Regulation of International Financial Markets and International Banking
This research group analyses causes and consequences of banks' international activities and the regulatory framework they operate in.
Internationally active banks can facilitate an efficient international allocation of capital and provide channels for international risk sharing. But they can also be a source of financial instabilities themselves, thus contributing to international contagion and risk-shifting. This is one reason for the current re-regulation of international banking.
The research group contributes to the literature in three ways. First, the group empirically analyses the channels through which shocks are transmitted by internationally active banks. Second, the group analyses the build-up of aggregate imbalances in integrated banking markets and resulting consequences for the real economy. Third, the group analyses the impact of changes in banking supervision and regulation on (inter)national activities of banks, with a special focus on the European integration process.
IWH Data Project: International Banking Library
Research ClusterFinancial Stability and Regulation
07.2017 ‐ 12.2022
The Political Economy of the European Banking Union
European Social Fund (ESF)
Causes of national differences in the implementation of the Banking Union and the resulting impact on financial stability.
01.2015 ‐ 12.2017
Dynamic Interactions between Banks and the Real Economy
German Research Foundation (DFG)
Financial Incentives and Loan Officer Behavior: Multitasking and Allocation of Effort under an Incomplete Contract
in: Journal of Financial and Quantitative Analysis, forthcoming
We investigate the implications of providing loan officers with a nonlinear compensation structure that rewards loan volume and penalizes poor performance. Using a unique data set provided by a large international commercial bank, we examine the main activities that loan officers perform: loan prospecting, screening, and monitoring. We find that when loan officers are at risk of losing their bonuses, they increase prospecting and monitoring. We further show that loan officers adjust their behavior more toward the end of the month when bonus payments are approaching. These effects are more pronounced for loan officers with longer tenures at the bank.
Foreign Ownership, Bank Information Environments, and the International Mobility of Corporate Governance
in: Journal of International Business Studies, forthcoming
This paper investigates how foreign ownership shapes bank information environments. Using a sample of listed banks from 60 countries over 1997–2012, we show that foreign ownership is significantly associated with greater (lower) informativeness (synchronicity) in bank stock prices. We also find that stock returns of foreign-owned banks reflect more information about future earnings. In addition, the positive association between price informativeness and foreign ownership is stronger for foreign-owned banks in countries with stronger governance, stronger banking supervision, and lower monitoring costs. Overall, our evidence suggests that foreign ownership reduces bank opacity by exporting governance, yielding important implications for regulators and governments.
Finance and Wealth Inequality
in: Journal of International Money and Finance, forthcomingread publication
Cross-border Transmission of Emergency Liquidity
in: Journal of Banking & Finance, forthcoming
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.
Lending Effects of the ECB’s Asset Purchases
in: Journal of Monetary Economics, forthcoming
Between 2010 and 2012, the European Central Bank absorbed €218 billion worth of government securities from five EMU countries under the Securities Markets Programme (SMP). Detailed security holdings data at the bank level affirms an effective lending stimulus due to the SMP. Exposed banks contract household lending, but increase commercial lending substantially. Holding non-SMP securities from stressed EMU countries amplifies the commercial lending response. The SMP also improved liquidity buffers and profitability without compromising credit quality.
Friend or Foe? Crowdfunding Versus Credit when Banks are Stressed
in: IWH Discussion Papers, No. 8, 2015
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.