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 Cluster
Financial Stability and Regulation

Your contact

Professor Dr Lena Tonzer
Professor Dr Lena Tonzer
Mitglied - Department Financial Markets
Send Message +49 345 7753-835 Personal page

EXTERNAL FUNDING

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.

Professor Dr Lena Tonzer

01.2015 ‐ 12.2017

Dynamic Interactions between Banks and the Real Economy

German Research Foundation (DFG)

Professor Dr Felix Noth

Refereed Publications

cover_the-b-e-journal-of-economic-analysis-and-policy.jpg

Elevated Uncertainty during the Financial Crisis: Do Effects on Subjective Well-being Differ across European Countries?

Lena Tonzer

in: B.E. Journal of Economic Analysis & Policy, No. 2, 2019

Abstract

This paper focuses on the effect of uncertainty as reflected by financial market variables on subjective well-being. The analysis is based on Eurobarometer surveys, covering 18 countries over the period 2000–2013. Individuals report lower levels of life satisfaction in times of higher uncertainty approximated by stock market volatility. This effect is heterogeneous across respondents: the probability of being unsatisfied is higher for respondents who are older, unemployed, less educated, and live in one of the GIIPS countries of the Euro area. Furthermore, higher uncertainty in combination with a financial crisis increases the probability of reporting low values of life satisfaction.

read publication

cover_journal-of-international-money-and-finance.png

Drivers of Systemic Risk: Do National and European Perspectives Differ?

Claudia M. Buch Thomas Krause Lena Tonzer

in: Journal of International Money and Finance, 2019

Abstract

With the establishment of the Banking Union, the European Central Bank has been granted the power to impose stricter regulations than the national regulator if systemic risks are not adequately addressed at the national level. We ask whether there is a cross-border externality in the sense that a bank’s systemic risk differs when applying a national versus a European perspective. On average, banks’ contribution to systemic risk is similar at the two regional levels, and so is the ranking of banks. Generally, larger banks and banks with a lower share of loans are more systemically important. The effects of these variables are qualitatively but not quantitatively similar at the national versus the European level.

read publication

cover_journal-of-banking-and-finance.jpg

Political Influence and Financial Flexibility: Evidence from China

Xian Gu Iftekhar Hasan Yun Zhu

in: Journal of Banking & Finance, 2019

Abstract

This paper investigates how political influence affects firms’ financial flexibility and speed of adjustment toward target leverage ratios. We find that at the macro level, firms in environments with high political advantages, proxied by provincial affiliations with heads of state as well as political status and party rank of provincial leaders, adjust faster. At the micro level, firms that are state-owned, have CPC members as executives, or bear low exposure to changes in political uncertainty adjust faster. When interacted, the micro-level political factors have more significant impact.

read publication

cover_journal-of-international-financial-markets-institutions-and-money.jpg

The Case for a European Rating Agency: Evidence from the Eurozone Sovereign Debt Crisis

Marc Altdörfer Carlos A. De las Salas Vega Andre Guettler Gunter Löffler

in: Journal of International Financial Markets, Institutions and Money, 2019

Abstract

Politicians frequently voice that European bond issuers would benefit from the presence of a Europe-based rating agency. We take Fitch as a prototype for such an agency. With its ownership structure and a headquarter in London, Fitch is more European than Moody’s and S&P; during the Eurozone sovereign debt crisis, it also issued more favorable ratings. Fitch’s rating actions, however, were largely ignored by the bond market. Our results thus cast doubt on the benefits of a European credit rating agency.

read publication

cover_review-of-financial-studies.png

Bank Response to Higher Capital Requirements: Evidence from a Quasi-natural Experiment

Reint E. Gropp Thomas Mosk Steven Ongena Carlo Wix

in: Review of Financial Studies, No. 1, 2019

Abstract

We study the impact of higher capital requirements on banks’ balance sheets and their transmission to the real economy. The 2011 EBA capital exercise is an almost ideal quasi-natural experiment to identify this impact with a difference-in-differences matching estimator. We find that treated banks increase their capital ratios by reducing their risk-weighted assets, not by raising their levels of equity, consistent with debt overhang. Banks reduce lending to corporate and retail customers, resulting in lower asset, investment, and sales growth for firms obtaining a larger share of their bank credit from the treated banks.

read publication

Working Papers

cover_esrb-working-paper-2019-103.png

Interactions between Bank Levies and Corporate Taxes: How is the Bank Leverage Affected?

F. Bremus Kirsten Schmidt Lena Tonzer

in: ESRB Working Paper Series, No. 103, 2019

Abstract

Regulatory bank levies set incentives for banks to reduce leverage. At the same time, corporate income taxation makes funding through debt more attractive. In this paper, we explore how regulatory levies affect bank capital structure, depending on corporate income taxation. Based on bank balance sheet data from 2006 to 2014 for a panel of EU-banks, our analysis yields three main results: The introduction of bank levies leads to lower leverage as liabilities become more expensive. This effect is weaker the more elevated corporate income taxes are. In countries charging very high corporate income taxes, the incentives of bank levies to reduce leverage turn ineffective. Thus, bank levies can counteract the debt bias of taxation only partially.

read publication

cover_Deutsche-Bundesbank-Discussion-Paper_2019-27.png

Do Conventional Monetary Policy Instruments Matter in Unconventional Times?

Manuel Buchholz Kirsten Schmidt Lena Tonzer

in: Deutsche Bundesbank Discussion Paper, No. 27, 2019

Abstract

This paper investigates how declines in the deposit facility rate set by the ECB affect euro area banks’ incentives to hold reserves at the central bank. We find that, in the face of lower deposit rates, banks with a more interest-sensitive business model are more likely to reduce reserve holdings and allocate freed-up liquidity to loans. The result is driven by well-capitalized banks in the non-GIIPS countries of the euro area. This reveals that conventional monetary policy instruments have limited effects in restoring monetary policy transmission during times of crisis.

read publication

cover_DP_2018-16.jpg

Interactions Between Regulatory and Corporate Taxes: How Is Bank Leverage Affected?

F. Bremus Kirsten Schmidt Lena Tonzer

in: IWH Discussion Papers, No. 16, 2018

Abstract

Regulatory bank levies set incentives for banks to reduce leverage. At the same time, corporate income taxation makes funding through debt more attractive. In this paper, we explore how regulatory levies affect bank capital structure, depending on corporate income taxation. Based on bank balance sheet data from 2006 to 2014 for a panel of EU-banks, our analysis yields three main results: The introduction of bank levies leads to lower leverage as liabilities become more expensive. This effect is weaker the more elevated corporate income taxes are. In countries charging very high corporate income taxes, the incentives of bank levies to reduce leverage turn ineffective. Thus, bank levies can counteract the debt bias of taxation only partially.

read publication

cover_DP_2017-12.jpg

Do Conventional Monetary Policy Instruments Matter in Unconventional Times?

Manuel Buchholz Kirsten Schmidt Lena Tonzer

in: IWH Discussion Papers, No. 12, 2017

Abstract

This paper investigates how declines in the deposit facility rate set by the European Central Bank (ECB) affect bank behavior. The ECB aims to reduce banks’ incentives to hold reserves at the central bank and thus to encourage loan supply. However, given depressed margins in a low interest environment, banks might reallocate their liquidity toward more profitable liquid assets other than traditional loans. Our analysis is based on a sample of euro area banks for the period from 2009 to 2014. Three key findings arise. First, banks reduce their reserve holdings following declines in the deposit facility rate. Second, this effect is heterogeneous across banks depending on their business model. Banks with a more interest-sensitive business model are more responsive to changes in the deposit facility rate. Third, there is evidence of a reallocation of liquidity toward loans but not toward other liquid assets. This result is most pronounced for non-GIIPS countries of the euro area.

read publication

Inside Asset Purchase Programs: The Effects of Unconventional Policy on Banking Competition

Michael Koetter Natalia Podlich Michael Wedow

in: ECB Working Paper Series, No. 2017, 2017

Abstract

We test if unconventional monetary policy instruments influence the competitive conduct of banks. Between q2:2010 and q1:2012, the ECB absorbed Euro 218 billion worth of government securities from five EMU countries under the Securities Markets Programme (SMP). Using detailed security holdings data at the bank level, we show that banks exposed to this unexpected (loose) policy shock mildly gained local loan and deposit market shares. Shifts in market shares are driven by banks that increased SMP security holdings during the lifetime of the program and that hold the largest relative SMP portfolio shares. Holding other securities from periphery countries that were not part of the SMP amplifies the positive market share responses. Monopolistic rents approximated by Lerner indices are lower for SMP banks, suggesting a role of the SMP to re-distribute market power differentially, but not necessarily banking profits.

read publication
Mitglied der Leibniz-Gemeinschaft LogoTotal-Equality-LogoWeltoffen Logo