30.11.2022 • 28/2022
Stricter rules for banks can relieve real estate markets
Exuberant price levels in the German real estate market could further exacerbate an economic crisis. Fiscal instruments exert too little influence to contain this danger, shows a study by the Halle Institute for Economic Research (IWH).
Michael Koetter
Read
Real Estate Transaction Taxes and Credit Supply
Michael Koetter, Philipp Marek, Antonios Mavropoulos
IWH Discussion Papers,
No. 26,
2022
Abstract
We exploit staggered real estate transaction tax (RETT) hikes across German states to identify the effect of house price changes on mortgage credit supply. Based on approximately 33 million real estate online listings, we construct a quarterly hedonic house price index (HPI) between 2008:q1 and 2017:q4, which we instrument with state-specific RETT changes to isolate the effect on mortgage credit supply by all local German banks. First, a RETT hike by one percentage point reduces HPI by 1.2%. This effect is driven by listings in rural regions. Second, a 1% contraction of HPI induced by an increase in the RETT leads to a 1.4% decline in mortgage lending. This transmission of fiscal policy to mortgage credit supply is effective across almost the entire bank capitalization distribution.
Read article
The Effect of Firm Subsidies on Credit Markets
Aleksandr Kazakov, Michael Koetter, Mirko Titze, Lena Tonzer
IWH Discussion Papers,
No. 24,
2022
Abstract
We use granular project-level information for the largest regional economic development program in German history to study whether government subsidies to firms affect the quantity and quality of bank lending. We combine the universe of recipient firms under the Improvement of Regional Economic Structures program (GRW) with their local banks during 1998-2019. The modalities of GRW subsidies to firms are determined at the EU level. Therefore, we use it to identify bank outcomes. Banks with relationships to more subsidized firms exhibit higher lending volumes without any significant differences in bank stability. Subsidized firms, in turn, borrow more indicating that banks facilitate regional economic development policies.
Read article
Die Kosten von Wahlversprechen: Wie lokale Sparkassen eine neue Landesregierung finanzieren
Michael Koetter, Shasha Li, Paulina Scheit
Wirtschaft im Wandel,
No. 3,
2022
Abstract
Staatliche Banken in Deutschland verfolgen einen lokalen Entwicklungsauftrag in ihrer jeweiligen Gemeinde. Da sie dem Staat gehören, sind sie jedoch politischem Einfluss ausgesetzt. Dies birgt das Risiko, dass eine politisierte Mittelvergabe den Entwicklungsauftrag beeinträchtigt. Dennoch ist erstaunlich wenig darüber bekannt, ob die Kreditvergabe durch Banken in staatlichem Besitz in erster Linie dem Ziel der Entwicklung der Region oder einem politischen Ziel dient. In diesem Beitrag wird untersucht, wie sich ein Wechsel der Regierungspartei auf Landesebene auf die Kreditvergabe durch Sparkassen an die Landesregierung in Deutschland zwischen 1992 und 2018 ausgewirkt hat. Die Schätzergebnisse bestätigen: Lokale Sparkassen erhöhen nach einem wahlbedingten Wechsel der Regierungspartei die Kreditvergabe an die Landesregierung – auf Kosten der Kreditvergabe an lokale Haushalte. Ein Regierungswechsel kann also die Indienstnahme der Sparkassen für landespolitische Ziele aktivieren und möglicherweise ihren öffentlichen Auftrag zur lokalen Entwicklung beeinträchtigen.
Read article
Completing the European Banking Union: Capital Cost Consequences for Credit Providers and Corporate Borrowers
Michael Koetter, Thomas Krause, Eleonora Sfrappini, Lena Tonzer
European Economic Review,
September
2022
Abstract
The bank recovery and resolution directive (BRRD) regulates the bail-in hierarchy to resolve distressed banks in the European Union (EU). Using the staggered BRRD implementation across 15 member states, we identify banks’ capital cost responses and subsequent pass-through to borrowers towards surprise elements due to national transposition details. Average bank capital costs increase heterogeneously across countries with strongest funding cost hikes observed for banks located in GIIPS and non-EMU countries. Only banks in core E(M)U countries that exhibit higher funding costs increase credit spreads for corporate borrowers and contract credit supply. Tighter credit conditions are only passed on to more levered and less profitable firms. On balance, the national implementation of BRRD appears to have strengthened financial system resilience without a pervasive hike in borrowing costs.
Read article
BigTech Credit, Small Business, and Monetary Policy Transmission: Theory and Evidence
Yiping Huang, Xiang Li, Han Qiu, Dan Su, Changhua Yu
IWH Discussion Papers,
No. 18,
2022
Abstract
This paper provides both theoretical and empirical analyses of the differences between BigTech lenders and traditional banks in response to monetary policy changes. Our model integrates Knightian uncertainty into portfolio selection and posits that BigTech lenders possess a diminishing informational advantage with increasing firm size, resulting in reduced ambiguity when lending to smaller firms. The model suggests that the key distinction between BigTech lenders and traditional banks in response to shifts in funding costs, triggered by monetary policy changes, is more evident at the extensive margin rather than the intensive margin, particularly during periods of easing monetary policy. Using a micro-level dataset of small business loans from both types of lenders, we provide empirical support for our theoretical propositions. Our results show that BigTech lenders are more responsive in establishing new lending relationships in an easing monetary policy environment, while the differences in loan amounts are not statistically significant. We also discuss other loan terms and the implications of regulatory policies.
Read article
Das Potenzial von Bankkreditspreads für die Konjunkturprognose
Daniel Streitz
Wirtschaft im Wandel,
No. 2,
2022
Abstract
Prognosemodelle für die zukünftige wirtschaftliche Entwicklung verwenden häufig marktbasierte Indikatoren wie Spreads von Unternehmensanleihen, die den Risikoaufschlag gegenüber einem Referenzzins angeben. Anleihespreads bilden jedoch nur die Entwicklung von Risiken für Unternehmen ab, die regelmäßig Anleihen emittieren – im Durchschnitt größere, sichere Firmen. Neuartige Daten zu Bankkrediten, die im Sekundärmarkt gehandelt werden, erlauben auch die Konstruktion von Kreditspreads. Kreditmarktdaten umfassen ein breiteres Spektrum an Firmen, inklusive kleinerer Firmen, die stärker von Finanzmarktfriktionen betroffen sind. Tests zeigen, dass Kreditspreads tatsächlich mehr Informationen über wirtschaftliche Entwicklungen beinhalten als Anleihespreads und daher das Potenzial haben, Prognosemodelle zu verbessern.
Read article
Climate Change-Related Regulatory Risks and Bank Lending
Isabella Müller, Eleonora Sfrappini
ECB Working Paper,
No. 2670,
2022
Abstract
We identify the effect of climate change-related regulatory risks on credit real-location. Our evidence suggests that effects depend borrower's region. Following an increase in salience of regulatory risks, banks reallocate credit to US firms that could be negatively impacted by regulatory interventions. Conversely, in Europe, banks lend more to firms that could benefit from environmental regulation. The effect is moderated by banks' own loan portfolio composition. Banks with a portfolio tilted towards firms that could be negatively a affected by environmental policies increasingly support these firms. Overall, our results indicate that financial implications of regulation associated with climate change appear to be the main drivers of banks' behavior.
Read article
Firm-level Employment, Labour Market Reforms, and Bank Distress
Ralph Setzer, Moritz Stieglitz
Journal of International Money and Finance,
February
2022
Abstract
We explore the impact of financial frictions on the employment effect of labour market reforms. Our study combines a new cross-country reform database on labour market reforms with matched firm-bank data for nine euro area countries over the period 1999 to 2013. While we find that labour market reforms are overall effective in increasing employment, restricted access to bank credit can undo up to half of medium to long-term employment gains at the firm-level. Entrepreneurs without sufficient access to credit cannot reap the full benefits of more flexible employment regulation.
Read article
Gender, Credit, and Firm Outcomes
Manthos D. Delis, Iftekhar Hasan, Maria Iosifidi, Steven Ongena
Journal of Financial and Quantitative Analysis,
No. 1,
2022
Abstract
Small and micro enterprises are usually majority-owned by entrepreneurs. Using a unique sample of loan applications from such firms, we study the role of owners’ gender in bank credit decisions and post-credit-decision firm outcomes. We find that, ceteris paribus, female entrepreneurs are more prudent loan applicants than are males, since they are less likely to apply for credit or to default after loan origination. The relatively more aggressive behavior of male applicants pays off, however, in terms of higher average firm performance after loan origination.
Read article
