% |
| 6 | Koetter, M., Kolari, J., and Spierdijk, L (2012) Enjoying the Quiet Life under Deregulation? Evidence from Adjusted Lerner Indices for U.S. Banks | 0.811 | 4 | 2 | 100% |
| 7 | Tabak, B.M., Fazio, D.M., and Cajueiro, D.O (2012) The Relationship between Banking Market Competition and Risk-Taking: Do Size and Capitalization Matter? | 0.737 | 3 | 2 | 100% |
| 8 | Beck, T., and Brown, M (2015) Foreign Bank Ownership and Household Credit | 0.644 | 2 | 2 | 100% |
| 9 | Beck, T., De Jonghe, O., and Schepens, G (2013) Bank Competition and Stability: Cross-country Heterogeneity | 0.644 | 2 | 2 | 100% |
| 10 | Berger, A.N., Hasan, I., and Mingming, Z (2010) The Effects of Focus versus Diversification on Bank Performance: Evidence from Chinese Banks | 0.644 | 2 | 2 | 100% |
Showing the top 10 of 104 scored citations.
arXiv econ.EM papers that cite this one, ranked by how heavily they lean on it.
| Citing paper | Intensity | Mentions | Sections | |
|---|---|---|---|---|
| 1 | An early warning system for emerging markets | 0.511 | 2 | 1 |