“New Tigers” (including city commercial banks) outperform state-owned commercial banks burdened with non-performing loans from unprofitable state-owned enterprises. We study whether this is solely due to superior corporate governance (multiple shareholders versus total government ownership) or also to the favorable environment (the New Tigers target affluent China, while state-owned commercial banks operate nationwide). Using a field survey on 20 city commercial banks from three provinces at different levels of economic development, we find better performance at those in the East and worse performance at those controlled by state-owned enterprises. Geography and policy do matter, and reform of state-owned commercial banks is necessary to bring better banking to China.

We make two contributions on the extent and impact of relationship banking – based on close and long-lasting bank–firm customer relationships – in the three sub-systems in which Italy may be subdivided. First, we show that relationship banking is more extensive in both sub-systems where small businesses prevail: the fast-growing Northeast and Center (NEC) and the South, the marginal area of dependent development. Second, we demonstrate that relationship banking improves the allocation of credit in the NEC but worsens it in the South. This evidence suggests that relationship banking may be beneficial or detrimental depending on the socio-economic structure.

This paper tests the impact of an imperfect firm–bank type match on firms’ financial constraints using a dataset of about 4500 Italian manufacturing firms. Considering an optimal match of opaque (transparent) borrowing firms with relational (transactional) lending main banks, the possibility arises of firm–bank ‘‘odd couples’’ where opaque firms end up matched with transactional main banks. We show that the probability of credit rationing increases when the mismatch between firms and banks widens. Our conjecture is that ‘‘odd couples’’ emerge either because of organizational changes in the credit market or since firms observe only imperfectly banks’ lending technology.

Increased dispersion of Risk Weighted Assets (RWA) troubles regulators as potentially undermining prudential supervision. We study the determinants of RWA/EAD (Exposure-At-Default) on data painstakingly compiled from Basel Pillar-Three for 239 European banks over 2007–2013. We improve on most previous studies, which consider instead RWA/TA (Total Assets). Indeed, Internal-Rating-Based (IRB) models allow lawful capital-saving Roll-Out effects which RWA/TA analyses disregard and likely misidentify as regulatory arbitrage. Instead, encapsulating Roll-Out effects, RWA/EAD avoids false positive identification. We find that regulatory arbitrage: (i) was present; (ii) likely materialized via risk weights manipulation with IRB models; (iii) was stronger at Advanced-IRB vs Foundation-IRB banks.

We assess the potential impact for non-high-income countries (NHICs) of linking bank capital asset requirements (CARs) to private sector ratings–as contemplated by the new Basel proposal. Specifically, we show that linking bank CARs to external ratings would have a series of undesirable effects for NHICs. First, since ratings are by far less widespread for banks and corporations in NHICs, bank CARs would be practically insensitive to improvements in the quality of assets, widening the gap between banks of equal financial strength located in higher and lower income countries. Second, bank and corporate ratings in NHICs (as opposed to their homologues in high-income countries) are strongly linked to their sovereign ratings. This would expose bank capital requirements in NHICs to the same “pro-cyclical” swings, which have characterized sovereign rating revision in the recent crisis episodes. We conclude that linking bank CARs to private sector ratings would worsen the availability and cost of credit to NHICs – with potential negative effects on the level of economic activity – and suggest that a reassessment of the Basel proposal may help to avoid such undesired consequences.

We examine the role played by Mutual Guarantee Institutions (MGIs) in the lending policies undertaken by banks at the peak of the Great Crisis of 2007–2009. We address this issue by using a large database on Italian firms built from the credit files of UniCredit banking Group and focusing on small business. We provide an empirical analysis of the determinants of the probability that a borrowing firm will suffer financial tension and obtain two main innovative findings. First, we find that small firms supported by MGIs less likely experienced financial tensions even at that time of utmost financial stress. Second, our empirical evidence shows that MGIs played a signaling role beyond the simple provision of collateral. This latter finding suggests that the information provided by MGIs turned out to be key for bank–firm relations as scoring and rating systems – being typically based on pro-cyclical indicators – had become less informative during the crisis.

We analyze the differences in lending policies across banks characterized by different types of ownership, using micro-level data on Euro area banks during the period 1999–2011 to detect possible variations in bank lending supply responses to changes in monetary policy. Our results identify a general difference between stakeholder and shareholder banks: following a monetary policy contraction, stakeholder banks decrease their loan supply to a lesser extent than shareholder banks. A detailed analysis of the effect among stakeholder banks reveals that cooperative banks continued to smooth the impact of tighter monetary policy on their lending during the crisis period (2008–2011), whereas savings banks did not. Stakeholder banks’ propensity to smooth their lending cycles suggests that their presence in the economy has the potential to reduce credit supply volatility.

We provide a cross-country and cross-bank analysis of the financial determinants of the Great Financial Crisis using data on 83 countries from the period 1998 to 2006. First, our cross-country results show that the probability of suffering the crisis in 2008 was larger for countries having higher levels of credit deposit ratio whereas it was lower for countries characterized by higher levels of: (i) net interest margin, (ii) concentration in the banking sector, (iii) restrictions to bank activities, (iv) private monitoring. The bank-level analysis reinforces these results and shows that the latter factors are also key determinants across banks, thus explaining the probability of bank crisis. Our findings contribute to extend the analytical toolkit available for macro and micro-prudential regulation.

This paper investigates SME financing in Italy. The literature distinguishes between two main different lending technologies (LTs) for SMEs: transactional and relationship LTs. We find that banks lend to SMEs by using both LTs together, independently of the size and proximity of borrowers. Moreover, we show that the use of soft information decreases the probability of firms being credit rationed. Finally, we find that more soft information is produced when the bank uses relationship LT as primary technology individually or coupled with transactional LT. Our results support the view that LTs can be complementary, but reject the hypothesis that substitutability among LTs is somehow possible for outsiders by means of hardening of soft information.