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Are Banks Being Roiled by Oil?
Profits and employment in the oil and natural gas extraction industry have fallen significantly since 2014, reflecting a sustained decline in energy prices. In this post, we look at how these tremors are affecting banks that operate in energy industry?intensive regions of the United States. We find that banks in the ?oil patch? have experienced a significant rise in delinquencies on commercial and industrial loans. So far though, there appears to be limited evidence of spillovers to other types of loans and no evidence of widespread bank losses or failures in these regions.
Hidden cost of better bank services: carefree depositors in riskier banks?
Better customer service helps banks attract core deposits and increase funding stickiness by raising depositors? switching costs and enhancing their loyalty. This funding stickiness, however, could impair market discipline and lead to excessive risk-taking. We find that banks providing better services attract more core deposits, pay less for their funding, and are exposed to lower funding outflow risks. At the same time, these banks carry lower quality loans. We argue that this contradictory finding of cheaper funding cost with lower asset quality stems from the lack of risk monitoring by ...