Local Banks as Difficult-to-replace SME Lenders: Evidence from Bank Corrective Programs
Iftekhar Hasan, Krzysztof Jackowicz, Robert Jagiełło, Oskar Kowalewski, Łukasz Kozłowski
Journal of Banking and Finance,
February
2021
Abstract
In this study, we assess capabilities of different types of banks to cater to the financial needs of small and medium-sized enterprises (SMEs). Using a comprehensive dataset from an emerging economy, including the information on local banks’ corrective programs, we find that local banks remain difficult-to-replace lenders for SMEs. We show that presence of healthy local banks in an SME's vicinity immunizes the SME against the deterioration of access to bank financing linked to other local banks’ corrective programs. In contrast, large banks are unable to replace the lost lending from local competitors under corrective programs.
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Income Inequality and Minority Labor Market Dynamics: Medium Term Effects from the Great Recession
Salvador Contreras, Amit Ghosh, Iftekhar Hasan
Economics Letters,
February
2021
Abstract
Using a difference-in-differences framework we evaluate the effect that exposure to a bank failure in the Great Recession period had on income inequality. We find that it led to a 1% higher Gini, relative rise of 38 cents for high earners, and 7% decline for lowest earners in treated MSAs. Moreover, we show that blacks saw a decline of 10.2%, Hispanics 9.8%, and whites 5.1% in income. Low income blacks and Hispanics drove much of the effect on inequality.
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Supranational Rules, National Discretion: Increasing versus Inflating Regulatory Bank Capital
Reint E. Gropp, Thomas Mosk, Steven Ongena, Ines Simac, Carlo Wix
Abstract
The implementation of supranational regulations at the national level often provides national authorities with substantial room to engage in discretion and forbearance. Using evidence from a supranational increase in bank capital requirements, this column shows that national authorities may assist banks' efforts to inflate their regulatory capital to pass such supranational requirements. While supranational rules should be binding in theory, national discretion may effectively undermine them in practice.
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Real Estate Transaction Taxes and Credit Supply
Michael Koetter, Philipp Marek, Antonios Mavropoulos
Deutsche Bundesbank Discussion Paper,
Nr. 4,
2021
Abstract
We exploit staggered real estate transaction tax (RETT) hikes across German states to identify the effect of house price changes on mortgage credit supply. Based on approximately 33 million real estate online listings, we construct a quarterly hedonic house price index (HPI) between 2008:q1 and 2017:q4, which we instrument with state-speci c RETT changes to isolate the effect on mortgage credit supply by all local German banks. First, a RETT hike by one percentage point reduces HPI by 1.2%. This effect is driven by listings in rural regions. Second, a 1% contraction of HPI induced by an increase in the RETT leads to a 1.4% decline in mortgage lending. This transmission of fiscal policy to mortgage credit supply is effective across almost the entire bank capitalization distribution.
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A Note of Caution on Quantifying Banks' Recapitalization Effects
Felix Noth, Kirsten Schmidt, Lena Tonzer
Abstract
Unconventional monetary policy measures like asset purchase programs aim to reduce certain securities' yield and alter financial institutions' investment behavior. These measures increase the institutions' market value of securities and add to their equity positions. We show that the extent of this recapitalization effect crucially depends on the securities' accounting and valuation methods, country-level regulation, and maturity structure. We argue that future research needs to consider these factors when quantifying banks' recapitalization effects and consequent changes in banks' lending decisions to the real sector.
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01.02.2021 • 4/2021
Privatpersonen erhöhen Ersparnisse aufgrund fehlender Ausgabemöglichkeiten und nicht aus Angst vor Arbeitslosigkeit
Während der Corona-Krise haben europäische Haushalte so viel Geld zurückgelegt wie noch nie. Eine Analyse des Leibniz-Instituts für Wirtschaftsforschung Halle (IWH) führt dieses Sparverhalten hauptsächlich auf ein eingeschränktes Angebot infolge staatlicher Lockdown-Maßnahmen und nicht auf andere Faktoren wie ökonomische Unsicherheit zurück. IWH-Präsident Reint Gropp sieht daher Potenzial für eine rasche Wiederbelebung des Konsums und somit eine zügige wirtschaftliche Erholung, sobald der Lockdown aufgehoben wird.
Reint E. Gropp
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26.01.2021 • 3/2021
Krisensicherheit des europäischen Finanzsystems: Leopoldina und IWH organisieren Dialogveranstaltung
Steigende Arbeitslosigkeit und drohende Staatsinsolvenzen: Die Finanzkrise vor mehr als zehn Jahren hat ganz Europa getroffen. Die Folgen sind bis heute spürbar, zum Beispiel in Form niedriger Zinsen. Welche Lehren aus der Finanzkrise bisher gezogen wurden, ist Thema einer gemeinsamen Dialogveranstaltung der Nationalen Akademie der Wissenschaften Leopoldina und des Leibniz-Instituts für Wirtschaftsforschung Halle (IWH). Zu dieser Veranstaltung laden wir Sie herzlich ein und freuen uns über eine redaktionelle Erwähnung in Ihrem Medium.
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Benign Neglect of Covenant Violations: Blissful Banking or Ignorant Monitoring
Stefano Colonnello, Michael Koetter, Moritz Stieglitz
Economic Inquiry,
Nr. 1,
2021
Abstract
Theoretically, bank's loan monitoring activity hinges critically on its capitalization. To proxy for monitoring intensity, we use changes in borrowers' investment following loan covenant violations, when creditors can intervene in the governance of the firm. Exploiting granular bank‐firm relationships observed in the syndicated loan market, we document substantial heterogeneity in monitoring across banks and through time. Better capitalized banks are more lenient monitors that intervene less with covenant violators. Importantly, this hands‐off approach is associated with improved borrowers' performance. Beyond enhancing financial resilience, regulation that requires banks to hold more capital may thus also mitigate the tightening of credit terms when firms experience shocks.
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The Real Impact of Ratings-based Capital Rules on the Finance-Growth Nexus
Iftekhar Hasan, Gazi Hassan, Suk-Joong Kim, Eliza Wu
International Review of Financial Analysis,
January
2021
Abstract
We investigate whether ratings-based capital regulation has affected the finance-growth nexus via a foreign credit channel. Using quarterly data on short to medium term real GDP growth and cross-border bank lending flows from G-10 countries to 67 recipient countries, we find that since the implementation of Basel 2 capital rules, risk weight reductions mapped to sovereign credit rating upgrades have stimulated short-term economic growth in investment grade recipients but hampered growth in non-investment grade recipients. The impact of these rating upgrades is strongest in the first year and then reverses from the third year and onwards. On the other hand, there is a consistent and lasting negative impact of risk weight increases due to rating downgrades across all recipient countries. The adverse effects of ratings-based capital regulation on foreign bank credit supply and economic growth are compounded in countries with more corruption and less competitive banking sectors and are attenuated with greater political stability.
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Switching to Good Policy? The Case of Central and Eastern European Inflation Targeters
Andrej Drygalla
Macroeconomic Dynamics,
Nr. 8,
2020
Abstract
The paper analyzes how actual monetary policy changed following the official adoption of inflation targeting in the Czech Republic, Hungary, and Poland and how it affected the volatilities of important macroeconomic variables in the years thereafter. To disentangle the effects of the policy shift from exogenous changes in the volatilities of these variables, a Markov-switching dynamic stochastic general equilibrium model is estimated that allows for regime switches in the policy parameters and the volatilities of shocks hitting the economies. Whereas estimation results reveal periods of high and low volatility for all three economies, the presence of different policy regimes is supported by the underlying data for the Czech Republic and Poland, only. In both economies, monetary policy switched from weak and unsystematic to strong and systematic responses to inflation dynamics. Simulation results suggest that the policy shifts of both central banks successfully reduced inflation volatility in the following years. The observed reduction in output volatility, on the other hand, is attributed more to a reduction in the size of external shocks.
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