IDEAS home Printed from https://ideas.repec.org/a/rnp/ecopol/ep1707.html
   My bibliography  Save this article

«Holes» in the Capital of Failed Russian Banks: Old Indicators and New Hypotheses

Author

Listed:
  • Mamonov, Mikhail

    () (The Institute for Economic Forecasting of the Russian Academy of Sciences; National Research University Higher School of Economics)

Abstract

In the first three years after the Head’s replacement, the Central Bank of Russia has withdrawn the licenses of each third bank in the system and afterwards has discovered that substantial part of these failed banks hided “holes” in their capital that amounted to 2,1% of GDP. In this paper, a first attempt was made to predict the size of the “holes” of that failed Russian banks. For that purpose, international research employs quite simple indicators that reflect bank’s assets and liabilities, size and risk exposures. We formulate three new hypotheses to describe the “holes” in the capital — balance sheet falsification (H1), high assets’ rollovers (H2), and low margins of banking business (H3) — and propose what we call complex indicators to test them. We obtain official data on revealed “holes” in banks’ capital from the “Vestniki Banka Rossii” over the period from the mid-2013 to the beginning of 2016, so that the initial sample covers 106 failed banks and the filtered sample includes 89 of them. We found that these complex indicators bring gains when describing the size of the “holes” using simple indicators. Moreover, the strongest economic effects belong to the complex indicators. In particular, if a bank has already failed, then the “hole” is expected to be as large as (1) higher were the rollovers on corporate loans, (2) greater was the specialization on attracting (expensive) retail deposits and investing them in (cheap) corporate loans, (3) greater was the size of the bank, (4) higher were the rollovers on the correspondent accounts in the Bank of Russia, (5) lower was the bank’s capital disclosed on the eve of its license withdrawal.

Suggested Citation

  • Mamonov, Mikhail, 2017. "«Holes» in the Capital of Failed Russian Banks: Old Indicators and New Hypotheses," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 166-199, February.
  • Handle: RePEc:rnp:ecopol:ep1707
    as

    Download full text from publisher

    File URL: ftp://w82.ranepa.ru/rnp/ecopol/ep1707.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Adam B. Ashcraft, 2005. "Are Banks Really Special? New Evidence from the FDIC-Induced Failure of Healthy Banks," American Economic Review, American Economic Association, vol. 95(5), pages 1712-1730, December.
    2. Chen, Nan-Kuang, 2001. "Bank net worth, asset prices and economic activity," Journal of Monetary Economics, Elsevier, vol. 48(2), pages 415-436, October.
    3. Betz, Frank & Oprică, Silviu & Peltonen, Tuomas A. & Sarlin, Peter, 2014. "Predicting distress in European banks," Journal of Banking & Finance, Elsevier, vol. 45(C), pages 225-241.
    4. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-921, September.
    5. Kiyotaki, Nobuhiro & Moore, John, 1997. "Credit Cycles," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 211-248, April.
    6. Peresetsky, Anatoly, 2013. "Modeling reasons for Russian bank license withdrawal: Unaccounted factors," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 30(2), pages 49-64.
    7. Rebel Cole & Lawrence White, 2012. "Déjà Vu All Over Again: The Causes of U.S. Commercial Bank Failures This Time Around," Journal of Financial Services Research, Springer;Western Finance Association, vol. 42(1), pages 5-29, October.
    8. Berger, Allen N. & DeYoung, Robert, 1997. "Problem loans and cost efficiency in commercial banks," Journal of Banking & Finance, Elsevier, vol. 21(6), pages 849-870, June.
    9. Craig O. Brown & I. Serdar Dinç, 2005. "The Politics of Bank Failures: Evidence from Emerging Markets," The Quarterly Journal of Economics, Oxford University Press, vol. 120(4), pages 1413-1444.
    10. João Granja & Gregor Matvos & Amit Seru, 2017. "Selling Failed Banks," Journal of Finance, American Finance Association, vol. 72(4), pages 1723-1784, August.
    11. Zuzana FUNGACOVA & Iftekhar HASAN & Laurent WEILL, 2016. "Trust in banks," Working Papers of LaRGE Research Center 2016-09, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    12. Klaus Schaeck, 2008. "Bank Liability Structure, FDIC Loss, and Time to Failure: A Quantile Regression Approach," Journal of Financial Services Research, Springer;Western Finance Association, vol. 33(3), pages 163-179, June.
    13. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
    14. James, Christopher, 1991. " The Losses Realized in Bank Failures," Journal of Finance, American Finance Association, vol. 46(4), pages 1223-1242, September.
    15. Michael Koetter & James W. Kolari & Laura Spierdijk, 2012. "Enjoying the Quiet Life under Deregulation? Evidence from Adjusted Lerner Indices for U.S. Banks," The Review of Economics and Statistics, MIT Press, vol. 94(2), pages 462-480, May.
    16. Ari Kang & Richard Lowery & Malcolm Wardlaw, 2015. "The Costs of Closing Failed Banks: A Structural Estimation of Regulatory Incentives," Review of Financial Studies, Society for Financial Studies, vol. 28(4), pages 1060-1102.
    17. Karminsky, A. & Kostrov, A., 2013. "Modeling the Default Probabilities of Russian Banks: Extended Abillities," Journal of the New Economic Association, New Economic Association, vol. 17(1), pages 64-86.
    18. David C. Wheelock & Paul W. Wilson, 2000. "Why do Banks Disappear? The Determinants of U.S. Bank Failures and Acquisitions," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 127-138, February.
    19. DeYoung, Robert & Torna, Gökhan, 2013. "Nontraditional banking activities and bank failures during the financial crisis," Journal of Financial Intermediation, Elsevier, vol. 22(3), pages 397-421.
    20. Cleary, Sean & Hebb, Greg, 2016. "An efficient and functional model for predicting bank distress: In and out of sample evidence," Journal of Banking & Finance, Elsevier, vol. 64(C), pages 101-111.
    21. Bennett, Rosalind L. & Unal, Haluk, 2014. "The effects of resolution methods and industry stress on the loss on assets from bank failures," Journal of Financial Stability, Elsevier, vol. 15(C), pages 18-31.
    22. Arena, Marco, 2008. "Bank failures and bank fundamentals: A comparative analysis of Latin America and East Asia during the nineties using bank-level data," Journal of Banking & Finance, Elsevier, vol. 32(2), pages 299-310, February.
    23. M. Mamonov & A. Pestova & O. Solntsev., 2012. "The Systemic Effects of Prudential Regulation Toughening: The Results of a Stress-test for Russian Banks," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 8.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mäkinen, Mikko & Solanko, Laura, 2017. "Determinants of bank closures : Do changes of CAMEL variables matter?," BOFIT Discussion Papers 16/2017, Bank of Finland, Institute for Economies in Transition.

    More about this item

    Keywords

    banks; «hole» in the capital; license withdrawal; balance sheet falsification; assets’ rollovers; low margins;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • P23 - Economic Systems - - Socialist Systems and Transition Economies - - - Factor and Product Markets; Industry Studies; Population
    • P34 - Economic Systems - - Socialist Institutions and Their Transitions - - - Finance
    • P52 - Economic Systems - - Comparative Economic Systems - - - Comparative Studies of Particular Economies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rnp:ecopol:ep1707. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (RANEPA maintainer). General contact details of provider: http://edirc.repec.org/data/aneeeru.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.