We study how deposit competition affects a bank's decision to securitize mortgages. Exploiting the state-specific removal of deposit market caps across the U.S. as a source of competition, we find a 7.1 percentage point increase in the probability that banks securitize mortgage loans. This result is driven by an 11 basis point increase in deposit costs and corresponding reductions in banks' deposit holdings. Our results are strongest among banks that rely more on deposit funding. These findings highlight a hitherto undocumented and unintended regulatory cause that motivates banks to adopt the originate-to-distribute model.

We investigate how a state's political corruption affects a resident firm's debt contracting and how a change in anti-corruption regulation alters the relation between corruption and loan contracting. Firms in more corrupt states are associated with significantly higher loan spreads and tighter loan covenants than firms in less corrupt states. Furthermore, the passage of the Dodd–Frank whistleblowing provision amplifies the conhcerns of banks about the detrimental impact of corruption due to the increased exposure of firms to whistleblowing threats. The detrimental impact of corruption is further amplified when a state has a higher level of whistleblowing involvement, when firms are located in more corrupt states or closer to the SEC office, and when the bank's state is less corrupt than the firm's state. In general, we document the externality of corruption in the debt financing of firms and the response of banks to changes in regulation.

Utilizing near real-time QuickBooks data from over 1.6 million small businesses and a targeted survey, this paper highlights the critical role credit card financing plays for small business activity. We examine a two year period beginning in January of 2021. A turbulent period during which, credit card usage by small U.S. businesses nearly doubled, interest payments rose by 60%, and delinquencies reached 2.8%. We find, first, monthly credit card payments were up to three times higher than loan payments during this time. Second, we use targeted surveys of these small businesses to establish credit cards as a key financing source in response to firm-level shocks, such as uncertain cash flows and overdue invoices. Third, we establish the importance of credit cards as an important financial transmission mechanism. Following the Federal Reserve’s rate hikes in early 2022, banks cut credit card supply, leading to a 15.75% drop in balances and a 10% decline in revenue growth, as well as a 1.5% decrease in employment growth among U.S. small businesses. These higher rates also rendered interest payments unsustainable for many, contributing to half of the observed increase in delinquencies. Lastly, a simple heterogeneous firm model with a cash-in-hand constraint illustrates the significant macroeconomic impact of credit card financing on small business activity.

We study whether and how EU banks comply with tighter macroprudential policy (MPP). Observing contractual details for more than one million securitized loans, we document an elusive risk-shifting response by EU banks in reaction to tighter loan-to-value (LTV) restrictions between 2009 and 2022. Our staggered difference-in-differences reveals that banks respond to these MPP measures at the portfolio level by issuing new loans after LTV shocks that are smaller, have shorter maturities, and show a higher collateral valuation while holding constant interest rates. Instead of contracting aggregate lending as intended by tighter MPP, banks increase the number and total volume of newly issued loans. Importantly, new loans finance especially properties in less liquid markets identified by a new European Real Estate Index (EREI), which we interpret as a novel, elusive form of risk-shifting.

This paper examines how firms’ exposure to supply chain disruptions (SCD) affects firm outcomes in the European Union (EU). Exploiting heterogeneous responses to workplace closures imposed by sourcing countries during the pandemic as a shock to SCD, we provide empirical evidence that firms in industries relying more heavily on foreign inputs experience a significant decline in sales compared to other firms. We document that external finance, particularly bank financing, plays a critical role in mitigating the effects of SCD. Furthermore, we highlight the unique importance of bank loans for small and solvent firms. Our findings also indicate that highly diversified firms and those sourcing inputs from less distant partners are less vulnerable to SCD.

This paper analyzes the impact of reduced tax incentives for equity financing on banks' regulatory capital ratios under the Basel III regime. We are particularly interested in a recent interest rate cut in the Italian corporate equity allowance, which reduces the relative tax advantage of equity financing. The results show that banks respond to this increased tax disparity by significantly reducing their regulatory capital while at the same time reducing their risk-taking. The decline in capital is more pronounced for small banks and outweighs the initial capital gains from the introduction of this tax instrument. Our results challenge the use of equity allowances, in that financial stability gains persist only as long as costly tax subsidies remain intact and diminish as the size of the subsidy is reduced.

Our results reveal that higher lending spreads between foreign and home markets redirect real estate backed lending towards foreign markets offering a higher interest rate, which provides evidence for "search for yield" behavior. This re-allocation is found especially for banks with more expertise on the foreign market due to a higher local activity and holds for commercial and residential real estate backed loans. Furthermore, "search for yield" behavior and a resulting increase in foreign real estate backed lending is found when macroprudential regulation is missing or misaligned between a bank’s country of residence and the destination country. When turning to the question of whether the detected search for yield behavior results in more risk, we find that especially better capitalized banks report higher forbearance ratios as they might face less stigma effects compared to low capitalized banks.

We investigate how shareholder-debtholder conflict of interest affects the corporate tax avoidance using a unique setting of the affiliated and unaffiliated commercial bankers’ board representation. Consistent with the notion that board representation grants lenders’ access to private information that helps monitor and influence firms’ tax practice, we find that appointments of affiliated banker directors significantly reduce firms’ tax avoidance behavior, while appointing unaffiliated banker directors shows no such effect. The impact of affiliated banker directors on alleviating tax avoidance is stronger among firms with severer conflict of interest between shareholders and debtholders, specifically among firms with weaker corporate governance, higher financial leverage and higher CEO stock ownership.

This study employs bilateral data on external assets to examine the impact of climate policies on the reallocation of international capital. We find that the stringency of climate policy in the destination country is significantly and positively associated with an increase in the allocation of portfolio equity and banking investment to that country. However, it does not show significant effects on the allocation of foreign direct investment and portfolio debt. Our findings are not driven by valuation effects, and we present evidence that suggests diversification, suasion, and uncertainty mitigation as possible underlying mechanisms.

Schon seit vielen Jahren ist das Produktivitätswachstum in den USA höher als in Europa, was zu immer größer-werdenden Unterschieden im Pro-Kopf-Einkommen zwischen den beiden Ländern führt. Dieser Artikel dokumentiert, dass die geringere Firmendynamik, das heißt, weniger Eintritt und Austritt von Firmen in den Markt und damit weniger Innovation, ein wichtiger erklärender Faktor für die Unterschiede im Produktivitätswachstum darstellen. Im zweiten Teil des Beitrags werden die drei wichtigsten Initiativen der EU-Politik gegenübergestellt und aufgezeigt, welche Ziele sie verfolgen und wie mehr oder weniger erfolgreich sie tatsächlich implementiert werden. Während ein stabileres Bankensystem für den Erfolg der Bankenunion spricht, kann wenig Fortschritt im Bereich der theoretisch erfolgsversprechenden Absichten und Mechanismen der Kapitalmarktunion verzeichnet werden. Es ist anzuzweifeln, ob der Chips Act die angestrebten geostrategischen Ziele erfüllen kann. Initiativen auf nationaler Ebene bleiben aufgrund der Komplexität und Fragmentierung der europäischen Kapitalmärkte ein wichtiger Faktor.