We study the interaction of expansionary rate-based monetary policy and quantitative easing, despite their concurrent implementation, by exploiting heterogeneous banks and the introduction of negative monetary-policy rates in a fragmented euro area. Quantitative easing increases credit supply less, translating into weaker employment growth, when banks’ funding costs do not decrease. Using administrative data from Germany, we uncover that among banks selling their securities, central-bank reserves remain disproportionately with high-deposit banks that are constrained due to sticky customer deposits at the zero lower bound. Affected German banks lend relatively less to firms while increasing their interbank exposure in the euro area.

Exploiting the heteroskedasticity of the changes in short-term and long-term interest rates and exchange rates around the FOMC announcement, we identify three structural monetary policy shocks. We eliminate the predictable part of the shocks and study their effects on financial variables and macro variables. The first shock resembles a conventional monetary policy shock, and the second resembles an unconventional monetary shock. The third shock leads to an increase in interest rates, stock prices, industrial production, consumer prices, and commodity prices. At the same time, the excess bond premium and uncertainty decrease, and the U.S. dollar depreciates. Therefore, this third shock combines all the characteristics of a central bank information shock.

We analyze how the establishment of the Single Supervisory Mechanism (SSM) relates to patterns in banks’ lending activities, risk outcomes, and granular risks within the banking system. Using data on euro area banks from 2010 to 2021, we estimate idiosyncratic shocks to banks’ loan growth to construct a measure of loan growth volatility and to compute the “Banking Granular Residual.” Banks under SSM supervision exhibit lower volatility in loan portfolio growth, indicating more stable lending dynamics. Furthermore, the implementation of the SSM is associated with positive spillover effects on non-SSM banks’ lending and a weaker relationship between granular banking shocks and economic growth.

On September 25th, financial economists from all over the world travelled for the 11th time to Halle (Saale) to attend the annual FIN-FIRE Workshop at IWH. During two days, authors of ten papers covered a comprehensive overview of contemporary issues that pose potential challenges to the financial system, including data privacy in mortgage markets, climate risks in bond markets, synthetic risk transfers, the effects of geopolitical risks for lending, as well as granular perspectives on the transmission of monetary policy. An intense exchange of thoughts between authors, discussants, and the audience yielded genuinely new insights into the resilience and fragility of financial systems. 

Syndicated loan data provided by DealScan is an essential input in banking research to answer urging questions on bank lending, e.g., in the presence of financial or geopolitical shocks or climate change. However, many data options raise the question of how to choose the estimation sample. We employ a standard regression framework analyzing bank lending during the financial crisis of 2007/08 to study how conventional but varying usages of DealScan affect the estimates. The key finding is that the direction of coefficients remains relatively robust. However, statistical significance depends on the data and sampling choice, and we provide guidelines for applied research.