presse@iwh-halle.de
Pills or puts?
Shuo Xia
Financial Times, February 2, 2024
This paper shows that by reducing the cyclicality of deposit costs and internal funds (profits), deposit market power reduces banks’ funding risk and provides the flexibility to originate long-term loans.
Banks’ limited knowledge about borrowers’ creditworthiness constitutes an important friction in credit markets. Is this friction deeper in recessions, thereby contributing to cyclical swings in credit?
We exploit detailed data on approved and rejected small-business loans to assess the impact of a new credit registry in Bosnia and Herzegovina.
We offer new evidence on the real effects of credit shocks in the presence of employment protection regulations by exploiting a unique provision in Spanish labor laws: dismissal rules are less stringent for Spanish firms with fewer than 50 employees, lowering the cost of hiring new workers.
Despite their importance, the discussion of spillover effects in empirical research misses the rigor dedicated to endogeneity concerns.
We identify the effects of exogenous credit constraints on firm ability to attract and retain skilled workers. To do so, we exploit a shock to the value of the pension obligations of Portuguese banks resulting from a change in accounting norms.