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Professor Michael Koetter, PhD

Professor Michael Koetter, PhD
Current Position

since 9/16

Head of the Department of Financial Markets

Halle Institute for Economic Research (IWH) - Member of the Leibniz Association 

since 9/16

Professor of Financial Economics

Otto von Guericke University Magdeburg

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Research Interests
  • corporate investment allocation and aggregate growth
  • financial intermediation
  • financial stability and banking regulation
  • risk taking and competition
  • real implications of monetary and economic policy

Michael Koetter is Professor of Financial Economics at the Otto von Guericke University Magdeburg and head of the Financial Markets department at IWH since September 2016. The department is host to the annual FIN-FIRE conference on challenges to financial stability.

His research interests concern generally the causal effects of policy actions on financial and non-financial agents’ behaviour. Specific topics are the role of micro- and macro-prudential regulation for the stability of financial systems as well as whether and how financial intermediaries help or hinder the re-allocation of productive resources amongst firms, sectors, and countries. The political economy of financial and economic systems with regards to market structure and risk-resilience is another topic of interest.

Michael Koetter obtained his PhD in economics from Utrecht University and his MSc in international economics from the University of Maastricht. Prior to joining IWH, he was a Professor at Frankfurt School of Finance & Management (2012-2016) and the University of Groningen (2006-2012). He currently serves as a member of the scientific advisory board of the Research Data and Service Center of Deutsche Bundesbank, an editor at the Economics of Transition, and the Vice President of the IBEFA association.

Your contact

Professor Michael Koetter, PhD
Professor Michael Koetter, PhD
Leiter - Department Financial Markets
Send Message +49 345 7753-727

Publications

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Delay Determinants of European Banking Union Implementation

Michael Koetter Thomas Krause Lena Tonzer

in: European Journal of Political Economy, forthcoming

Abstract

Most countries in the European Union (EU) delay the transposition of European Commission (EC) directives, which aim at reforming banking supervision, resolution, and deposit insurance. We compile a systematic overview of these delays to investigate if they result from strategic considerations of governments conditional on the state of their financial, regulatory, and political systems. Transposition delays pertaining to the three Banking Union directives differ considerably across the 28 EU members. Bivariate regression analyses suggest that existing national bank regulation and supervision drive delays the most. Political factors are less relevant. These results are qualitatively insensitive to alternative estimation methods and lag structures. Multivariate analyses highlight that well-stocked deposit insurance schemes speed-up the implementation of capital requirements, banking systems with many banks are slower in implementing new bank rescue and resolution rules, and countries with a more intensive sovereign-bank nexus delay the harmonization of EU deposit insurance more.

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Cross-border Transmission of Emergency Liquidity

Thomas Kick Michael Koetter Manuela Storz

in: Journal of Banking & Finance, forthcoming

Abstract

We show that emergency liquidity provision by the Federal Reserve transmitted to non-U.S. banking markets. Based on manually collected holding company structures, we identify banks in Germany with access to U.S. facilities. Using detailed interest rate data reported to the German central bank, we compare lending and borrowing rates of banks with and without such access. U.S. liquidity shocks cause a significant decrease in the short-term funding costs of the average German bank with access. This reduction is mitigated for banks with more vulnerable balance sheets prior to the inception of emergency liquidity. We also find a significant pass-through in terms of lower corporate credit rates charged for banks with the lowest pre-crisis leverage, US-dollar funding needs, and liquidity buffers. Spillover effects from U.S. emergency liquidity provision are generally confined to short-term rates.

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Too Connected to Fail? Inferring Network Ties from Price Co-movements

Jakob Bosma Michael Koetter Michael Wedow

in: Journal of Business & Economic Statistics, forthcoming

Abstract

We use extreme value theory methods to infer conventionally unobservable connections between financial institutions from joint extreme movements in credit default swap spreads and equity returns. Estimated pairwise co-crash probabilities identify significant connections among up to 186 financial institutions prior to the crisis of 2007/2008. Financial institutions that were very central prior to the crisis were more likely to be bailed out during the crisis or receive the status of systemically important institutions. This result remains intact also after controlling for indicators of too-big-to-fail concerns, systemic, systematic, and idiosyncratic risks. Both CDS-based and Equity-based connections are significant predictors of bailouts.

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Working Papers

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Benign Neglect of Covenant Violations: Blissful Banking or Ignorant Monitoring?

Stefano Colonnello Michael Koetter Moritz Stieglitz

in: IWH Discussion Papers, No. 3, 2019

Abstract

Theoretically, bank‘s loan monitoring activity hinges critically on its capitalisation. 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 capitalised 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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Effectiveness and (In)Efficiencies of Compensation Regulation: Evidence from the EU Banker Bonus Cap

Stefano Colonnello Michael Koetter Konstantin Wagner

in: IWH Discussion Papers, No. 7, 2018

Abstract

We study if the regulation of bank executive compensation has unintended consequences. Based on novel data on CEO and non-CEO executives in EU banking, we show that capping the variable-to-fixed compensation ratio did not induce executives to abandon the industry. Banks indemnified executives sufficiently for the shock to retain them by raising fixed and lowering variable compensation while complying with the cap. At the same time, banks‘ risk-adjusted performance deteriorated due to increased idiosyncratic risk. Collateral damage for the financial system as a whole appears modest though, as average co-movement of banks with the market declined under the cap.

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Do We Want These Two to Tango? On Zombie Firms and Stressed Banks in Europe

Manuela Storz Michael Koetter Ralph Setzer Andreas Westphal

in: ECB Working Paper, 2017

Abstract

We show that the speed and type of corporate deleveraging depends on the interaction between corporate and financial sector health. Based on granular bank-firm data pertaining to small and medium-sized enterprises (SME) from five stressed and two non-stressed euro area economies, we show that “zombie” firms generally continued to lever up during the 2010–2014 period. Whereas relationships with stressed banks reduce SME leverage on average, we also show that zombie firms that are tied to weak banks in euro area periphery countries increase their indebtedness even further. Sustainable economic recovery therefore requires both: deleveraging of banks and firms.

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Related Topics

Financial Institutions Financial Markets Policy Evaluation Monetary Policy The new Europe Risk Regulation
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