While taking measures to prevent the infection was an acute necessity, the impact on other areas of life should always be considered, both, in the short- and long term. The pandemic and the mitigation measures have directly or indirectly affected people’s well-being, their general health, education or the economy. In order to learn for the future, it is of utmost importance to monitor and understand these side effects, in particular regarding long-term developments.

A safe and healthy banking system is a central pillar of financial stability and even political stability. Systemic banking crises lead to political instability and extremism while the same cannot be said of macroeconomic downturns unrelated to banking crises (see e.g. Funke, Schularick, and Trebesch, 2016). Several factors have been identified as potential culprits for the recent financial crisis, among them insufficient bank liquidity, insufficient bank capitalization, risk-taking incentives induced by compensation struc- tures, and moral hazard emanating from government safety nets. My dissertation aims to enhance our understanding of two of these factors: capitalization and compensation, or put differently, (equity) capital and human capital.

Die Corona-bedingte Wirtschaftskrise könnte den deutschen Bankensektor massiv in Mitleidenschaft ziehen, wenn die nationale und europäische Aufsicht nicht in den nächsten Monaten gegensteuert. Das ist die Aussage einer IWH-Studie, in der wir die Jahresabschlüsse von mehr als einer halben Million deutscher Unternehmen mit den Bilanzdaten von über 1 000 hiesigen Banken verknüpft haben. Die Stichprobe umfasst rund 90% der Bilanzsumme aller Banken und schließt alle großen systemrelevanten Geldhäuser mit ein. Wir benutzen dabei sektorspezifische Prognosen für die wirtschaftliche Entwicklung: Wir beziehen also die Tatsache mit ein, dass die Tourismusbranche besonders und die Baubranche relativ wenig von der Krise betroffen ist. Wir simulieren mehrere Szenarien: eines mit einer schnellen Erholung (V-förmig), eines mit einer relativ langsamen Erholung (U) und ein Szenario, in dem die Krise noch eine längere Zeit anhält (L).

This paper investigates the role of the fiscal and economic record of the incumbent government in shaping the price response of sovereign bonds and stocks to the election outcome in emerging markets and developed countries. For sovereign bonds in emerging markets, we find robust evidence for higher cumulative abnormal returns (CARs) if a government associated with a relatively low primary fiscal balance is voted out of office compared to elections where the fiscal balance was relatively high. This effect of the incumbent government's fiscal record is significantly more pronounced in the presence of high sovereign default risk and strong political veto players, whereas the quality of institutions does not explain differences in effects for different events. We do not find robust effects of the government's fiscal record for developed countries and stocks.

The German government launched an unprecedented range of support programmes to mitigate the economic fallout from the Covid-19 pandemic for employees, self-employed, and firms. Fiscal transfers and guarantees amount to approximately €1.2 billion by now and are supplemented by similarly impressive measures taken at the European level. We argue in this note that the pandemic poses, however, also important challenges to financial stability in general and bank resilience in particular. A stable banking system is, in turn, crucial to ensure that support measures are transmitted to the real economy and that credit markets function seamlessly. Our analysis shows that banks are exposed rather differently to deteriorated business outlooks due to marked differences in their lending specialisation to different economic sectors. Moreover, a number of the banks that were hit hardest by bleak growth prospects of their borrowers were already relatively thinly capitalised at the outset of the pandemic. This coincidence can impair the ability and willingness of selected banks to continue lending to their mostly small and medium sized entrepreneurial customers. Therefore, ensuring financial stability is an important pre-requisite to also ensure the effectiveness of fiscal support measures. We estimate that contracting business prospects during the first quarter of 2020 could lead to an additional volume of non-performing loans (NPL) among the 40 most stressed banks ‒ mostly small, regional relationship lenders ‒ on the order of around €200 million. Given an initial stock of NPL of €650 million, this estimate thus suggests a potential level of NPL at year-end of €1.45 billion for this fairly small group of banks already. We further show that 17 regional banking markets are particularly exposed to an undesirable coincidence of starkly deteriorating borrower prospects and weakly capitalised local banks. Since these regions are home to around 6.8% of total employment in Germany, we argue that ensuring financial stability in the form of healthy bank balance sheets should be an important element of the policy strategy to contain the adverse real economic effects of the pandemic.

The global financial crisis in 2007-2009 exposed the absence of adequate regulation within the banking sector which had built up an excessive amount of on- and off-balance sheet leverage and had neglected basic principles of liquidity risk management (Acharya and Richardson, 2009, Adrian and Shin, 2010, Goodhart, 2008). As a response, the Basel Committee on Banking Supervision presented a revised and augmented regulatory framework. Since the financial crisis had demonstrated that microprudential regulation is not sufficient in safeguarding financial stability, the regulators put an emphasizes on macroprudential policies to improve the resilience of the financial sector. Key reforms in this respect are the tightening of capital requirements and the introduction of uniform liquidity requirements (BCBS, 2010).

n modern finance, financial decision making of households plays an important role. At least the recent global financial crisis recalled the role of the household sector in financial stability. Besides the debate how, for example, the introduction of financial sector regulations and reforms can enhance the stability of financial systems and prevent future crises, research focuses on how household behavior contributes to financial stability and the performance of the economy. By allocating their re- sources, e.g., making decisions about labor supply, consumption, savings, and debt, households directly affect market production and prices and, thus, make a relevant contribution to financial stability. The exposure to the financial sector enables house- holds to influence the overall economy (Santoso and Sukada, 2009).

We show that negative policy rates affect the supply of bank credit in a novel way. Banks are reluctant to pass on negative rates to depositors, which increases the funding cost of high-deposit banks, and reduces their net worth, relative to low-deposit banks. As a consequence, the introduction of negative policy rates by the European Central Bank in mid-2014 leads to more risk-taking and less lending by euro-area banks with a greater reliance on deposit funding. Our results suggest that negative rates are less accommodative and could pose a risk to financial stability, if lending is done by high-deposit banks.

Kurzfristig war die Finanzkrise, ursprünglich ausgelöst durch exzessive Vergabe von Hypotheken an weniger kreditwürdige Haushalte, verbunden mit der weitverbreiteten Verbriefung dieser Hypotheken, mit schweren realwirtschaftlichen Konsequenzen verbunden. Die Volkswirtschaften aller Industrieländer schrumpften stark, die Arbeitslosigkeit stieg kräftig an. Firmen waren nicht in der Lage, neue Investitionen zu finanzieren, da es für Banken in vielen Ländern nicht möglich war, Kredite zu vergeben. Gleichzeitig führten die Rettungsaktionen der Regierungen zu einer starken Erhöhung der Schuldenstände und zu einer Nullzinspolitik, verbunden mit Anleihekäufen, der wichtigsten Zentralbanken.

Wo stehen wir heute, über zehn Jahre nach der Pleite von Lehman, die symbolisch noch immer eng mit der Krise verbunden ist? Und gibt es langfristige Auswirkungen auf die Wirtschaft – Auswirkungen, die wir noch heute spüren und möglicherweise noch viele Jahre spüren werden?

We explore whether lenders’ decisions to provide liquidity in periods of distress are affected by the extent to which they internalize the negative spillovers of industry downturns. We conjecture that high-market-share lenders are more likely to internalize negative spillovers and show that they provide liquidity to industries in distress when fire sales are likely to ensue. High-market-share lenders also provide liquidity to customers and suppliers of distressed industries when the disruption of supply chains is expected to be costly. Our results suggest a novel channel to explain why credit concentration may favor financial stability.