Suppliers as Liquidity Insurers
Reint E. Gropp, Daniel Corsten, Panos Markou
IWH Discussion Papers,
No. 8,
2017
Abstract
We examine how financial constraints in portfolios of suppliers affect cash holdings at the level of the customer. Utilizing a data set of private and public French companies and their suppliers, we show that customers rely on their financially unconstrained suppliers to provide them with backup liquidity, and that they stockpile approximately 10% less cash than customers with constrained suppliers. This effect persisted during the global financial crisis, highlighting that suppliers may be viable insurers of liquidity even when financing from banks and other external channels is unavailable. We further show that customers with unconstrained suppliers also simultaneously receive more trade credit; that the reduction in cash holdings is greater for firms with stronger ties to their unconstrained suppliers; and that customers reduce their cash holdings following a significant relaxation in their suppliers’ financial constraints through an IPO. Taken together, the results provide important nuance regarding the implications of supplier portfolios and financial constraints on firm liquidity management.
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Banking Globalization, Local Lending, and Labor Market Effects: Micro-level Evidence from Brazil
Felix Noth, Matias Ossandon Busch
Abstract
This paper estimates the effect of a foreign funding shock to banks in Brazil after the collapse of Lehman Brothers in September 2008. Our robust results show that bank-specific shocks to Brazilian parent banks negatively affected lending by their individual branches and trigger real economic consequences in Brazilian municipalities: More affected regions face restrictions in aggregated credit and show weaker labor market performance in the aftermath which documents the transmission mechanism of the global financial crisis to local labor markets in emerging countries. The results represent relevant information for regulators concerned with the real effects of cross-border liquidity shocks.
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The Risk‐Taking Channel of Monetary Policy in the U.S.: Evidence from Corporate Loan Data
Manthos D. Delis, Iftekhar Hasan, Nikolaos Mylonidis
Journal of Money, Credit and Banking,
No. 1,
2017
Abstract
To study the presence of a risk-taking channel in the U.S., we build a comprehensive data set from the syndicated corporate loan market and measure monetary policy using different measures, most notably Taylor (1993) and Romer and Romer (2004) residuals. We identify a negative relation between monetary policy rates and bank risk-taking, especially in the run up to the 2007 financial crisis. However, this effect is purely supply-side driven only when using Taylor residuals and an ex ante measure of bank risk-taking. Our results highlight the sensitivity of the potency of the risk-taking channel to the measures of monetary policy innovations.
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Sovereign Credit Risk Co-movements in the Eurozone: Simple Interdependence or Contagion?
Manuel Buchholz, Lena Tonzer
International Finance,
No. 3,
2016
Abstract
We investigate credit risk co-movements and contagion in the sovereign debt markets of 17 industrialized countries during the period 2008–2012. We use dynamic conditional correlations of sovereign credit default swap spreads to detect contagion. This approach allows us to separate contagion channels from the determinants of simple interdependence. The results show that, first, sovereign credit risk co-moves considerably, particularly among eurozone countries and during the sovereign debt crisis. Second, contagion varies across time and countries. Third, similarities in economic fundamentals, cross-country linkages in banking and common market sentiment constitute the main channels of contagion.
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On the Nonexclusivity of Loan Contracts: An Empirical Investigation
Hans Degryse, Vasso Ioannidou, Erik von Schedvin
Management Science,
No. 12,
2016
Abstract
We study how a bank's willingness to lend to a previously exclusive firm changes once the firm obtains a loan from another bank ("outside loan") and breaks an exclusive relationship. Using a difference-in-difference analysis and a setting where outside loans are observable, we document that an outside loan triggers a decrease in the initial bank's willingness to lend to the firm, i.e., outside loans are strategic substitutes. Consistent with concerns about coordination problems and higher indebtedness, we find that this reaction is more pronounced the larger the outside loan and it is muted if the initial bank's existing and future loans retain seniority and are protected with valuable collateral. Our results give a benevolent role to transparency enabling banks to mitigate adverse effects from outside loans. The resulting substitute behavior may also act as a stabilizing force in credit markets limiting positive comovements between lenders, decreasing the possibility of credit freezes and financial crises.
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Borrowers Under Water! Rare Disasters, Regional Banks, and Recovery Lending
Michael Koetter, Felix Noth, Oliver Rehbein
Abstract
We show that local banks provide corporate recovery lending to firms affected by ad-verse regional macro shocks. Banks that reside in counties unaffected by the natural disaster that we specify as macro shock increase lending to firms inside affected counties by 3%. Firms domiciled in flooded counties, in turn, increase corporate borrowing by 16% if they are connected to banks in unaffected counties. We find no indication that recovery lending entails excessive risk-taking or rent-seeking. However, within the group of shock-exposed banks, those without access to geographically more diversified interbank markets exhibit more credit risk and less equity capital.
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Mortgage Companies and Regulatory Arbitrage
Yuliya Demyanyk, Elena Loutskina
Journal of Financial Economics,
No. 2,
2016
Abstract
Mortgage companies (MCs) do not fall under the strict regulatory regime of depository institutions. We empirically show that this gap resulted in regulatory arbitrage and allowed bank holding companies (BHCs) to circumvent consumer compliance regulations, mitigate capital requirements, and reduce exposure to loan-related losses. Compared to bank subsidiaries, MC subsidiaries of BHCs originated riskier mortgages to borrowers with lower credit scores, lower incomes, higher loan-to-income ratios, and higher default rates. Our results imply that precrisis regulations had the capacity to mitigate the deterioration of lending standards if consistently applied and enforced for all types of intermediaries.
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Foreign Funding Shocks and the Lending Channel: Do Foreign Banks Adjust Differently?
Felix Noth, Matias Ossandon Busch
Finance Research Letters,
November
2016
Abstract
We document for a set of Latin American emerging countries that the different nature of foreign funding accessed by foreign and local banks affected their lending performance after September 2008. We show that lending growth was weaker for shock-affected foreign banks compared to shock-affected local banks. This evidence represents valuable policy information for regulators concerned with the stability and well-functioning of banking sectors.
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Taxing Banks: An Evaluation of the German Bank Levy
Claudia M. Buch, Björn Hilberg, Lena Tonzer
Journal of Banking and Finance,
November
2016
Abstract
Bank distress can have severe negative consequences for the stability of the financial system. Regimes for the restructuring and resolution of banks, financed by bank levies, aim at reducing these costs. This paper evaluates the German bank levy, which has been implemented since 2011. Our analysis offers three main insights. First, revenues raised through the levy were lower than expected. Second, the bulk of the payments were contributed by large commercial banks and by the central institutions of savings banks and credit unions. Third, for those banks, which were affected by the levy, we find evidence for a reduction in lending and higher deposit rates.
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