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 examine how banks manage carbon transition risk by selling loans given to polluting borrowers to less regulated shadow banks in securitization markets. Exploiting the election of Donald Trump as an exogenous shock that reduces carbon risk, we find that banks’ securitization decisions are sensitive to borrowers’ carbon footprints. Banks are more likely to securitize brown loans when carbon risk is high but swiftly change to keep these loans on their balance sheets when carbon risk is reduced after Trump’s election. Importantly, securitization enables banks to offer lower interest rates to polluting borrowers but does not affect the supply of green loans. Our findings are more pronounced among domestic banks and banks that do not display green lending preferences. We discuss how securitization can weaken the effectiveness of bank climate policies through reducing banks’ incentives to price carbon risk.

We study the corporate-loan pricing decisions of a major, systemic bank during the Greek financial crisis. A unique aspect of our data set is that we observe both the actual interest rate and the “break-even rate” (BE rate) of each loan, as computed by the bank’s own loan-pricing department (in effect, the loan’s marginal cost). We document that low-BE-rate (safer) borrowers are charged significant markups, whereas high-BE-rate (riskier) borrowers are charged smaller and even negative markups. We rationalize this de facto cross-subsidization through the lens of a dynamic model featuring depressed collateral values, impaired capital-market access, and limit pricing.

Banks have been operating in a low interest rate environment paired with booming housing markets. For the largest banks in the euro area and the period 2015-2022, we assess whether banks reallocate their foreign loan portfolio backed by real estate as a response to differences in local lending spreads across the home and destination country and conditional on reduced information frictions due to borrowing-country exposures. The main result is that the relative share of foreign real estate backed lending increases in case of return opportunities, and this sensitivity depends on local exposures towards the borrowing country. The result is driven by subsamples for which neither the home nor the borrowing country have implemented macroprudential regulation targeting real estate lending, or for which there is a misalignment in macroprudential policies. Nevertheless, we find limited evidence that the riskiness of real estate backed loans goes up during our sample period, and we discuss potential reasons for this result including the possibility of hidden losses.

We analyze how creditor rights affect the nonsynchronicity of global corporate credit default swap spreads (CDS-NS). CDS-NS is negatively related to the country-level creditor-control rights, especially to the “restrictions on reorganization” component, where creditor-shareholder conflicts are high. The effect is concentrated in firms with high investment intensity, asset growth, information opacity, and risk. Pro-creditor bankruptcy reforms led to a decline in CDS-NS, indicating lower firm-specific idiosyncratic information being priced in credit markets. A strategic-disclosure incentive among debtors avoiding creditor intervention seems more dominant than the disciplining effect, suggesting how strengthening creditor rights affects power rebalancing between creditors and shareholders.

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.