Financial System Adaptability and Resilience
This research group investigates critical aspects of financial system adaptability and resilience. First, it analyses the impact of natural disasters on financial systems. Second, the group aims to investigate the effects of political preferences for the green transition. Third, the group's research analyses the role of culture in economies.
Research ClusterFinancial Resilience and Regulation
07.2016 ‐ 12.2018
Relationship Lenders and Unorthodox Monetary Policy: Investment, Employment, and Resource Reallocation Effects
We combine a number of unique and proprietary data sources to measure the impact of relationship lenders and unconventional monetary policy during and after the European sovereign debt crisis on the real economy. Establishing systematic links between different research data centers (Forschungsdatenzentren, FDZ) and central banks with detailed micro-level information on both financial and real activity is the stand-alone proposition of our proposal. The main objective is to permit the identification of causal effects, or their absence, regarding which policies were conducive to mitigate financial shocks and stimulate real economic activities, such as employment, investment, or the closure of plants.
01.2015 ‐ 12.2019
Interactions between Bank-specific Risk and Macroeconomic Performance
German Research Foundation (DFG)
Labor Market Volatility, Skills, and Financial Globalization
in: Macroeconomic Dynamics, No. 5, 2014
We analyze the impact of financial globalization on volatilities of hours worked and wages of high-skilled and low-skilled workers. Using cross-country, industry-level data for the years 1970–2004, we establish stylized facts that document how volatilities of hours worked and wages of workers with different skill levels have changed over time. We then document that the volatility of hours worked by low-skilled workers has increased the most in response to the increase in financial globalization. We develop a dynamic stochastic general equilibrium model of a small open economy that is consistent with the empirical results. The model predicts that greater financial globalization increases the volatility of hours worked, and this effect is strongest for low-skilled workers.
Do Better Capitalized Banks Lend Less? Long-run Panel Evidence from Germany
in: International Finance, No. 1, 2014
Higher capital features prominently in proposals for regulatory reform. But how does increased bank capital affect business loans? The real costs of increased bank capital in terms of reduced loans are widely believed to be substantial. But the negative real-sector implications need not be severe. In this paper, we take a long-run perspective by analysing the link between the capitalization of the banking sector and bank loans using panel cointegration models. We study the evolution of the German economy for the past 44 years. Higher bank capital tends to be associated with higher business loan volume, and we find no evidence for a negative effect. This result holds both for pooled regressions as well as for the individual banking groups in Germany.
An Empirical Analysis of Legal Insider Trading in The Netherlands
in: De Economist, No. 1, 2014
In this paper, we employ a registry of legal insider trading for Dutch listed firms to investigate the information content of trades by corporate insiders. Using a standard event-study methodology, we examine short-term stock price behavior around trades. We find that purchases are followed by economically large abnormal returns. This result is strongest for purchases by top executives and for small market capitalization firms, which is consistent with the hypothesis that legal insider trading is an important channel through which information flows to the market. We analyze also the impact of the implementation of the Market Abuse Directive (European Union Directive 2003/6/EC), which strengthens the existing regulation in the Netherlands. We show that the new regulation reduced the information content of sales by top executives.
Discussion of De Haas and Van Lelyveld
in: Journal of Money, Credit and Banking, s1 2014read publication
Is More Finance Better? Disentangling Intermediation and Size Effects of Financial Systems
in: Journal of Financial Stability, 2014
Financial systems all over the world have grown dramatically over recent decades. But is more finance necessarily better? And what concept of financial system – a focus on its size, including both intermediation and other auxiliary “non-intermediation” activities, or a focus on traditional intermediation activity – is relevant for its impact on real sector outcomes? This paper assesses the relationship between the size of the financial system and intermediation, on the one hand, and GDP per capita growth and growth volatility, on the other hand. Based on a sample of 77 countries for the period 1980–2007, we find that intermediation activities increase growth and reduce volatility in the long run. An expansion of the financial sectors along other dimensions has no long-run effect on real sector outcomes. Over shorter time horizons a large financial sector stimulates growth at the cost of higher volatility in high-income countries. Intermediation activities stabilize the economy in the medium run especially in low-income countries. As this is an initial exploration of the link between financial system indicators and growth and volatility, we focus on OLS regressions, leaving issues of endogeneity and omitted variable biases for future research.
Long-run Competitive Spillovers of the Credit Crunch
in: IWH Discussion Papers, No. 10, 2023
Competition in the U.S. appears to have declined. One contributing factor may have been heterogeneity in the availability of credit during the financial crisis. I examine the impact of product market peer credit constraints on long-run competitive outcomes and behavior among non-financial firms. I use measures of lender exposure to the financial crisis to create a plausibly exogenous instrument for product market credit availability. I find that credit constraints of product market peers positively predict growth in sales, market share, profitability, and markups. This is consistent with the notion that firms gained at the expense of their credit constrained peers. The relationship is robust to accounting for other sources of inter-firm spillovers, namely credit access of technology network and supply chain peers. Further, I find evidence of strategic investment, i.e. the idea that firms increase investment in response to peer credit constraints to commit to deter entry mobility. This behavior may explain why temporary heterogeneity in the availability of credit appears to have resulted in a persistent redistribution of output across firms.
Banking Market Deregulation and Mortality Inequality
in: Bank of Finland Research Discussion Papers, No. 14, 2022
This paper shows that local banking market conditions affect mortality rates in the United States. Exploiting the staggered relaxation of branching restrictions in the 1990s across states, we find that banking deregulation decreases local mortality rates. This effect is driven by a decrease in the mortality rate of black residents, implying a decrease in the black-white mortality gap. We further analyze the role of mortgage markets as a transmitter between banking deregulation and mortality and show that households' easier access to finance explains mortality dynamics. We do not find any evidence that our results can be explained by improved labor outcomes.
A Note on the Use of Syndicated Loan Data
in: IWH Discussion Papers, No. 17, 2022
Syndicated loan data provided by DealScan has become an essential input in banking research over recent years. 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 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 seems to depend on the data and sampling choice.
Capital Requirements, Market Structure, and Heterogeneous Banks
in: IWH Discussion Papers, No. 15, 2022
Bank regulators interfere with the efficient allocation of resources for the sake of financial stability. Based on this trade-off, I compare how different capital requirements affect default probabilities and the allocation of market shares across heterogeneous banks. In the model, banks‘ productivity determines their optimal strategy in oligopolistic markets. Higher productivity gives banks higher profit margins that lower their default risk. Hence, capital requirements indirectly aiming at high-productivity banks are less effective. They also bear a distortionary cost: Because incumbents increase interest rates, new entrants with low productivity are attracted and thus average productivity in the banking market decreases.
Covered Bonds and Bank Portfolio Rebalancing
in: Norges Bank Working Papers, No. 6, 2021
We use administrative and supervisory data at the bank and loan level to investigate the impact of the introduction of covered bonds on the composition of bank balance sheets and bank risk. Covered bonds, despite being collateralized by mortgages, lead to a shift in bank lending from mortgages to corporate loans. Young and low-rated firms in particular receive more credit, suggesting that overall credit risk increases. At the same time, we find that total balance sheet liquidity increases. We identify the channel in a theoretical model and provide empirical evidence: Banks with low initial liquidity and banks with sufficiently high risk-adjusted return on firm lending drive the results.