Complexity and Bank Risk During the Financial Crisis
Thomas Krause, Talina Sondershaus, Lena Tonzer
Economics Letters,
January
2017
Abstract
We construct a novel dataset to measure banks’ complexity and relate it to banks’ riskiness. The sample covers stock listed Euro area banks from 2007 to 2014. Bank stability is significantly affected by complexity, whereas the direction of the effect differs across complexity measures.
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On the Simultaneity Bias in the Relationship Between Risk Attitudes, Entry into Entrepreneurship and Entrepreneurial Survival
Matthias Brachert, Walter Hyll, Mirko Titze
Applied Economics Letters,
No. 7,
2017
Abstract
We consider the simultaneity bias when examining the effect of individual risk attitudes on entrepreneurship. We demonstrate that entry into self-employment is related to changes in risk attitudes. We further show that these changes are correlated with the probability to remain in entrepreneurship.
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Sovereign Credit Risk Co-movements in the Eurozone: Simple Interdependence or Contagion?
Manuel Buchholz, Lena Tonzer
International Finance,
No. 3,
2016
Abstract
We investigate credit risk co-movements and contagion in the sovereign debt markets of 17 industrialized countries during the period 2008–2012. We use dynamic conditional correlations of sovereign credit default swap spreads to detect contagion. This approach allows us to separate contagion channels from the determinants of simple interdependence. The results show that, first, sovereign credit risk co-moves considerably, particularly among eurozone countries and during the sovereign debt crisis. Second, contagion varies across time and countries. Third, similarities in economic fundamentals, cross-country linkages in banking and common market sentiment constitute the main channels of contagion.
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14.12.2016 • 50/2016
The German Economy: Economic Activity Spurred by Private Consumption and Construction
German economic activity remains robust due to strong domestic demand. IWH forecasts gross domestic product (GDP) to increase by 1.3% in 2017. The growth rate is half a percentage point lower than in 2016 due to calendar effects and a negative contribution of external trade. Consumer price inflation also remains modest (1.3%). “Unemployment is expected to increase slightly due to a protracted integration of refugees into the labor market”, says Oliver Holtemöller, Head of the Department Macroeconomics and IWH vice president
Oliver Holtemöller
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State Aid and Guarantees in Europe
Reint E. Gropp, Lena Tonzer
T. Beck, B. Casu (eds): The Palgrave Handbook of European Banking, London,
2016
Abstract
During the recent financial crisis, governments massively intervened in the banking sector by providing liquidity assistance and capital support to banks in distress. This helped stabilize the financial system in the short run. However, public bailouts also bear the risk of longer-term distortions, for example, by affecting bailout expectations of banks. In this chapter, the authors first provide an overview of state aid interventions during the recent crisis episode. The third section then analyzes the effects of state aid on financial stability from a theoretical view. This is followed by the description of results obtained from empirical studies. The link between the provision of state aid and politics is discussed in the section “Institutional Design and Policy Implications”. Finally, in the section “The European Banking Union” the authors describe the elements of the European Banking Union meant to resolve and restructure banks in distress and to lower the need for public intervention. Based on the preceding analysis, conclusions are drawn regarding the new design.
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Borrowers Under Water! Rare Disasters, Regional Banks, and Recovery Lending
Michael Koetter, Felix Noth, Oliver Rehbein
Abstract
We show that local banks provide corporate recovery lending to firms affected by ad-verse regional macro shocks. Banks that reside in counties unaffected by the natural disaster that we specify as macro shock increase lending to firms inside affected counties by 3%. Firms domiciled in flooded counties, in turn, increase corporate borrowing by 16% if they are connected to banks in unaffected counties. We find no indication that recovery lending entails excessive risk-taking or rent-seeking. However, within the group of shock-exposed banks, those without access to geographically more diversified interbank markets exhibit more credit risk and less equity capital.
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National Politics and Bank Default Risk in the Eurozone
Stefan Eichler, Karol Sobanski
Journal of Financial Stability,
October
2016
Abstract
We study the impact of national politics on default risk of eurozone banks as measured by the stock market-based Distance to Default. We find that national electoral cycles, the power of the government as well as the government’s party ideological alignment significantly affect the stability of banks in the eurozone member countries. Moreover, we show that the impact of national politics on bank default risk is more pronounced for large as well as weakly capitalized banks.
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18.10.2016 • 46/2016
No Sign of Price Distortions – Lack of Evidence for Effects of US Bank Bailouts
There has been much political and public controversy surrounding the very large rescue packages offered to the banking sector in the course of the financial crisis of 2007 to 2009. The aim of the packages was to stabilise the financial sector and, therefore, the development of the real economy. The downsides of these bailouts were the enormous financial cost to the taxpayer, increased assumption of risk by the government and possible distortive effects on competition in the banking market – since not all banks were given financial support. Researchers at the Halle Institute for Economic Research (IWH) – Member of the Leibniz Association led by Professor Felix Noth have now studied the long-term, indirect and possible market-distorting effects of the US rescue packages.
Felix Noth
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29.09.2016 • 40/2016
Joint Economic Forecast: German Economy on Track – Economic Policy needs to be Realigned
Thanks to a stable job market and solid consumption, the German economy is experiencing a moderate upswing. The GDP is expected to increase by 1.9 percent this year, 1.4 percent in 2017, and 1.6 percent in 2018, according to the Gemeinschaftsdiagnose (GD, joint economic forecast) that was prepared by five of Europe’s leading economic research institutes on behalf of the Federal Government. The most recent GD, which was released in April, predicted a GDP growth rate of 1.6 percent for 2016 and 1.5 percent for 2017.
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22.09.2016 • 39/2016
Strong Financial Literacy could Lead to More Self-employment
The probability that a person is self-employed also depends on how much financial literacy they have. A new study by the Halle Institute for Economic Research (IWH) – Member of the Leibniz Association recently confirmed this correlation.
Walter Hyll
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