Simon Wolfe

Bio: Simon Wolfe is an academic researcher from University of Southampton. The author has contributed to research in topics: Market liquidity & Interbank lending market. The author has an hindex of 20, co-authored 55 publications receiving 2749 citations.

Are Competitive Banking Systems More Stable

Abstract: Using the Panzar and Rosse H-statistic as a measure of competition in 45 countries, we find that more competitive banking systems are less prone to experience a systemic crisis and exhibit increased time to crisis. This result holds even when we control for banking system concentration, which is associated with higher probability of a crisis and shorter time to crisis. Our results indicate that competition and concentration capture different characteristics of banking systems, meaning that concentration is an inappropriate proxy for competition. The findings suggest that policies promoting competition among banks, if well executed, have the potential to improve systemic stability.

Small European Banks: Benefits from Diversification?

Abstract: Motivated by the liberalisation and harmonisation of financial systems in Europe, we investigate whether the observed shift into non-interest income activities improves performance of small European credit institutions Using a sample of 755 small banks for the period 1997-2003, we find no direct diversification benefits within and across business lines and an inverse association between non-interest income and bank performance Our findings are robust to a set of sensitivity analyses using alternative samples and controlling for the regulatory environment Furthermore, the results provide circumstantial evidence for the presence of economies of scale The absence of benefits of diversification confirms findings for other banking markets and suggests small European banks enter lines of business where they currently lack expertise and experience These results have implications for bank supervisors, regulators and bank managers

Small European banks: Benefits from diversification?

Abstract: Motivated by the liberalisation and harmonisation of financial systems in Europe, we investigate whether the observed shift into non-interest income activities improves performance of small European credit institutions. Using a sample of 755 small banks for the period 1997–2003, we find no direct diversification benefits within and across business lines and an inverse association between non-interest income and bank performance. Our findings are robust to a set of sensitivity analyses using alternative samples and controlling for the regulatory environment. Furthermore, the results provide circumstantial evidence for the presence of economies of scale. The absence of benefits of diversification confirms findings for other banking markets and suggests small European banks enter lines of business where they currently lack expertise and experience. These results have implications for bank supervisors, regulators and bank managers.

Can Banks in Emerging Economies Benefit from Revenue Diversification

Abstract: Are there significant benefits of revenue diversification for banks in emerging economies? This paper investigates the impact of revenue diversification on insolvency risk in emerging economies as measured by the distance to default. Using a panel dataset of 322 listed banks across 22 countries and a new methodological approach (Systems' Generalized Method of Moments estimator), we provide the first empirical evidence of the impact of (i) the observed shift towards non-interest income and (ii) diversification within interest and non-interest generating activities on insolvency risk. Our core finding is that diversification across and within both interest and non-interest income generating activities decreases insolvency risk. Moreover, we find diversification gains remain even though increased reliance on non-interest income lowers risk adjusted profits. By extension, our results have significant strategic implications for bank managers and supervisors in emerging economies.

Internet banking market performance: Turkey versus the UK

Abstract: Purpose – The purpose of this paper is to compare and evaluate the internet banking services of Turkey and the UK.Design/methodology/approach – The paper is based on an exploratory research for a sample of nine banks from each country, a web survey is conducted to collect data for each internet bank using an analytical framework based on a three dimensional model.Findings – It is found that Turkish banks offer a wider range of services from their internet branches compared to British banks, despite the fact that the UK has a more favourable environment for internet banking in terms of the level of sophistication of its banking sector and technological infrastructure. Furthermore, a key difference is observed in the approaches of banks towards the issue of “security”.Research limitations/implications – The findings of this paper are reached by the use of a simplified model that only focuses on the transaction side of internet banking. Therefore, further research could encompass other aspects from the provi...

Bank Competition and Financial Stability

Abstract: Under the traditional "competition-fragility" view, more bank competition erodes market power, decreases profit margins, and results in reduced franchise value that encourages bank risk taking. Under the alternative "competition-stability" view, more market power in the loan market may result in greater bank risk as the higher interest rates charged to loan customers make it more difficult to repay loans and exacerbate moral hazard and adverse selection problems. But even if market power in the loan market results in riskier loan portfolios, the overall risks of banks need not increase if banks protect their franchise values by increasing their equity capital or engaging in other risk-mitigating techniques. The authors test these theories by regressing measures of loan risk, bank risk, and bank equity capital on several measures of market power, as well as indicators of the business environment, using data for 8,235 banks in 23 developed nations. The results suggest that - consistent with the traditional "competition-fragility" view - banks with a greater degree of market power also have less overall risk exposure. The data also provide some support for one element of the "competition-stability" view - that market power increases loan portfolio risk. The authors show that this risk may be offset in part by higher equity capital ratios.

Bank competition and financial stability

Abstract: Under the traditional “competition-fragility” view, more bank competition erodes market power, decreases profit margins, and results in reduced franchise value that encourages bank risk taking. Under the alternative “competition-stability” view, more market power in the loan market may result in higher bank risk as the higher interest rates charged to loan customers make it harder to repay loans, and exacerbate moral hazard and adverse selection problems. The two strands of the literature need not necessarily yield opposing predictions regarding the effects of competition and market power on stability in banking. Even if market power in the loan market results in riskier loan portfolios, the overall risks of banks need not increase if banks protect their franchise values by increasing their equity capital or engaging in other risk-mitigating techniques. We test these theories by regressing measures of loan risk, bank risk, and bank equity capital on several measures of market power, as well as indicators of the business environment, using data for 8,235 banks in 23 developed nations. Our results suggest that—consistent with the traditional “competition-fragility” view—banks with a higher degree of market power also have less overall risk exposure. The data also provides some support for one element of the “competition-stability” view—that market power increases loan portfolio risk. We show that this risk may be offset in part by higher equity capital ratios.