Democracy and Credit
Manthos D. Delis, Iftekhar Hasan, Steven Ongena
Journal of Financial Economics,
im Erscheinen
Abstract
Does democratization reduce the cost of credit? Using global syndicated loan data from 1984 to 2014, we find that democratization has a sizable negative effect on loan spreads: a 1-point increase in the zero-to-ten Polity IV index of democracy shaves at least 19 basis points off spreads, but likely more. Reversals to autocracy hike spreads more strongly. Our findings are robust to the comprehensive inclusion of relevant controls, to the instrumentation with regional waves of democratization, and to a battery of other sensitivity tests. We thus highlight the lower cost of loans as one relevant mechanism through which democratization can affect economic development.
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Public Bank Guarantees and Allocative Efficiency
Reint E. Gropp, Andre Guettler, Vahid Saadi
Journal of Monetary Economics,
im Erscheinen
Abstract
A natural experiment and matched bank/firm data are used to identify the effects of bank guarantees on allocative efficiency. We find that with guarantees in place unproductive firms receive larger loans, invest more, and maintain higher rates of sales and wage growth. Moreover, firms produce less productively. Firms also survive longer in banks’ portfolios and those that enter guaranteed banks’ portfolios are less profitable and productive. Finally, we observe fewer economy-wide firm exits and bankruptcy filings in the presence of guarantees. Overall, the results are consistent with the idea that guaranteed banks keep unproductive firms in business for too long.
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Lending Effects of the ECB’s Asset Purchases
Michael Koetter
Journal of Monetary Economics,
im Erscheinen
Abstract
Between 2010 and 2012, the European Central Bank absorbed €218 billion worth of government securities from five EMU countries under the Securities Markets Programme (SMP). Detailed security holdings data at the bank level affirms an effective lending stimulus due to the SMP. Exposed banks contract household lending, but increase commercial lending substantially. Holding non-SMP securities from stressed EMU countries amplifies the commercial lending response. The SMP also improved liquidity buffers and profitability without compromising credit quality.
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Financial Incentives and Loan Officer Behavior: Multitasking and Allocation of Effort under an Incomplete Contract
P. Behr, A. H. Drexler, Reint E. Gropp, Andre Guettler
Journal of Financial and Quantitative Analysis,
im Erscheinen
Abstract
We investigate the implications of providing loan officers with a nonlinear compensation structure that rewards loan volume and penalizes poor performance. Using a unique data set provided by a large international commercial bank, we examine the main activities that loan officers perform: loan prospecting, screening, and monitoring. We find that when loan officers are at risk of losing their bonuses, they increase prospecting and monitoring. We further show that loan officers adjust their behavior more toward the end of the month when bonus payments are approaching. These effects are more pronounced for loan officers with longer tenures at the bank.
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Borrowers Under Water! Rare Disasters, Regional Banks, and Recovery Lending
Michael Koetter, Felix Noth, Oliver Rehbein
Journal of Financial Intermediation,
im Erscheinen
Abstract
We show that local banks provide corporate recovery lending to firms affected by adverse regional macro shocks. Banks that reside in counties unaffected by the natural disaster that we specify as macro shock increase lending to firms inside affected counties by 3%. Firms domiciled in flooded counties, in turn, increase corporate borrowing by 16% if they are connected to banks in unaffected counties. We find no indication that recovery lending entails excessive risk-taking or rent-seeking. However, within the group of shock-exposed banks, those without access to geographically more diversified interbank markets exhibit more credit risk and less equity capital.
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The Cleansing Effect of Banking Crises
Reint E. Gropp, Steven Ongena, Jörg Rocholl, Vahid Saadi
IWH-Diskussionspapiere,
Nr. 12,
2020
Abstract
We assess the cleansing effects of the recent banking crisis. In U.S. regions with higher levels of supervisory forbearance on distressed banks during the crisis, there is less restructuring in the real sector and the banking sector remains less healthy for several years after the crisis. Regions with less supervisory forbearance experience higher productivity growth after the crisis with more firm entries, job creation, and employment, wages, patents, and output growth. Supervisory forbearance is greater for state-chartered banks and in regions with weaker banking competition and more independent banks, while recapitalisation of distressed banks through TARP does not facilitate cleansing.
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To Securitise or to Price Credit Default Risk?
Huyen Nguyen, Danny McGowan
IWH-Diskussionspapiere,
Nr. 10,
2020
Abstract
We evaluate lenders‘ incentives to mitigate credit default risk through pricing or securitisation. Exploiting exogenous variation in credit default risk created by differences in foreclosure law along US state borders, we find that lenders in the mortgage market respond to the law in heterogeneous ways. In the agency market where the GSEs mandate a common interest rate policy, foreclosure law provokes a 4.5% increase in securitisation rates but does not affect interest rates. For nonagency loans where market participants demand risk premium, foreclosure law does not incentivise lenders to transfer the risk through the use of securitisation but causes a 625 basis point increase in interest rates. The results highlight how the GSEs‘ common interest rate policy inhibits lenders‘ risk-based pricing incentives, increases the GSEs‘ debt holdings by $70 billion per annum, and exposes taxpayers to preventable losses in the housing market.
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IWH-Transfertagung „Europas Finanzmarkt: Zwangsehe oder lose Bekanntschaft?“
Sithara Thies
Wirtschaft im Wandel,
Nr. 1,
2020
Abstract
Ein Jahrzehnt nach der weltweiten Finanzkrise steht das Finanzsystem noch immer vor enormen Herausforderungen. Wie diese in Europa gemeistert werden können, war Thema einer hochkarätig besetzten Tagung, die am 26. Februar 2020 am Leibniz-Institut für Wirtschaftsforschung Halle (IWH) stattfand.
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Banks’ Funding Stress, Lending Supply and Consumption Expenditure
H. Evren Damar, Reint E. Gropp, Adi Mordel
Journal of Money, Credit and Banking,
Nr. 4,
2020
Abstract
We employ a unique identification strategy linking survey data on household consumption expenditure to bank‐level data to estimate the effects of bank funding stress on consumer credit and consumption expenditures. We show that households whose banks were more exposed to funding shocks report lower levels of nonmortgage liabilities. This, however, only translates into lower levels of consumption for low‐income households. Hence, adverse credit supply shocks are associated with significant heterogeneous effects.
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National Culture and Housing Credit
Chrysovalantis Gaganis, Iftekhar Hasan, Fotios Pasiouras
Journal of Empirical Finance,
2020
Abstract
Using a sample of around 30 countries over the period 2001–2015, this study provides evidence that deeply rooted cultural differences are significantly associated with the use of mortgage debt. More detailed, we find that power distance and uncertainty avoidance have a negative impact on the value of the total outstanding residential loans to GDP. This finding is robust across various specifications and the use of alternative measures of mortgage debt. In contrast, trust has a positive and robust impact on all the measures of mortgage debt. Other dimensions of national culture like long-term orientation, individualism, and indulgence, also appear to matter; however, their impact depends on the control variables and the employed measure of mortgage debt.
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