Contributions published at Banking (Christoph Basten)

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We identify the effects of the Basel III macroprudential tool Counter-Cyclical Capital Buffer on mortgage lending. Using the first dataset on responses from multiple banks to each household, we find no evidence of explicit rationing. But as the CCyB applied only to mortgages, banks with higher mortgage specialization or lower capital cushions raise prices by an extra eight basis points. Bank level data then show that this allows them to slow their mortgage growth and rebuild capital cushions. While market-wide mortgage growth did not slow down significantly, the composition of mortgage suppliers thus moved to previously less exposed banks.

Recently, the debate around potential changes to financial intermediation with the introduction of new technology or FinTech has gained pace. Using data on bank responses to household mortgage applications through a Swiss web platform, this column contributes to the debate by showing how online platforms can allow smaller banks to expand to areas beyond their branch network. It finds enormous potential for web platforms to shake up local lending competition, open up new ways for geographical diversification, and facilitate automation of lending decisions.

A study using the hedonic price model to disentangle the impact of subway stations on rental prices in Toronto, Canada for houses and condominiums. It has been discovered that for houses the rental prices fall by 2.37% for every additional 5 minutes walking to the subway station. On the other hand, the nearness to Bloor St negatively impacts the rental price and the rent increases by 0.74% for every 100 meters away from Bloor St. The condos show similar results, the rental price declines by 1.85% for every additional 5 minutes by walking from the nearest subway station. The implications of this study are designed to provide guidance for transit oriented development and highlight the features that impact rental prices.

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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.

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In 2002, Switzerland began to adopt free movement of workers with the European Union. We study the effects of the resulting immigration wave on resident workers. We focus on the level of national skill groups and propose an Instrumental Variable approach to address the endogeneity of immigration in this setting. Mostly relying on administrative data on the 2002–2011 period, we find that immigration of foreign workers reduced unemployment of residents and had limited adverse effects on their wages and employment. One reason is that younger residents changed to more demanding jobs as a response to the arrival of immigrants.

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This study examines the impact of systemic importance on the value of banks. The evaluation indicates that the additional regulatory requirements targeted at systemically important banks, negatively affect the value of the banks concerned. Furthermore, the results reveal that the expectation of government's support still provides a partly offsetting positive value to the banks that are officially designated as systemically important. However, the negative impacts outweigh the positive ones in most cases and particularly since the additional regulatory requirements have been disclosed. Therefore, it can be concluded that being considered as systemically important negatively affects the value of banks.

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We analyze the effect of negative monetary policy rates on banks, using detailed supervisory information from Switzerland. For identification, we compare changes in the behavior of banks that had different fractions of their central bank reserves exempt from negative rates. More affected banks reduce costly reserves and bond financing while maintaining non-negative deposit rates and larger deposit ratios. Higher fee and interest income successfully compensates for squeezed liability margins, but credit and interest rate risk increase. Portfolio rebalancing implies relatively more lending, also compared to an earlier rate cut within positive territory, and risk-taking reduces regulatory capital cushions and liquidity.

We provide novel evidence on the role of income taxes for housing rents and spatial sorting. Drawing on comprehensive micro-level data, we estimate the responsiveness of households to tax differentials across municipal boundaries. Correcting for unobservable location characteristics and isolating the residential sorting component, we identify an income tax elasticity of rents of about −0.27 to −0.35. In line with non-homothetic preferences, we find that the marginal willingness to pay for lower taxes increases with income. Counterfactual calculations show how an homogenisation of taxes across jurisdictions and an increase in variation of taxes affect rents and income stratification across space.