Trust in Banks
Zuzana Fungáčová, Iftekhar Hasan, Laurent Weill
Journal of Economic Behavior and Organization,
2019
Abstract
Trust in banks is considered essential for an effective financial system, yet little is known about what determines trust in banks. Only a handful of single-country studies discuss the topic, so this paper aims to fill the gap by providing a cross-country analysis on the level and determinants of trust in banks. Using World Values Survey data covering 52 countries during the period 2010–2014, we observe large cross-country differences in trust in banks and confirm the influence of several sociodemographic indicators. Our main findings include: women tend to trust banks more than men; trust in banks tends to increase with income, but decrease with age and education; and access to television enhances trust, while internet access erodes trust. Additionally, religious, political, and economic values affect trust in banks. Notably, religious individuals tend to put greater trust in banks, but differences are observed across denominations. The holding of pro-market economic views is also associated with greater trust in banks.
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The Case for a European Rating Agency: Evidence from the Eurozone Sovereign Debt Crisis
Marc Altdörfer, Carlos A. De las Salas Vega, Andre Guettler, Gunter Löffler
Journal of International Financial Markets, Institutions and Money,
2019
Abstract
Politicians frequently voice that European bond issuers would benefit from the presence of a Europe-based rating agency. We take Fitch as a prototype for such an agency. With its ownership structure and a headquarter in London, Fitch is more European than Moody’s and S&P; during the Eurozone sovereign debt crisis, it also issued more favorable ratings. Fitch’s rating actions, however, were largely ignored by the bond market. Our results thus cast doubt on the benefits of a European credit rating agency.
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May the Force Be with You: Exit Barriers, Governance Shocks, and Profitability Sclerosis in Banking
Michael Koetter, Carola Müller, Felix Noth, Benedikt Fritz
Deutsche Bundesbank Discussion Paper,
No. 49,
2018
Abstract
We test whether limited market discipline imposes exit barriers and poor profitability in banking. We exploit an exogenous shock to the governance of government-owned banks: the unification of counties. County mergers lead to enforced government-owned bank mergers. We compare forced to voluntary bank exits and show that the former cause better bank profitability and efficiency at the expense of riskier financial profiles. Regarding real effects, firms exposed to forced bank mergers borrow more at lower cost, increase investment, and exhibit higher employment. Thus, reduced exit frictions in banking seem to unleash the economic potential of both banks and firms.
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China’s Monetary Policy Communication: Frameworks, Impact, and Recommendations
Michael McMahon, Alfred Schipke, Xiang Li
IMF Working Paper No. 18/244,
2018
Abstract
Financial markets are eager for any signal of monetary policy from the People’s Bank of China (PBC). The importance of effective monetary policy communication will only increase as China continues to liberalize its financial system and open its economy. This paper discusses the country’s unique institutional setup and empirically analyzes the impact on financial markets of the PBC’s main communication channels, including a novel communication channel. The results suggest that there has been significant progress but that PBC communication is still evolving toward the level of other major economies. The paper recommends medium-term policy reforms and reforms that can be adopted quickly.
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Taken by Storm: Business Financing and Survival in the Aftermath of Hurricane Katrina
Emek Basker, Javier Miranda
Journal of Economic Geography,
No. 6,
2018
Abstract
We use Hurricane Katrina’s damage to the Mississippi coast in 2005 as a natural experiment to study business survival in the aftermath of a capital-destruction shock. We find very low survival rates for businesses that incurred physical damage, particularly for small firms and less-productive establishments. Conditional on survival, larger and more-productive businesses that rebuilt their operations hired more workers than their smaller and less-productive counterparts. Auxiliary evidence from the Survey of Business Owners suggests that the differential size effect is tied to the presence of financial constraints, pointing to a socially inefficient level of exits and to distortions of allocative efficiency in response to this negative shock. Over time, the size advantage disappeared and market mechanisms seem to prevail.
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Avoiding the Fall into the Loop: Isolating the Transmission of Bank-to-Sovereign Distress in the Euro Area and its Drivers
Hannes Böhm, Stefan Eichler
Abstract
We isolate the direct bank-to-sovereign distress channel within the eurozone’s sovereign-bank-loop by exploiting the global, non-eurozone related variation in stock prices. We instrument banking sector stock returns in the eurozone with exposure-weighted stock market returns from non-eurozone countries and take further precautions to remove any eurozone crisis-related variation. We find that the transmission of instrumented bank distress, while economically relevant, is significantly smaller than the corresponding coefficient in the unadjusted OLS framework, confirming concerns on reverse causality and omitted variables in previous studies. Furthermore, we show that the spillover of bank distress is significantly stronger for countries with poorer macroeconomic performances, weaker financial sectors and financial regulation and during times of elevated political uncertainty.
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Housing Consumption and Macroprudential Policies in Europe: An Ex Ante Evaluation
Antonios Mavropoulos, Qizhou Xiong
IWH Discussion Papers,
No. 17,
2018
Abstract
In this paper, we use the panel of the first two waves of the Household Finance and Consumption Survey by the European Central Bank to study housing demand of European households and evaluate potential housing market regulations in the post-crisis era. We provide a comprehensive account of the housing decisions of European households between 2010 and 2014, and structurally estimate the housing preference of a simple life-cycle housing choice model. We then evaluate the effect of a tighter LTV/LTI regulation via counter-factual simulations. We find that those regulations limit homeownership and wealth accumulation, reduces housing consumption but may be welfare improving for the young households.
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Interactions Between Regulatory and Corporate Taxes: How Is Bank Leverage Affected?
Franziska Bremus, Kirsten Schmidt, Lena Tonzer
Abstract
Regulatory bank levies set incentives for banks to reduce leverage. At the same time, corporate income taxation makes funding through debt more attractive. In this paper, we explore how regulatory levies affect bank capital structure, depending on corporate income taxation. Based on bank balance sheet data from 2006 to 2014 for a panel of EU-banks, our analysis yields three main results: The introduction of bank levies leads to lower leverage as liabilities become more expensive. This effect is weaker the more elevated corporate income taxes are. In countries charging very high corporate income taxes, the incentives of bank levies to reduce leverage turn ineffective. Thus, bank levies can counteract the debt bias of taxation only partially.
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