Steve Mercieca’s research while affiliated with University of Southampton and other places

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Publications (5)


Bank Market Structure, Competition, and SME Financing Relationships in European Regions
  • Article
  • Full-text available

December 2009

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246 Reads

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66 Citations

Journal of Financial Services Research

Steve Mercieca

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Recent studies argue that the spread-adjusted Taylor rule (STR), which includes a response to the credit spread, replicates monetary policy in the United State. We show (1) STR is a theoretically optimal monetary policy under heterogeneous loan interest rate contracts in both discretionay and commitment monetary policies, (2) however, the optimal response to the credit spread is ambiguous given the financial market structure in theoretically derived STR, and (3) there, a commitment policy is effective in narrowing the credit spread when the central bank hits the zero lower bound constraint of the policy rate.

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Funding Choices and Performance of European Small Banks

January 2008

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3 Reads

SSRN Electronic Journal

Following from the increasing banking consolidation wave being witnessed throughout Europe, we investigate the funding choices and related performance of small EU banks. Recognising the significant role small banks occupy within the European financial system, we investigate whether changes in funding particular to small banks have an impact on the amount of loans granted to households and SMEs within the EU. We construct a cross-country panel data set consisting of 858 individual banks from 11 EU countries over the years 2000-2005. We investigate the composition of the bank's liabilities where we analyse a greater reliance on customer deposits, and subsequently find a direct positive link between customer deposits, loans to customers and net interest revenue. Regulatory and national characteristics that favour greater access and freedom of banking services are also important to ensure an adequate transmission of credit by small banks to households and SMEs within the EU.


Three studies in European banking

January 2008

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5 Reads

p>This thesis focuses on the perfonnance and strategy of small EU banks and their relationship with their target market segments: Small and Medium sized Enterprises (SMEs) and private households. To this end, three distinct lines of research are pursued in this thesis. We start with an investigation of whether small EU banks benefit from diversification within and across business lines, and the impact that the regulatory environment has on such diversification strategies. Second, we examine the determinants of bank financing relationships for SMEs from a bank, SME and regional dimension. Following this, we investigate the evolution of the funding strategies adopted by small EU banks and analyse whether customer deposits are still a key funding source in their overall strategic focus. Using different economic approaches and different samples, we present robust evidence that small EU banks do not benefit from direct diversification benefits within and across business lines and an inverse association between non-interest income and bank performance is observed. Bank and firm level variables are found to have both negative and positive impacts on SME bank financing relationships, with the regional growth and fmancial system variables showing that relationship banking can be affected by the market and socio-economic structure of specific European regions. Customer deposits are still featuring strongly within EU small banks' balance sheets and are still the main driver in their provision ofloans to SMEslhouseholds which confirms the importance of such banks in the economic growth of regional Europe. The empirical results give rise to numerous important public policy considerations. Against a background of increasing consolidation in European banking systems and significant changes in the regulatory environment within which fmancial institutions operate, our analyses suggest that small EU banks still have a major role to play in the European financial arena. The financial intermediation process between banks and SMEs/households is still prevalent and the evidence shows that this fosters growth in the regions we analyse. Obstacles that hinder such growth between SMEs and banks is limiting their potential expansion in both scale and scope.</p


Small European Banks: Benefits from Diversification?

July 2006

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1,832 Reads

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537 Citations

SSRN Electronic Journal

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.


Citations (3)


... Diversification in the banking sector has three dimensions, according to Mercieca et al. (2007): (a) financial products and services diversification, (b) geographic diversification and (c) a combination of geographic and business line diversification (Mercieca et al., 2007). Revenue diversification (RDIV) in the banking industry refers to expanding a bank's proportion of fees, net trading gains and other non-interest revenue within its net operating income. ...

Reference:

Exploring the Financial Sustainability of Indian Public Sector Banks: A Study on Revenue Diversification Patterns
Small European Banks: Benefits from Diversification?
  • Citing Article
  • January 2006

SSRN Electronic Journal

... Berger et al. (2010 found that diversification reduced profits and increased costs for Chinese banks while contrasting results were revealed for Italian banks by Brighi and Venturelli (2014); for Asian banks by Lee et al. (2014), and for commercial banks in the Philippines by Meslier et al. (2014). Moreover, Zhou (2014) and Mercieca et al. (2007) found no significant relationship between diversification of income and bank profits, while Gambacorta et al. (2014) confirmed a U-shaped relationship between income diversification and bank profitability. ...

Small European Banks: Benefits from Diversification?
  • Citing Article
  • July 2006

SSRN Electronic Journal

... In this aspect, banks' collateral demands can be lower under the concentrated bank market. Building on this narrative, Mercieca et al. (2009) draw insights from a study by using 361 SMEs in the UK and Germany. Their findings suggest that a concentrated lending market reduces SMEs' multibank lending relationships. ...

Bank Market Structure, Competition, and SME Financing Relationships in European Regions

Journal of Financial Services Research