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.
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U.S. Monetary and Fiscal Policy Regime Changes and Their Interactions
Yoosoon Chang, Boreum Kwak, Shi Qiu
IWH Discussion Papers,
No. 12,
2021
Abstract
We investigate U.S. monetary and fiscal policy interactions in a regime-switching model of monetary and fiscal policy rules where policy mixes are determined by a latent bivariate autoregressive process consisting of monetary and fiscal policy regime factors, each determining a respective policy regime. Both policy regime factors receive feedback from past policy disturbances, and interact contemporaneously and dynamically to determine policy regimes. We find strong feedback and dynamic interaction between monetary and fiscal authorities. The most salient features of these interactions are that past monetary policy disturbance strongly influences both monetary and fiscal policy regimes, and that monetary authority responds to past fiscal policy regime. We also find substantial evidence that the U.S. monetary and fiscal authorities have been interacting: central bank responds less aggressively to inflation when fiscal authority puts less attention on debt stabilisation, and vice versa.
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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.
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Bank Concentration and Product Market Competition
Farzad Saidi, Daniel Streitz
Review of Financial Studies,
No. 10,
2021
Abstract
This paper documents a link between bank concentration and markups in nonfinancial sectors. We exploit concentration-increasing bank mergers and variation in banks’ market shares across industries and show that higher credit concentration is associated with higher markups and that high-market-share lenders charge lower loan rates. We argue that this is due to the greater incidence of competing firms sharing common lenders that induce less aggressive product market behavior among their borrowers, thereby internalizing potential adverse effects of higher rates. Consistent with our conjecture, the effect is stronger in industries with competition in strategic substitutes where negative product market externalities are greatest.
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How Can Macroprudential Policies Transmit Within a Banking Group?
Chris Becker, Matias Ossandon Busch, Lena Tonzer
WorldBank All About Finance,
2021
Abstract
The unexpected shock represented by the COVID-19 pandemic illustrates the importance of building robust macroprudential frameworks to increase countries’ resilience against sudden disruptions in financial markets. By now, a widespread opinion among commentators and policy makers is that the macroprudential frameworks that were implemented over the past decades were effective in moderating market stress, a view supported by ample evidence on the effectiveness of macroprudential policies.
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Local Product Market Competition and Bank Loans
Iftekhar Hasan, Yi Shen, Xiaoying Yuan
Journal of Corporate Finance,
2021
Abstract
We investigate the influences of local product market competition on the cost of private debt. Our evidence suggests that the cost of bank loans is significantly higher for firms headquartered in states with greater local product market competition measured by the Herfindahl-Hirschman Index for resident industries. To establish causality, we examine the recognition of the Inevitable Disclosure Doctrine and firm relocations to identify exogenous shocks to local product market competition. We find that the cost of bank loans is lower for firms facing less intense local product market competition after the adoption of IDD and higher for firms relocated to states with more competitive product markets. The results imply that banks value the characteristics of a firm's local product market when approving loan contracts.
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