Contributions published at Banking (Steven Ongena)

Using proprietary data on banks' monthly securities holdings, we find that during the European sovereign debt crisis, domestic banks in fiscally stressed countries were considerably more likely than foreign banks to increase their holdings of domestic sovereign bonds in months with relatively high domestic sovereign bond issuance. This effect is stronger for state-owned banks and for banks with low initial holdings of domestic sovereign bonds, and it is not fuelled by Central Bank liquidity provision. Our results point to a "moral suasion" mechanism, and they are not driven by concurrent risk-shifting, carry-trading, regulatory compliance, or shocks to investment opportunities.

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In emerging markets and Southern Europe, large capital inflows have led to a decrease in the allocative efficiency of capital. Do capital inflows also affect the allocation of workers and skills? To address this question, we exploit exogenous variations in Portuguese banks' ability to channel capital inflows over the 2002-2007 period. Using comprehensive bank-firm-employee data, we show that not only leverage, but also employment and skill-intensity increase in firms exposed to bank-channeled capital inflows.

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This paper argues that an integrated financial sector mitigates negative effects of population aging. We show that U.S. counties with an aging population see an increase in local deposits, reflecting higher saving rates of seniors. Banks use these deposits to increase credit supply. Using detailed data on mortgage lending, we find that banks channel deposits from aging counties towards counties with a younger population. We find no evidence that banks engage in risky lending: they lend less to counties with a high share of sub-prime borrowers or low incomes, and do not lend disproportionately to low-income borrowers. The increase in credit supply has real effects. Counties with a higher market share of aging-exposed banks see an increase in house prices and building permits, as well as in firm formation. Results are robust to controlling for bank and county characteristics through granular fixed effects and instrumenting local aging with casualties during World War II.

We analyze how banks’ allocations of mortgage credit across regions change when an online platform enables them to offer to regions where they have no branches, staff or legacy. Unique data from an online platform with offers from different banks to each mortgage application yield three novel findings. First, banks offer more and cheaper credit to borrowers in less competitive offline markets. Second, banks offer more credit to more distant locations, where house prices appear less over-heated, and past price growth is less correlated with that in their existing portfolio. Third, over time offers become more automated, lowering operational costs.

We analyze the impact of quantitative easing by the Federal Reserve, European Central Bank and Bank of England on cross‐border credit flows. Relying on comprehensive loan‐level data, we find that Fed QE strongly boosts cross‐border credit granted to Turkish banks by banks located in the US, Euro Area and UK, while ECB and BoE QEs work only moderately through banks in the EA and UK, respectively. In general QE works at short maturities across bank locations and loan currencies, more strongly for weaker lenders and borrowers, and may have resulted in maturity mismatches in Turkish banks searching for yield.

This paper studies the real effects of a change in the dealer composition in OTC markets. Using as a laboratory the universe of CDS transactions entered into by German banks and the exit of a large dealer in November 2014 as a shock, we first show that the CDS market converges to a new equilibrium, with lower traded volumes and higher bid-ask spreads. Using individual portfolios we find that in response investors rebalance both their CDS holdings and bond portfolios. In particular, CDS protection buyers decrease their holdings of the bonds underlying CDS contracts. The effects are strongest for non-investment grade bonds. We therefore show that the exit of large dealers from OTC markets could affect investor demand in related securities and, in consequence, the issuers cost of capital.

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We investigate the geographical proximity of firms to their relationship banks. We find that Islamic banks are more remote to their borrowers. We also find that the probability for a firm to connect to a bank substantially decreases in distance, but that the choice along bank characteristics determines how potent distance is in its impact. If the bank in the vicinity is an Islamic bank, distance plays a more muted role, especially in cities with a high conservative party vote and higher trust in religious institutions. Overall, these findings suggest that the presence of banks with certain characteristics in the vicinity may determine the within-firm and across-firm configurations of observable firm-bank connections.