Publications

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Do Asset Purchase Programmes Shape Industry Dynamics? Evidence from the ECB's SMP on Plant Entries and Exits

Manfred Antoni, Michael Koetter, Steffen Müller, Talina Sondershaus
IWH Discussion Papers, No. 12, 2019
Abstract
Asset purchase programmes (APPs) may insulate banks from having to terminate relationships with unproductive customers. Using administrative plant and bank data, we test whether APPs impinge on industry dynamics in terms of plant entry and exit. Plants in Germany connected to banks with access to an APP are approximately 20% less likely to exit. In particular, unproductive plants connected to weak banks with APP access are less likely to close. Aggregate entry and exit rates in regional markets with high APP exposures are also lower. Thus, APPs seem to subdue Schumpeterian cleansing mechanisms, which may hamper factor reallocation and aggregate productivity growth.
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Benign Neglect of Covenant Violations: Blissful Banking or Ignorant Monitoring?

Stefano Colonnello, Michael Koetter, Moritz Stieglitz
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
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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Delay Determinants of European Banking Union Implementation

Michael Koetter, Thomas Krause, Lena Tonzer
IWH Discussion Papers, No. 24, 2017
published in: European Journal of Political Economy
Abstract
To safeguard financial stability and harmonise regulation, the European Commission substantially reformed banking supervision, resolution, and deposit insurance via EU directives. But most countries delay the transposition of these directives. We ask if transposition delays result from strategic considerations of governments conditional on the state of their financial, regulatory, and political systems? Supervisors might try to protect national banking systems and local politicians maybe reluctant to surrender national sovereignty to deal with failed banks. Alternatively, intricate financial regulation might require more implementation time in large and complex financial and political systems. We therefore collect data on the transposition delays of the three Banking Union directives and investigate observed delay variation across member states. Our correlation analyses suggest that existing regulatory and institutional frameworks, rather than banking market structure or political factors, matter for transposition delays.
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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
IWH Discussion Papers, No. 13, 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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Borrowers Under Water! Rare Disasters, Regional Banks, and Recovery Lending

Michael Koetter, Felix Noth, Oliver Rehbein
IWH Discussion Papers, No. 31, 2016
published in: Journal of Financial Intermediation
Abstract
We test if and how banks adjust their lending in response to disaster risk in the form of a natural catastrophe striking its customers: the 2013 Elbe flooding. The flood affected firms in East and South Germany, and we identify shocked banks based on bank-firm relationships gathered for more than a million firms. Banks with relationships to flooded firms lend 13-23% more than banks without such customers compared to the preflooding period. This lending hike is associated with higher profitability and reduced risk. Our results suggest that local banks are an effective mechanism to mitigate rare disaster shocks faced especially by small and medium firms.
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Banks and Sovereign Risk: A Granular View

Claudia M. Buch, Michael Koetter, Jana Ohls
IWH Discussion Papers, No. 12, 2015
published in: Journal of Financial Stability
Abstract
We identify the determinants of all German banks’ sovereign debt exposures between 2005 and 2013 and test for the implications of these exposures for bank risk. Larger, more capital market affine, and less capitalised banks hold more sovereign bonds. Around 15% of all German banks never hold sovereign bonds during the sample period. The sensitivity of sovereign bond holdings by banks to eurozone membership and inflation increased significantly since the collapse of Lehman Brothers. Since the outbreak of the sovereign debt crisis, banks prefer sovereigns with lower debt ratios and lower bond yields. Finally, we find that riskiness of government bond holdings affects bank risk only since 2010. This confirms the existence of a nexus between government debt and bank risk.
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Monetary Policy under the Microscope: Intra-bank Transmission of Asset Purchase Programs of the ECB

L. Cycon, Michael Koetter
IWH Discussion Papers, No. 9, 2015
Abstract
With a unique loan portfolio maintained by a top-20 universal bank in Germany, this study tests whether unconventional monetary policy by the European Central Bank (ECB) reduced corporate borrowing costs. We decompose corporate lending rates into refinancing costs, as determined by money markets, and markups that the bank is able to charge its customers in regional markets. This decomposition reveals how banks transmit monetary policy within their organizations. To identify policy effects on loan rate components, we exploit the co-existence of eurozone-wide security purchase programs and regional fiscal policies at the district level. ECB purchase programs reduced refinancing costs significantly, even in an economy not specifically targeted for sovereign debt stress relief, but not loan rates themselves. However, asset purchases mitigated those loan price hikes due to additional credit demand stimulated by regional tax policy and enabled the bank to realize larger economic margins.
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Friend or Foe? Crowdfunding Versus Credit when Banks are Stressed

Daniel Blaseg, Michael Koetter
IWH Discussion Papers, No. 8, 2015
Abstract
Does bank instability push borrowers to use crowdfunding as a source of external finance? We identify stressed banks and link them to a unique, manually constructed sample of 157 new ventures seeking equity crowdfunding. The sample comprises projects from all German equity crowdfunding platforms since 2011, which we compare with 200 ventures that do not use crowdfunding. Crowdfunding is significantly more likely for new ventures that interact with stressed banks. Innovative funding is thus particularly relevant when conventional financiers are facing crises. But crowdfunded ventures are generally also more opaque and risky than new ventures that do not use crowdfunding.
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