This section contains information about articles under review and waiting for publication in next issues of the journal.

Mitigating the procyclicality of capital requirements: an empirical assessment of CEBS's proposals

Jerome Coffinet, senior economist, Banque de France, France
Nicolas Dumontaux, economist, Banque de France, France
Anissa Naouar, economist, Banque de France, France

Abstract. In the recent debate about the measures that could be implemented in order to mitigate the procyclicality of capital requirements in the Basel II framework, the Committee of European Banking Supervisors (CEBS) made an original proposition that relies on the building-up of capital buffers beyond the regulatory minimum that would be accumulated in ‘good times' and depleted in ‘bad times'. This paper seeks to evaluate this proposal and provides an empirical assessment based on US data over the period 1991-2008. It shows that the buffer computed according to this proposal would have the desired properties and that the variant based on both the probabilities of default (PDs) and the transition matrices penalizes more ‘Point-in-Time' ratings philosophies.

Is financial innovation influenced by financial liberalization? : evidence from the tunisian banking industry

Mabrouk Abir, Professor Assistant of Finance, Higher Institute of Business and Economic Studies, Tunisia
Mamoghli Chokri, Professor of Finance, Higher Institute of Management, Tunisia

Abstract. We are interested in the identification of the determinants of financial innovations, where we focus more our concern on the effect of the regulations relating to the financial liberalization process concerning the banking adoption of the financial innovations. We suggest the use of an approach based on the benefits of banking regulation promoting the innovative act to supplement the contributions of the constraint theory. During this study, we examine the adoption of the financial innovations of products and of process within the Tunisian banking industry during the period from 1987 to 2008. The results found let us better understand the innovative behaviors of banks within environmental and organizational context specific to the banks of an emergent market. In particular, we conclude that the legal framework influences in a large way the innovative behavior of the Tunisian banking system. So, opposite to the idea that the financial innovation is always a means to bypass the regulation, within a liberalization context the initiative boosting the Tunisian process of financial innovation often comes from the public strength.

Choice and performance of corporate governance mechanisms in the German financial sector and the financial crisis

Markus Stiglbauer, Assistant Professor of Department of Management and Organization Design, Faculty of Business, Economics and Management Information Systems, University of Regensburg, Germany

Abstract. Corporate governance (CG) has been one of the most widely discussed topics over the last few years. Especially the role of the financial sector within the current financial and economic crisis has led to a massive loss of trust and put pressure not only on companies within the financial sector but also on policy makers to reform CG. Nevertheless, governance shortcomings contributing to the crisis of confidence are not uniquely American as one could expect taking a look at Lehman Brothers or Bear Stearns, however, with companies also in Germany adding their own governance shortcomings to the crisis. We try to find evidence on such shortcomings researching on a sample of the biggest companies within the German financial sector listed in the Prime Standard segment at the Frankfurt Stock Exchange. We identify shortcomings in compliance with the German Corporate Governance Code (GCGC) mainly in the cooperation between management board and supervisory board (one of the most remarkable characteristics of the German two-tier system) and also on transparency & disclosure on CG (e.g., on remuneration issues) and try to give answer on how to solve such problems in the future.

The banking sector in the Baltics

Alenka Kavkler, Assistant Professor, Faculty of Economics and Business, University of Maribor, Slovenia
Mejra Festić, Associate Professor, Faculty of Economics and Business, University of Maribor, Slovenia

Abstract. In this paper, we analyze the determinants of the non-performing loans (NPL) ratio in Estonia, Latvia and Lithuania. Twelve financial and macroeconomic variables are employed in regression analysis as possible predictors for the NPL variable. A strong economic growth and decelerating non-performing loans ratio, as an indicator of the loan portfolio quality, in the context of pro-cyclicality theory, could be interpreted as signals of economic potential overheating and therefore as a potential threat to banking sector performance. The slowdown in economic activity (GDP, net export, investment and savings growth) is likely to deteriorate the loan portfolio quality in the Baltic States.

Borrower-lender distance and its impact on small business lenders during the financial crisis

Lakshmi Balasubramanyan, Ph.D.,Assistant Professor of Finance, Indiana State University, USA
Reza Houston, Indiana State University, USA

Abstract. In this study, we focus on the relationship between borrower-lender distance, a bank's net interest income, loan size, bank size and the bank's ability to assess credit loss. We hypothesize that borrower-lender distance impacts the banks interest income. Concurrently, bank size and a bank's ability to assess credit loss determines the proximity of the lending relationship. As such, a simultaneous structural relationship is observed where net interest income and borrower-lender distance is endogenous. We analyze this relationship for the time period from 2006 to 2009. To our knowledge, no study has tested whether borrower-lender distance affects the banks performance and consequently bank performance affects borrower-lender distance. The purpose of this study is to investigate how distance between bank lenders and their small business borrowers has affected the profitability of the Small Business Administration (SBA) lender during the financial crisis.

The Gulf Cooperation Council (GCC) Banking Sector: Topography and Analysis

Abdullah Al-Hassan, Ph.D., African Department, International Monetary Fund, USA
May Khamis, Ph.D., Middle East and Central Asia Department, International Monetary Fund, USA
Nada Oulidi, MSF, Monetary and Capital Markets Department, International Monetary Fund, USA

Abstract. In this paper, we analyze the evolution of the Gulf Cooperation Council (GCC) banking sectors in the six member countries. Since the existing literature is devoid of analyses or regional comparisons of GCC countries' financial systems, this paper provide a comprehensive analysis of the GCC banking sector, including ownership, concentration, cross-border linkages, balance sheet exposures and risks, recent trends in credit growth, and financial soundness from 2003-2008. We also identify risks to the banking sector's financial stability in the context of the current global crisis and their mitigating factors.

Technical and Scale Efficiency of Indonesian Rural Banks

Abdul Mongid, Ph. D. Candidate, Faculty of Business Management & Accountancy, University Sultan Zainal Abidin, Malaysia
Izah Mohd Tahir, Faculty of Business Management & Accountancy, University Sultan Zainal Abidin, Malaysia

Abstract. The existence of the rural bank in the Indonesian' financial market is more pronounced recently than ever especially after the Asian crisis 1997. The ability of rural banks to shield during the crisis and the state programs to develop small and medium enterprises (SMEs), make the role of rural banks more pivotal. Rural banks begin to fill the gap of financial services in rural areas. Recently, the issue of efficiency has received attention among academic researchers. This study estimates the technical and scale efficiency of rural banks in Indonesia during the period of 2006 and 2007 by using the non-parametric approach-Data Envelopment Analysis (DEA). The results suggest that the degree of technical efficiency is found to be lower than the degree of scale efficiency which indicates that portion of overall inefficiency is due to producing below the production frontier rather than producing at an inefficient scale. In addition, majority of the banks in the sample exhibit suboptimal scale which imply that output should be expanded to reach the optimal scale.

Assessing the impact of Mergers and Acquisition of commercial banks in MENA countries on their technical efficiency using a Malmquist Index based approach

Said Gattoufi, Ph.D.,College of Commerce and Economics, Sultan Qaboos University, Sultanate of Oman
Sameh Sakr, Ph.D., Arab Academy for Science and Technology, College of Management and Techgy, Egypt
Mohammed Omran, Ph.D, Egypt Stock Exchange, Cairo, Egypt

Abstract. This research aims to assess the impact of Mergers and Acquisitions and other ownership structure changes of commercial banks in Middle East and North Africa (MENA) region on their technical efficiency, technical efficiency being the goodness in transforming inputs into outputs. The methodology adopted in this research is based on the Malmquist Productivity Index (MPI) analysis. This index uses the yearly efficiency coefficients provided by Data Envelopment Analysis (DEA) to analyze the evolution of efficiency over time. Moreover, the index is decomposed into two components, one reflecting the intrinsic change in the relative efficiency and one reflecting the shift in the efficient frontier. As conclusion from this study, the results it reports confirm the positive, though limited, impact of change in ownership on the overall efficiency of the commercial banking industry in MENA region.

The Integration of Banking and Commerce: A Global Perspective

Hsin-Yu Liang, Assistant Professor, International Trade at Feng Chia University, Taiwan
Alan K. Reichert, Professor of Finance, Cleveland State University, USA

Abstract. This study extends the mean-variance portfolio analysis of Reichert, Wall, and Liang (2008) among six developed countries: US, Canada, Great Britain, Germany, France, and Japan. By combing the various industries into efficient portfolios, US, Canada, and UK would have reduced their risk substantially and their average returns very little by diversifying into the retail sector. These results further support the empirical results in the earlier studies of Reichert, Wall, and Liang (2008). However, the author could not find the similar pattern in Germany, Japan, and France. Besides, by forming global portfolios where the most profitable industries in various countries, this study also provide some evidence of the cross-border integration benefit of banking and commerce. While profitable, it may entail a significant increase in risk.