Erich Walter Farkas, Fulvia Fringuellotti, Radu Tunaru, Capital Requirements with Model Risk, In: -, No. -, 2018. (Working Paper)
Model risk needs to be recognized and accounted for in addition to market risk. Uncertainty in risk measures estimates may lead to false security in financial markets. We argue that quantile type risk-measures are at least as good as expected shortfall. We demonstrate how a bank can choose among competing models for measuring market risk and account for model risk. Some BCBS capital requirements formula currently in effect leads to excessive capital buffers even on an unstressed basis. We highlight that the loss to society associated with the inefficient minimum capital requirements calculations is economically substantial over time. |
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Pamela Castello Matias, How mobile payment affects Swiss banks, University of Zurich, Faculty of Business, Economics and Informatics, 2018. (Bachelor's Thesis)
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Steven Ongena, Gunseli Tumer-Alkan, Natalja von Westernhagen, Do exposures to sagging real estate, subprime or conduits abroad lead to contraction and flight to quality in bank lending at home?, Review of Finance, Vol. 22 (4), 2018. (Journal Article)
We investigate how differential exposures by German banks to the US real estate market affect domestic lending in Germany when home prices started to decline in the US.
We find that banks with an exposure to the US real estate sector and to conduits shift their domestic lending to industry–region combinations with lower insolvency ratios following a decrease in US home prices. These banks also contract their lending to German firms more than banks that do not have such exposure. We mainly document that possible losses abroad shift bank lending at home where the size of the effect depends on the type and the degree of exposure the bank has. |
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Steven Ongena, Anna (Ania) Zalewska, Institutional and individual investors: Saving for old age, Journal of Banking and Finance, Vol. 92, 2018. (Journal Article)
This paper brings together the academic literature on individual and institutional investors in order to understand the nature of difficulties faced by them and set the background for the Special Issue. This introductory article and the papers in the Special Issue contribute to the debate on how to support individuals in their savings commitments and investment decision-making and whether and how institutional investors have fulfilled their role in supporting the development of the funded pension industry. There are three main conclusions: (i) individual investors are not ready for the role that has been assigned to them in the pension industry, (ii) institutional investors are a long way short of establishing healthy relational contracts and trustworthy relationships with their clients, and (iii) more effective regulation may be needed. |
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Cezar Duicu, Financing and promoting exports: The role of financial instruments and specialised institutions, University of Zurich, Faculty of Business, Economics and Informatics, 2018. (Bachelor's Thesis)
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Cyril Walker, Hard Forks: the needed innovation to cryptocurrency systems?, University of Zurich, Faculty of Business, Economics and Informatics, 2018. (Bachelor's Thesis)
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Fabian Hoang, How have CoCo bonds changed over the years after the financial crisis?, University of Zurich, Faculty of Business, Economics and Informatics, 2018. (Bachelor's Thesis)
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Abdullah M Almansour, Steven Ongena, Bank loan announcements and religious investors: Empirical evidence from Saudi Arabia, Journal of Empirical Finance, Vol. 47, 2018. (Journal Article)
We study how investors in a conservative Muslim society react to announcements of bank loans depending on their compliance with Shari’a law. We hand-collect 173 announcements of bank loans granted to listed corporations in Saudi Arabia, assess their issuance and estimate the reaction of the borrowing firms‘ stocks. We find that loans that are not Shari’a compliant are larger and are granted to larger firms. Controlling for firm and loan characteristics commonly present in other loan announcement studies, we further document that equity market investors react negatively to non-compliant loan announcements with the two-day cumulative abnormal return preceding the announcement up to 1.8 percentage points lower for the smaller non-compliant loans. |
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Manthos Delis, Kathrin De Greiff, Steven Ongena, The carbon bubble and the pricing of bank loans, VoxEU, CEPR Policy Portal, London, https://voxeu.org/article/carbon-bubble-and-pricing-bank-loans, 2018-05-27. (Scientific Publication In Electronic Form)
Neglecting the possibility that fossil fuel reserves can become ‘stranded’ could result in a ‘carbon bubble’ as fossil fuel firms become overvalued. This column studies whether banks price the climate policy risk of fossil fuel firms. Prior to 2015, banks did not appear to price climate policy risk. After 2015, however, the risk is priced to a certain extent, especially for firms holding more fossil fuel reserves. |
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Manthos Delis, Kathrin De Greiff, Steven Ongena, Being stranded on the carbon bubble? Climate policy risk and the pricing of bank loans, In: SFI Research Paper, No. 8-10, 2018. (Working Paper)
Does neglecting the possibility that fossil fuel reserves become “stranded” result in a "carbon bubble", i.e., an overvaluation of fossil fuel firms? To address this question, we study whether banks price the climate policy risk. We hand collect global data on corporate fossil fuel reserves, match it with syndicated loans, and subsequently compare the loan rate charged to fossil fuel firms-along their climate policy exposure-to non-fossil fuel firms. We find that before 2015 banks did not price climate policy risk. After 2015, however, the risk is priced, especially for firms holding more fossil fuel reserves. We also provide some evidence that "green banks" charge marginally higher loan rates to fossil fuel firms. |
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Michael Hediger, Basel III Liquidity Requirements: The impact of liquidity indicators on the balance sheets and the lending activity of Swiss banks, University of Zurich, Faculty of Business, Economics and Informatics, 2018. (Master's Thesis)
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Judit Temesvary, Steven Ongena, Ann L Owen, A global lending channel unplugged? Does U.S. monetary policy affect cross-border and affiliate lending by global U.S. banks?, Journal of International Economics, Vol. 112, 2018. (Journal Article)
We examine how U.S. monetary policy affects the international activities of U.S. banks. We access a rarely studied U.S. bank-level regulatory dataset to assess at a quarterly frequency how changes in the U.S. Federal funds rate (before the crisis) and quantitative easing (after the onset of the crisis) affect changes in cross-border claims by U.S. banks across countries, maturities and sectors, and also affect changes in claims by their foreign affiliates. We find robust evidence consistent with the existence of a potent global bank lending channel. In response to changes in U.S. monetary conditions, U.S. banks strongly adjust their cross-border claims in both the pre- and post-crisis period. However, we also find that U.S. bank affiliate claims respond mainly to host country monetary conditions. |
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Fabio Braggion, Mintra Dwarkasing, Steven Ongena, Household wealth inequality, entrepreneurs’ financial constraints and the Great Recession: Evidence from the Kauffman Firm Survey, Small Business Economics, Vol. 50 (3), 2018. (Journal Article)
We empirically test if household wealth inequality affects borrowing constraints of young entrepreneurs. We construct a measure of wealth inequality at the US county level based on the distribution of financial rents in 2004. We find that in more unequal areas, entrepreneurs are less likely to apply for a loan fearing that their applications will be turned down and they use more of their own funds to finance their ventures. In more unequal areas, the number of bank establishments per capita is lower, this effect being stronger during the 2007–2008 financial crisis. |
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Thomas Schaad, The effects of temporary write-down CoCos on equity prices and CDS spreads, University of Zurich, Faculty of Business, Economics and Informatics, 2018. (Master's Thesis)
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Edoardo Conforti, An Analysis of the Swiss Market for Exotic Equity Derivatives and its Secondary Market for Mini-Futures as Leveraged Products, University of Zurich, Faculty of Business, Economics and Informatics, 2018. (Master's Thesis)
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Jill Jones, Steven Ongena, Vasileios Pappas, Mike Tsionas, Marwan Izzeldin, Efficiency Convergence in Islamic and Conventional Banks, In: SSRN, No. n/a, 2018. (Working Paper)
This paper examines how efficiency dynamics of Islamic and conventional banks compare and how they are converging across different countries. We employ both parametric and non-parametric methods to analyse a panel of Islamic and conventional banks from 23 countries during the period 1999 to 2014. Parametric methods (stochastic frontiers methods) shows that both steady state efficiency and the speed of convergence of Islamic and conventional banks are similar. A non-parametric framework (classification trees) identifies a varying degree of alignment between the Islamic and conventional banking model across countries, which could explain the plurality in conclusions in the Islamic/conventional bank efficiency debate. We find that the alignment between the two bank types is positively related to the country’s financial depth, transparency, economic stability and banking concentration. At the bank level, the alignment in the two banking systems is associated with higher income diversification, liquidity, profitability and financial stability. |
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Emilia Garcia, Mascia Bedendo, Linus Siming, Cultural Preferences and Firm Financing Choices, In: SSRN, No. 2979247, 2018. (Working Paper)
We document significant differences in the financing structure of small firms with managers of diverse cultural backgrounds. To isolate the effect of culture, we exploit cultural heterogeneity within a geographical area with shared regulations, institutions, and macroeconomic cycles. Our findings suggest that there exist significant cultural differences in the preference towards debt funding and in the use of formal and informal sources of financing (bank loans and trade credit). Our results are robust to alternative explanations based on potential differences in credit constraints and in the distribution of cultural origins across industries, trading partners, and headquarters location. |
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Emilia Garcia, Financial distress and competitors' investment, Journal of Corporate Finance, Vol. 51, 2018. (Journal Article)
This paper analyzes whether the financial distress of a firm affects the investment decisions of non-distressed competitors. On average, firms in distress impose indirect costs to non-distressed competitors by increasing costs of credit in the industry and hence restricting credit access and investment. These average negative effects continue to hold in the absence of industry downturns and are temporary. However, negative effects are mitigated for firms with stronger balance sheets or in concentrated markets, suggesting that firms with strong balance sheets prey on their weaker rivals to improve their market position. |
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Christopher Kok, Steven Ongena, Loriana Pelizzon, Leendert Hordijk, Artis D'Kancs, Jessica Cariboni, Wouter Heyndenrickx, Sara Maccaferri, Andrea Pagano, Marco Petracco Giudici, Review of the SYMBOL model, 2018. (Other Publication)
An integral part of the model quality control and quality assurance at the European Commission is a scientific peer-review of models, including those developed and used by its Directorate-General Joint Research Centre (JRC). The present reports details the outcome of the review of the SYstemic Model of Banking Originated Losses (SYMBOL), which was carried out by an external scientific Review Panel closely following ‘Guidelines for the review of models used in support of EU policies’. The review aimed at verifying and consolidating the scientific credibility of SYMBOL and identifying most promising/relevant areas for a future model development. The report includes also a first reaction from the SYMBOL team, detailing among others how Review Panel’s suggestions will be addressed. |
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Claire Célérier, Thomas Kick, Steven Ongena, Changes in the Cost of Bank Equity and the Supply of Bank Credit, In: Finance and investment : the European case, Oxford University Press, Oxford, p. 169 - 179, 2018. (Book Chapter)
This paper shows that both bank balance sheet composition and credit supply significantly respond to a decrease in the relative cost of bank equity. To do so, we exploit the staggered introduction of tax reforms in Europe from 2000 to 2012 as exogenous sources of changes in the cost of equity. We investigate the effect on credit supply using loan level data in a country where firms are not affected by these reforms, and where foreign banks affected by the reforms are lending actively: Germany. We find that the relative decrease in the cost of equity leads banks to rely more on equity financing and to increase lending to firms, while decreasing security and interbank asset holdings. Overall, our paper shows that taxation can be an effective tool to monitor bank leverage and credit supply. |
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