The Research Data Centre of the Halle Institute for Economic Research – Member of the Leibniz Association FDZ-IWH
Tim Kuttig, Cornelia Lang
Jahrbücher für Nationalökonomie und Statistik,
No. 2,
2017
Abstract
The Halle Institute for Economic Research (IWH) was founded in 1992 and operates three research departments: Macroeconomics, Financial Markets, and Structural Change and Productivity. The IWH’s research structure is designed to foster close interplay between micro and macroeconomic research, however it has its roots in the empirical research conducted on the transition from a planned to a market economy, with a particular focus on East Germany.
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15.06.2017 • 26/2017
Ailing banks increase leverage of ailing firms
Euro area countries such as Greece and Spain continue to struggle not only with their banks, but also with highly indebted domestic firms. Michael Koetter from the Halle Institute for Economic Research (IWH) and co-authors show the failure to resolve banks’ financial difficulties also prevents debt reduction of over-leveraged firms – and sometimes even contributes to increasing leverage of the weakest firms.
Michael Koetter
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Do We Want These Two to Tango? On Zombie Firms and Stressed Banks in Europe
Manuela Storz, Michael Koetter, Ralph Setzer, Andreas Westphal
IWH Discussion Papers,
No. 13,
2017
Abstract
We show that the speed and type of corporate deleveraging depends on the interaction between corporate and financial sector health. Based on granular bank-firm data pertaining to small and medium-sized enterprises (SME) from five stressed and two non-stressed euro area economies, we show that “zombie” firms generally continued to lever up during the 2010–2014 period. Whereas relationships with stressed banks reduce SME leverage on average, we also show that zombie firms that are tied to weak banks in euro area periphery countries increase their indebtedness even further. Sustainable economic recovery therefore requires both: deleveraging of banks and firms.
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Structural Reforms in Banking: The Role of Trading
Jan Pieter Krahnen, Felix Noth, Ulrich Schüwer
Journal of Financial Regulation,
No. 1,
2017
Abstract
In the wake of the recent financial crisis, significant regulatory actions have been taken aimed at limiting risks emanating from banks’ trading activities. The goal of this article is to look at the alternative reforms in the US, the UK and the EU, specifically with respect to the role of proprietary trading. Our conclusions can be summarized as follows: First, the focus on a prohibition of proprietary trading, as reflected in the Volcker Rule in the US and in the current proposal of the European Commission (Barnier proposal), is inadequate. It does not necessarily reduce risk-taking and it is likely to crowd out desired trading activities, thereby possibly affecting financial stability negatively. Second, trading separation into legally distinct or ring-fenced entities within the existing banking organizations, as suggested under the Vickers proposal for the UK and the Liikanen proposal for the EU, is a more effective solution. Separation limits cross-subsidies between banking and proprietary trading and diminishes contagion risk, while still allowing for synergies and risk management across banking, non-proprietary trading, and proprietary trading.
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Banks Credit and Productivity Growth
Fadi Hassan, Filippo di Mauro, Gianmarco Ottaviano
ECB Working Paper,
No. 2008,
2017
Abstract
Financial institutions are key to allocate capital to its most productive uses. In order to examine the relationship between productivity and bank credit in the context of different financial market set-ups, we introduce a model of overlapping generations of entrepreneurs under complete and incomplete credit markets. Then, we exploit firm-level data for France, Germany and Italy to explore the relation between bank credit and productivity following the main derivations of the model. We estimate an extended set of elasticities of bank credit with respect to a series of productivity measures of firms. We focus not only on the elasticity between bank credit and productivity during the same year, but also on the elasticity between credit and future realised productivity. Our estimates show a clear Eurozone core-periphery divide, the elasticities between credit and productivity estimated in France and Germany are consistent with complete markets, whereas in Italy they are consistent with incomplete markets. The implication is that in Italy firms turn to be constrained in their long-term investments and bank credit is allocated less efficiently than in France and Germany. Hence capital misallocation by banks can be a key driver of the long-standing slow productivity growth that characterises Italy and other periphery countries.
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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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Mortgage Companies and Regulatory Arbitrage
Yuliya Demyanyk, Elena Loutskina
Journal of Financial Economics,
No. 2,
2016
Abstract
Mortgage companies (MCs) do not fall under the strict regulatory regime of depository institutions. We empirically show that this gap resulted in regulatory arbitrage and allowed bank holding companies (BHCs) to circumvent consumer compliance regulations, mitigate capital requirements, and reduce exposure to loan-related losses. Compared to bank subsidiaries, MC subsidiaries of BHCs originated riskier mortgages to borrowers with lower credit scores, lower incomes, higher loan-to-income ratios, and higher default rates. Our results imply that precrisis regulations had the capacity to mitigate the deterioration of lending standards if consistently applied and enforced for all types of intermediaries.
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Taxing Banks: An Evaluation of the German Bank Levy
Claudia M. Buch, Björn Hilberg, Lena Tonzer
Journal of Banking and Finance,
November
2016
Abstract
Bank distress can have severe negative consequences for the stability of the financial system. Regimes for the restructuring and resolution of banks, financed by bank levies, aim at reducing these costs. This paper evaluates the German bank levy, which has been implemented since 2011. Our analysis offers three main insights. First, revenues raised through the levy were lower than expected. Second, the bulk of the payments were contributed by large commercial banks and by the central institutions of savings banks and credit unions. Third, for those banks, which were affected by the levy, we find evidence for a reduction in lending and higher deposit rates.
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