Macroprudential Policy and Intra-Group Dynamics: The Effects of Reserve Requirements in Brazil
Chris Becker, Matias Ossandon Busch, Lena Tonzer
Journal of Corporate Finance,
December
2021
Abstract
We examine whether liquidity dynamics within banking groups matter for the transmission of macroprudential policy. Using matched bank headquarters-branch data for identification, we find a lending channel of reserve requirements for municipal branches whose headquarters are more exposed to the policy tool. The result is driven by the 2008–2009 crisis and is stronger for state-owned branches, especially when being less profitable and liquidity constrained. These findings suggest the presence of cross-regional distributional effects of macroprudential policies operating via internal capital markets.
Read article
Banking Globalization, Local Lending, and Labor Market Effects: Micro-level Evidence from Brazil
Felix Noth, Matias Ossandon Busch
Journal of Financial Stability,
October
2021
Abstract
Recent financial crises have prompted the interest in understanding how banking globalization interacts with domestic institutions in shaping foreign shocks’ transmission. This paper uses regional banking data from Brazil to show that a foreign funding shock to banks negatively affects lending by their regional branches. This effect increases in the presence of frictions in internal capital markets, which affect branches’ capacity to access funding from other regions via intra-bank linkages. These results also matter on an aggregate level, as municipality-level credit and job flows drop in exposed regions. Policies aiming to reduce the fragmented structure of regional banking markets could moderate the propagation of foreign shocks.
Read article
Covered Bonds and Bank Portfolio Rebalancing
Jin Cao, Ragnar E. Juelsrud, Talina Sondershaus
Norges Bank Working Papers,
No. 6,
2021
Abstract
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.
Read article
Homepage
War drives up energy prices ‒ High inflation weighs on economy Supply bottlenecks weigh on the manufacturing sector,...
See page
IWH Research Seminar in Economics
IWH Research Seminar in Economics The IWH Research Seminar in Economics is the core...
See page
Behaviour
The maths behind gut decisions First carefully weigh up the costs and benefits and then make a rational...
See page
Political Cycles in Bank Lending to the Government
Michael Koetter, Alexander Popov
Review of Financial Studies,
No. 6,
2021
Abstract
We study how political party turnover after German state elections affects banks’ lending to the regional government. We find that between 1992 and 2018, party turnover at the state level leads to a sharp and substantial increase in lending by local savings banks to their home-state government. This effect is accompanied by an equivalent reduction in private lending. A statistical association between political party turnover and government lending is absent for comparable cooperative banks that exhibit a similar regional organization and business model. Our results suggest that political frictions may interfere with government-owned banks’ local development objectives.
Read article
The Impact of Risk-based Capital Rules for International Lending on Income Inequality: Global Evidence
Iftekhar Hasan, Gazi Hassan, Suk-Joong Kim, Eliza Wu
Economic Modelling,
May
2021
Abstract
This paper investigates the impact of international bank flows from G10 lender countries on income inequality in 74 borrower countries over 1999–2013. Specifically, we examine the role of international bank flows contingent upon the Basel 2 capital regulation and the level of financial market development in the borrower countries. First, we find that improvements in the borrower country risk weights due to rating upgrades under the Basel 2 framework significantly increase bank flows, leading to improvements in income inequality. Second, we find that the level of financial market development is also important. We report that a well-functioning financial market helps the poor access credit and thereby reduces inequality. Moreover, we employ threshold estimations to identify the thresholds for each of the financial development measures that borrower countries need to reach before realizing the potential reductions in income inequality from international bank financing.
Read article
Brown Bag Seminar
Brown Bag Seminar Financial Markets Department The seminar series "Brown...
See page
Speed Projects
Speed Projects On this page, you will find the IWH EXplore Speed Projects in...
See page
