Frontiers of Banks in a Global Economy Edited by Philip Molyneux and Eleuterio Vallelado Palgrave Macmillan Studies in Banking and Financial Institutions Series Editor: Professor Philip Molyneux The Palgrave Macmillan Studies in Banking and Financial Institutions will be interna- tional in orientation and include studies of banking within particular countries or regions, and studies of particular themes such as Corporate Banking, Risk Management, Mergers and Acquisitions, etc. The books will be focused upon research and practice, and include up-to-date and innovative studies on contemporary topics in banking that will have global impact and influence. Titles include: Yener Altunbab, Blaise Gadanecz and Alper Kara SYNDICATED LOANS A Hybrid of Relationship Lending and Publicly Traded Debt Elena Beccalli IT AND EUROPEAN BANK PERFORMANCE Santiago Carbó, Edward P.M. Gardener and Philip Molyneux FINANCIAL EXCLUSION Violaine Cousin BANKING IN CHINA Franco Fiordelisi and Philip Molyneux SHAREHOLDER VALUE IN BANKING Munawar Iqbal and Philip Molyneux THIRTY YEARS OF ISLAMIC BANKING History, Performance and Prospects Mario La Torre and Gianfranco A. Vento MICROFINANCE Philip Molyneux and Munawar Iqbal BANKING AND FINANCIAL SYSTEMS IN THE ARAB WORLD Philip Molyneux and Eleuterio Vallelado (editors) FRONTIERS OF BANKS IN A GLOBAL ECONOMY Anastasia Nesvetailova FRAGILE FINANCE Debt, Speculation and Crisis in the Age of Global Credit Andrea Schertler THE VENTURE CAPITAL INDUSTRY IN EUROPE Alfred Slager THE INTERNATIONALIZATION OF BANKS Patterns, Strategies and Performance Palgrave Macmillan Studies in Banking and Financial Institutions Series Standing Order ISBN 978-1–4039–4872–4 You can receive future titles in this series as they are published by placing a standing order. Please contact your bookseller or, in case of difficulty, write to us at the address below with your name and address, the title of the series and the ISBN quoted above. Customer Services Department, Macmillan Distribution Ltd, Houndmills, Basingstoke, Hampshire RG21 6XS, England Frontiers of Banks in a Global Economy Edited by Philip Molyneux Professor of Banking and Finance,University of Wales,Bangor,UK and Eleuterio Vallelado Vice Chancellor for Stragetic Planning and Professor of Finance, University of Valladolid,Spain Editorial matter and selection © Philip Molyneux and Eleuterio Vallelado 2008 Individual chapters © their respective authors 2008 Softcover reprint of the hardcover 1st edition 2008 978-0-230-52568-9 All rights reserved.No reproduction,copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced,copied or transmitted save with written permission or in accordance with the provisions of the Copyright,Designs and Patents Act 1988,or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency,90 Tottenham Court Road,London W1T 4LP. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988. First published in 2008 by PALGRAVE MACMILLAN Houndmills,Basingstoke,Hampshire RG21 6XS and 175 Fifth Avenue,New York,N.Y.10010 Companies and representatives throughout the world. PALGRAVE MACMILLAN is the global academic imprint of the Palgrave Macmillan division of St.Martin’s Press,LLC and of Palgrave Macmillan Ltd. Macmillan® is a registered trademark in the United States,United Kingdom and other countries.Palgrave is a registered trademark in the European Union and other countries. ISBN 978-1-349-35790-1 ISBN 978-0-230-59066-3 (eBook) DOI 10.1057/9780230590663 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources.Logging,pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. A catalog record for this book is available from the Library of Congress. 10 9 8 7 6 5 4 3 2 1 17 16 15 14 13 12 11 10 09 08 Contents List of Figures ix List of Tables x Acknowledgements xii Notes on Contributors xiii 1 Introduction 1 Philip Molyneux and Eleuterio Vallelado 2 Banking Mergers and Acquisitions’ Performance in Europe 8 Rym Ayadi 2.1 Introduction 8 2.2 Theoretical background 9 2.3 M&A and efficiency 10 2.4 M&A and market power 12 2.5 Other non-maximizing value explanations of M&A 13 2.6 Empirical findings on bank M&A 14 2.7 Banking M&As and value creation: still not very conclusive results 15 2.8 Banking M&As and efficiency 16 2.9 Banking M&As and market power 18 2.10 A new conceptual approach to assess banking M&A 19 2.11 Analysing banking M&A performance in Europe 22 2.12 Conclusions 36 3 Cross-Border Bank M&A in Emerging Markets – Value Creation or Destruction? 59 Jonathan Williams and Angel Liao 3.1 Introduction 59 3.2 International consolidation in banking 61 3.3 Event study methodology 63 3.4 Construction of sample and data 65 3.5 Results 68 3.6 Conclusion 73 v vi Contents 4 Bank Capital and Loan Pricing:Implications of Basle II 78 Ted Lindblom and Magnus Olsson 4.1 Introduction 78 4.2 Implications of Basle II on bank capital 81 4.3 Implications of Basle II on loan pricing 84 4.4 Data and risk definitions 85 4.5 The relationship between risk and bank capital held under Basle I 86 4.6 The financial funding of loans under Basle I 90 4.7 Estimating the impact of Basle II on banks’ lending rates 92 4.8 Empirical findings concerning expected effects of Basle II on Swedish ISBs 94 4.9 The questionnaire study 96 4.10 Case 1 (non-converted ISB) 98 4.11 Case 2 (converted ISB) 99 4.12 Conclusion 100 5 Capital Market Frictions and Bank Lending in the EU 103 Yener Altunbas¸, David Marques and Balzhan Zhussupova 5.1 Introduction 103 5.2 Bank lending, internal funds, and constraints: a review of the empirical literature 108 5.3 Bank lending and internal capital funds: data and methodology 111 5.4 Results 114 5.5 Conclusion and implications 124 6 Banks in the Microfinance Market 131 Mario La Torre and Gianfranco Vento 6.1 Introduction 131 6.2 A new conception of microfinance: the role of commercial banks 131 6.3 Sustainability and outreach: can banks make ethical profit from microfinance? 138 6.4 Policies for improving sustainability: a lesson for banks and traditional MFIs 143 6.5 Conclusion 146 Contents vii 7 Migrants and Financial Services:Which Opportunities for Financial Innovation? 149 Luisa Anderloni and Daniela Vandone 7.1 Introduction 149 7.2 Migrants: a new market segment for banks and financial institutions 150 7.3 Financial exclusion and inclusive policies 152 7.4 Migration phases and personal variables as key elements of financial needs 156 7.5 Areas of financial innovation 165 7.6 Re-inventing customer relations 165 7.7 Product innovation 169 7.8 Conclusions and future perspectives 178 8 Deepening Banking Reforms of China to Ensure Sustainable Growth in a Global World 186 René van der Linden 8.1 Introduction 186 8.2 The current state of China’s macro-economy 189 8.3 China’s bank-based financial system 194 8.4 Concluding remarks and recommendations 202 9 Efficiency and Productivity Change in Greek Banking:Methods and Recent Evidence 211 Georgios E. Chortareas, Claudia Girardone and Alexia Ventouri 9.1 Introduction 211 9.2 A brief overview on the recent methods of frontier analysis 213 9.3 Studies on bank efficiency and productivity in Greece 216 9.4 Conclusions 227 10 Electronic Money Use:Evidence from Survey Data 234 David Pelilli 10.1 Introduction 234 10.2 Payment instruments in Europe: a cross-country comparison 234 10.3 Empirical studies on payment card usage: a review 237 10.4 The model 239 viii Contents 10.5 Research methodology 240 10.6 The sample and variable measurement 241 10.7 Results 242 10.8 Conclusions and implications for further research 247 Index 251 List of Figures 2.1 Activity/geography matrix 22 4.1 Components of a bank’s lending rate 84 6.1 The standard microcredit structure 132 6.2 A taxonomy for a modern microfinance 137 6.3 Different levels of microfinance sustainability 139 6.4 Dimensions of microfinance outreach 140 7.1 Stock of foreign-born populations in selected OECD countries 151 7.2 Different forms of financial inclusion/exclusion: from formal to informal providers 154 7.3 Financial needs and migrant life cycle 159 7.4 Type of channel used to remit money (United States) 170 7.5 Awareness, preference and use of remittance services (United Kingdom) 171 10.1a Payment system structure and card payment usage in the euro area, 2000 236 10.1b Payment system structure and card payment usage in the euro area, 2004 236 ix