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 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.

see project's webpage

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_european-journal-of-political-economy.png

Delay Determinants of European Banking Union Implementation

Michael Koetter Thomas Krause Lena Tonzer

in: European Journal of Political Economy, 2019

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.

read publication

cover_journal-of-business-research.jpg

National Culture and Risk-taking: Evidence from the Insurance Industry

Chrysovalantis Gaganis Iftekhar Hasan Panagiota Papadimitri Menelaos Tasiou

in: Journal of Business Research, April 2019

Abstract

The gravity of insurance within the financial sector is constantly increasing. Reasonably, after the events of the recent financial turmoil, the domain of research that examines the factors driving the risk-taking of this industry has been signified. The purpose of the present study is to investigate the interplay between national culture and risk of insurance firms. We quantify the cultural overtones, measuring national culture considering the dimensions outlined by the Hofstede model and risk-taking using the ‘Z-score’. In a sample consisting of 801 life and non-life insurance firms operating across 42 countries over the period 2007–2016, we find a strong and significant relationship among insurance firms' risk-taking and cultural characteristics, such as individualism, uncertainty avoidance and power distance. Results remain robust to a variety of firm and country-specific controls, alternative measures of risk, sample specifications and tests designed to alleviate endogeneity.

read publication

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 and 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, March 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 and Finance, February 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

Working Papers

cover_DP_2021-4.jpg

Completing the European Banking Union: Capital Cost Consequences for Credit Providers and Corporate Borrowers

Michael Koetter Thomas Krause Eleonora Sfrappini Lena Tonzer

in: IWH Discussion Papers, No. 4, 2021

Abstract

The bank recovery and resolution directive (BRRD) regulates the bail-in hierarchy to resolve distressed banks without burdening tax payers. We exploit the staggered implementation of the BRRD across 15 European Union (EU) member states to identify banks’ capital cost and capital structure responses. In a first stage, we show that average capital costs of banks increased. WACC hikes are lowest in the core countries of the European Monetary Union (EMU) compared to formerly stressed EMU and non-EMU countries. This pattern is driven by changes in the relative WACC weight of equity in response to the BRRD, which indicates enhanced financial system resilience. In a second stage, we document asymmetric transmission patterns of banks’ capital cost changes on to corporates’ borrowing terms. Only EMU banks located in core countries that exhibit higher WACC are those that also increase firms’ borrowing cost and contract credit supply. Hence, the BRRD had unintended consequences for selected segments of the real economy.

read publication

A Note of Caution on Quantifying Banks' Recapitalization Effects

Felix Noth Kirsten Schmidt Lena Tonzer

in: Deutsche Bundesbank Discussion Paper, No. 2, 2021

Abstract

Unconventional monetary policy measures like asset purchase programs aim to reduce certain securities' yield and alter financial institutions' investment behavior. These measures increase the institutions' market value of securities and add to their equity positions. We show that the extent of this recapitalization effect crucially depends on the securities' accounting and valuation methods, country-level regulation, and maturity structure. We argue that future research needs to consider these factors when quantifying banks' recapitalization effects and consequent changes in banks' lending decisions to the real sector.

read publication

cover_DP_2020-12.jpg

The Cleansing Effect of Banking Crises

Reint E. Gropp Steven Ongena Jörg Rocholl Vahid Saadi

in: IWH Discussion Papers, No. 12, 2020

Abstract

We assess the cleansing effects of the recent banking crisis. In U.S. regions with higher levels of supervisory forbearance on distressed banks during the crisis, there is less restructuring in the real sector and the banking sector remains less healthy for several years after the crisis. Regions with less supervisory forbearance experience higher productivity growth after the crisis with more firm entries, job creation, and employment, wages, patents, and output growth. Supervisory forbearance is greater for state-chartered banks and in regions with weaker banking competition and more independent banks, while recapitalisation of distressed banks through TARP does not facilitate cleansing.

read publication

cover_cepr-dp-2020.png

The Cleansing Effect of Banking Crises

Reint E. Gropp Steven Ongena Jörg Rocholl Vahid Saadi

in: Centre for Economic Policy Research Discussion Papers, 2020

Abstract

We assess the cleansing effects of the recent banking crisis. In U.S. regions with higher levels of supervisory forbearance on distressed banks during the crisis, there is less restructuring in the real sector and the banking sector remains less healthy for several years after the crisis. Regions with less supervisory forbearance experience higher productivity growth after the crisis with more firm entries, job creation, and employment, wages, patents, and output growth. Supervisory forbearance is greater for state-chartered banks and in regions with weaker banking competition and more independent banks, while recapitalization of distressed banks through TARP does not facilitate cleansing.

read publication

cover_DP_2020-02.jpg

Financial Linkages and Sectoral Business Cycle Synchronisation: Evidence from Europe

Hannes Böhm Julia Schaumburg Lena Tonzer

in: IWH Discussion Papers, No. 2, 2020

Abstract

We analyse whether financial integration between countries leads to converging or diverging business cycles using a dynamic spatial model. Our model allows for contemporaneous spillovers of shocks to GDP growth between countries that are financially integrated and delivers a scalar measure of the spillover intensity at each point in time. For a financial network of ten European countries from 1996-2017, we find that the spillover effects are positive on average but much larger during periods of financial stress, pointing towards stronger business cycle synchronisation. Dismantling GDP growth into value added growth of ten major industries, we observe that some sectors are strongly affected by positive spillovers (wholesale & retail trade, industrial production), others only to a weaker degree (agriculture, construction, finance), while more nationally influenced industries show no evidence for significant spillover effects (public administration, arts & entertainment, real estate).

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