Surges and Instability: The Maturity Shortening Channel
Xiang Li, Dan Su
Journal of International Economics,
November
2022
Abstract
Capital inflow surges destabilize the economy through a maturity shortening mechanism. The underlying reason is that firms have incentives to redeem their debt on demand to accommodate the potential liquidity needs of global investors, which makes international borrowing endogenously fragile. Based on a theoretical model and empirical evidence at both the firm and macro levels, our main findings are twofold. First, a significant association exists between surges and shortened corporate debt maturity, especially for firms with foreign bank relationships and higher redeployability. Second, the probability of a crisis following surges with a flattened yield curve is significantly higher than that following surges without one. Our study suggests that debt maturity is the key to understand the financial instability consequences of capital inflow bonanzas.
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The Effect of Firm Subsidies on Credit Markets
Aleksandr Kazakov, Michael Koetter, Mirko Titze, Lena Tonzer
IWH Discussion Papers,
No. 24,
2022
Abstract
We use granular project-level information for the largest regional economic development program in German history to study whether government subsidies to firms affect the quantity and quality of bank lending. We combine the universe of recipient firms under the Improvement of Regional Economic Structures program (GRW) with their local banks during 1998-2019. The modalities of GRW subsidies to firms are determined at the EU level. Therefore, we use it to identify bank outcomes. Banks with relationships to more subsidized firms exhibit higher lending volumes without any significant differences in bank stability. Subsidized firms, in turn, borrow more indicating that banks facilitate regional economic development policies.
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Carbon Transition Risk and Corporate Loan Securitization
Isabella Müller, Huyen Nguyen, Trang Nguyen
IWH Discussion Papers,
No. 22,
2022
Abstract
We examine how banks manage carbon transition risk by selling loans given to polluting borrowers to less regulated shadow banks in securitization markets. Exploiting the election of Donald Trump as an exogenous shock that reduces carbon risk, we find that banks’ securitization decisions are sensitive to borrowers’ carbon footprints. Banks are more likely to securitize brown loans when carbon risk is high but swiftly change to keep these loans on their balance sheets when carbon risk is reduced after Trump’s election. Importantly, securitization enables banks to offer lower interest rates to polluting borrowers but does not affect the supply of green loans. Our findings are more pronounced among domestic banks and banks that do not display green lending preferences. We discuss how securitization can weaken the effectiveness of bank climate policies through reducing banks’ incentives to price carbon risk.
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Aktuelle Trends: Polarisierung des Hausbankprinzips in Deutschland
Michael Koetter, Felix Noth
Wirtschaft im Wandel,
No. 3,
2022
Abstract
Kleine und mittlere Unternehmen spielen eine tragende Rolle in der deutschen Wirtschaftsstruktur. Der Finanzierungsbedarf dieser Unternehmen wird dabei traditionell durch regional tätige Banken bedient, insbesondere durch dem Regionalprinzip verpflichtete Sparkassen in öffentlicher Hand und durch Genossenschaftsbanken, die sich ebenfalls in regional abgegrenzten Märkten um ihre Kunden kümmern.
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Die Kosten von Wahlversprechen: Wie lokale Sparkassen eine neue Landesregierung finanzieren
Michael Koetter, Shasha Li, Paulina Scheit
Wirtschaft im Wandel,
No. 3,
2022
Abstract
Staatliche Banken in Deutschland verfolgen einen lokalen Entwicklungsauftrag in ihrer jeweiligen Gemeinde. Da sie dem Staat gehören, sind sie jedoch politischem Einfluss ausgesetzt. Dies birgt das Risiko, dass eine politisierte Mittelvergabe den Entwicklungsauftrag beeinträchtigt. Dennoch ist erstaunlich wenig darüber bekannt, ob die Kreditvergabe durch Banken in staatlichem Besitz in erster Linie dem Ziel der Entwicklung der Region oder einem politischen Ziel dient. In diesem Beitrag wird untersucht, wie sich ein Wechsel der Regierungspartei auf Landesebene auf die Kreditvergabe durch Sparkassen an die Landesregierung in Deutschland zwischen 1992 und 2018 ausgewirkt hat. Die Schätzergebnisse bestätigen: Lokale Sparkassen erhöhen nach einem wahlbedingten Wechsel der Regierungspartei die Kreditvergabe an die Landesregierung – auf Kosten der Kreditvergabe an lokale Haushalte. Ein Regierungswechsel kann also die Indienstnahme der Sparkassen für landespolitische Ziele aktivieren und möglicherweise ihren öffentlichen Auftrag zur lokalen Entwicklung beeinträchtigen.
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Capital Markets Union: Database of Directives and Regulations
Moritz Emlein, Eleonora Sfrappini, Lena Tonzer, Cristina Zgherea
IWH Technical Reports,
No. 2,
2022
Abstract
In 2015, the European Commission adopted the Capital Markets Union (CMU) action plan. The plan aims to deepen financial integration and harmonize international standards for investments within the European Union (EU) and it outlines several actions to be implemented in order to address twelve key priority areas. We assemble a database of the legislative acts that implement the CMU. The dataset includes a list of directives and regulations at the EU level with information on publication, entry into force, and transposition dates as well as brief descriptions. This information might be useful in empirical analyses assessing the effectiveness of components of the CMU.
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Completing the European Banking Union: Capital Cost Consequences for Credit Providers and Corporate Borrowers
Michael Koetter, Thomas Krause, Eleonora Sfrappini, Lena Tonzer
European Economic Review,
September
2022
Abstract
The bank recovery and resolution directive (BRRD) regulates the bail-in hierarchy to resolve distressed banks in the European Union (EU). Using the staggered BRRD implementation across 15 member states, we identify banks’ capital cost responses and subsequent pass-through to borrowers towards surprise elements due to national transposition details. Average bank capital costs increase heterogeneously across countries with strongest funding cost hikes observed for banks located in GIIPS and non-EMU countries. Only banks in core E(M)U countries that exhibit higher funding costs increase credit spreads for corporate borrowers and contract credit supply. Tighter credit conditions are only passed on to more levered and less profitable firms. On balance, the national implementation of BRRD appears to have strengthened financial system resilience without a pervasive hike in borrowing costs.
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BigTech Credit, Small Business, and Monetary Policy Transmission: Theory and Evidence
Yiping Huang, Xiang Li, Han Qiu, Dan Su, Changhua Yu
IWH Discussion Papers,
No. 18,
2022
Abstract
This paper provides both theoretical and empirical analyses of the differences between BigTech lenders and traditional banks in response to monetary policy changes. Our model integrates Knightian uncertainty into portfolio selection and posits that BigTech lenders possess a diminishing informational advantage with increasing firm size, resulting in reduced ambiguity when lending to smaller firms. The model suggests that the key distinction between BigTech lenders and traditional banks in response to shifts in funding costs, triggered by monetary policy changes, is more evident at the extensive margin rather than the intensive margin, particularly during periods of easing monetary policy. Using a micro-level dataset of small business loans from both types of lenders, we provide empirical support for our theoretical propositions. Our results show that BigTech lenders are more responsive in establishing new lending relationships in an easing monetary policy environment, while the differences in loan amounts are not statistically significant. We also discuss other loan terms and the implications of regulatory policies.
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The Cleansing Effect of Banking Crises
Reint E. Gropp, Steven Ongena, Jörg Rocholl, Vahid Saadi
Economic Inquiry,
No. 3,
2022
Abstract
We assess the cleansing effects of the 2008–2009 financial crisis. U.S. regions with higher levels of supervisory forbearance on distressed banks see less restructuring in the real sector: fewer establishments, firms, and jobs are lost when more distressed banks remain in business. In these regions, the banking sector has been less healthy for several years after the crisis. Regions with less forbearance experience higher productivity growth after the crisis with more firm entries, job creation, and employment, wages, patents, and output growth. Forbearance is greater for state-chartered banks and in regions with weaker banking competition and more independent banks.
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A Note on the Use of Syndicated Loan Data
Isabella Müller, Felix Noth, Lena Tonzer
IWH Discussion Papers,
No. 17,
2022
Abstract
Syndicated loan data provided by DealScan is an essential input in banking research. This data is rich enough to answer urging questions on bank lending, e.g., in the presence of financial shocks or climate change. However, many data options raise the question of how to choose the estimation sample. We employ a standard regression framework analyzing bank lending during the financial crisis of 2007/08 to study how conventional but varying usages of DealScan affect the estimates. The key finding is that the direction of coefficients remains relatively robust. However, statistical significance depends on the data and sampling choice and we provide guidelines for applied research.
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