Contributions published at Banking (Steven Ongena)

We study how banks use "regulatory adjustments" to inflate their regulatory capital ratios and whether this depends on forbearance on the part of national authorities. Using the 2011 EBA capital exercise as a quasi-natural experiment, we find that banks substantially inflated their levels of regulatory capital via a reduction in regulatory adjustments — without a commensurate increase in book equity and without a reduction in bank risk. We document substantial heterogeneity in regulatory capital inflation across countries, suggesting that national authorities forbear their domestic banks to meet supranational requirements, with a focus on short-term economic considerations.

The following paper examines the influence of ESG ratings on companies' share performance in times of crisis. The data basis and the delimitation criteria for this were created by Swiss companies that are traded on the SIX Exchange and, in addition to the COVID-19 and Ukraine crises, investigations were also carried out for normal market conditions and periods with less market volatility and global conflicts in order to be able to serve as a benchmark and to make a comparison. Thus, this paper joins and extends a growing body of literature examining ESG criteria's influence on stock performance. To investigate the impact of ESG criteria, their effect is observed using an OLS regression, with additional control variables included. The independent variable in the regression is the abnormal return, which was chosen to measure share performance. A positive influence of higher ESG ratings on share performance can be shown over the entire period, whereby the positive impact is higher in times of crisis than in the comparison periods with "normal" market conditions. These results speak in favour of investing in high-quality ESG stocks and confirm existing literature that has come to the same conclusions.

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With the aim of avoiding the worst effects of climate change, countries worldwide have committed to limiting global warming below 2.0 ◦C compared to pre-industrial levels. In response, achieving climate neutrality has become a critical objective, and Switzerland has committed to reaching this milestone by 2050. To achieve this goal, a combined effort from the government, organizations, firms and individuals is needed. Small and Medium-sized Enterprises (SMEs), which account for approximately 99% of all companies in Switzerland, play a crucial role in achieving this target. This study aims to investigate the barriers, motivations, and strategies of Swiss SMEs in their transition to a net-zero economy and to understand what is needed to accelerate the process. A mixed-method approach is employed, combining an extended literature research, two qualitative interviews and a quantitative survey with 99 participants. The analyses indicate that SMEs are lagging behind in the transition, with 74% of the companies still not having set a net-zero target and only 7% having reached net zero so far. Regulatory pressures, stakeholder demands and resource limitations are identified as main barriers. The results emphasize the importance of integrating sustainability into business strategies and the need for targeted support and incentives for SMEs. It is fundamental to prioritize climate impact and to consider the pathway to net-zero emissions.

Ziel – Das Ziel dieser Bachelorarbeit ist es, durch eine Aufarbeitung der Grundstrukturen und Aufgabenbereiche der Schweizerischen Nationalbank sowie des Federal Reserve Systems einen Vergleich zu ziehen, sowie deren Verhalten zwischen April 2018 und April 2023 zu analysieren. Zudem wird eine Zeitreihenanalyse durchgeführt, die jeweils in Bezug auf drei Einflussparameter erfolgt (Arbeitslosenquote, Ölpreis und Leitzins), um die Inflation in der Schweiz und den USA zu erklären. Der Beobachtungszeitraum erstreckt sich von April 2018 bis April 2023 auf monatlicher Basis. Ergebnisse – Es sind sowohl interessante Unterschiede als auch Gemeinsamkeiten zwischen den beiden Nationalbanken zu erkennen. Ein Beispiel für einen gewichtigen Unterschied ist die Definition der Preisstabilität, welche in der Schweiz mit einer Inflationsrate von 0 % – 2 % gleichgesetzt wird. In den USA hingegen wird eine durchschnittliche Inflation von 2 % angestrebt. Bei der Zeitreihenanalyse wurde festgestellt, dass alle drei untersuchten Einflussparameter statistisch signifikante Resultate liefern, jedoch unterscheiden sich diese im jeweiligen Land teilweise erheblich. Dabei liefert vor allem das Modell für die Schweiz gute Resultate. Wert – Diese Bachelorarbeit ermöglicht es dem Leser, einen Vergleich zwischen der Schweizerischen Nationalbank und dem Federal Reserve System zu ziehen. Zudem beinhaltet sie eine empirische Untersuchung der Inflation in der Schweiz und den USA.

Sustainability has been one of the most discussed topics in recent years and leading to a growing trend of Environmental, Social and Governance (ESG) disclosure initiatives. This thesis uses a benchmarking approach to examine the qualitative and quantitative assessment of the sustainability indicators of Europe’s 100 largest financial institutions. Ranked according to market capitalization, the sustainability of the individual banks is measured using critical figures from their annual- and sustainability reports1 and compared with each other. Using a regression, the most important findings can finally be drawn up. Since sustainability reporting for banks is not yet mandatory, this work aims to create a benchmark regarding specifically defined criteria. Therefore, all data has been collected, customized, reviewed, analysed and evaluated manually. This study developed a detailed set of key sustainability factors to allow a broad comparison between the financial institutions. As a result, analysing the process of this thesis, including difficulties in obtaining consistent and comparable data of the various banks, they should adopt a more aligned and transparent approach when publishing their sustainable data. Furthermore, this study aims to examine the relationship between the calculated score and a bank’s operational performance, Return on Assets (ROA). The generated score elects Cembra Money Bank AG as the best performing bank regarding sustainability disclosure in 2021. Moreover, the study's findings highlight the final regression’s significance and demonstrate that this work's hypothesis is applicable.

Using all loans granted to firms recorded in the Italian credit register, we estimate correlations between risk-transfer and default probabilities to gauge the severity of informational asymmetries in the loan securitization market. First, the analysis confirms the presence of information frictions in the SME loan securitisation market. Second, the unconditional quality of securitized loans remains significantly better than that of non-securitized ones, in line with the notion that markets anticipate the presence of information frictions and lead to a selection of loans which offsets the detrimental effects of asymmetric information. Third, using data for firms that maintain multiple bank relationships, we obtain indications of the relative importance played by two forms of information friction, adverse selection and moral hazard. While the former is widespread, the latter is present in weak relationships only, in line with the notion that such loans are characterised by a limited commitment to exert costly monitoring by the bank.

We study the long-term effects of inflation surges on inflation expectations. German households living in areas with higher local inflation during the hyperinflation of the 1920s expect higher inflation today. Our evidence points towards a transmission of inflation experiences from parents to children and through local institutions. Differential historical inflation also modulates the updating of expectations to current inflation, the response to unconventional fiscal policies, and financial decisions. We obtain similar results in a test with Polish households residing in formerly German areas. Overall, our findings are consistent with inflationary shocks having a long-lasting impact on attitudes towards inflation.

This bachelor thesis investigates the factors determining real estate prices in Switzerland by focusing on different regions, key characteristics of individual homes, and various economic factors. The study explores the impact of these components on the sales price by using linear regression and other statistical methods. The “Comparis” database was used to collect data such as geographical variables and property features of single-family houses. The results highlight the effect of these components on housing prices. They can even explain price development and volatility over the past few years. In conclusion, this study gives valuable insights into the Swiss real estate market by considering regional, property-specific, and economic aspects.

This paper examines the impact of the government’s partial guarantee loan provision (SBA 7(a) program) on small business lending during financial constraint periods. Our goal is to determine if access to loan securitization reduces banks’ incentives to screen borrowers, potentially leading to weakened screening standards. Our regression model and matching procedure support the idea that banks with high originate-to-distribute (OTD) ratios have sufficiently screened risky borrowers, which is supported by the evidence that high OTD banks have a wider loan pricing residual distribution. After looking into capital structure, we further confirm that banks are using SBA loans and the responsive secondary market to save regulatory capital, rather than diluting screening standards. This research provides insights into understanding government-guaranteed lending programs, the role of soft information in lending decisions, and the effects of loan sales on loan performance. Keywords: Originate-to-distribute, Small business lending, Financial crisis, Screening incentive, Government-guaranteed lending

This thesis aims to provide insights into effects of supervisory enforcement actions (EAs) on various aspects of bank performance. To achieve this, a comprehensive dataset encompassing bank performance metrics and regulatory enforcement actions in China from the period 2002 to 2022 is utilized for quantitative analyses. The research begins with a two-way fixed effect Ordinary Least Squares (OLS) model to identify the effects on key variables related to bank performance. Subsequently, the study employs the event study methodology to compare the performance of banks before and after the implementation of EAs. Baseline results reveal that EAs have notable effects on bank behavior. Specifically, EAs are found to (1)limit banks’ asset expansion, (2)decrease the profitability of punished banks and (3)improve capital adequacy of affected banks. Besides, banks subject to EAs exhibit worse loan quality and structure compared to unaffected banks. These effects are amplified in cases where banks are subject to severe EAs. Event study findings suggest that the effects of EAs usually lasts for on more than two years. Moreover, the analysis captures some pre-treatment effects, providing additional insights into the anticipation and response of banks to impending regulatory actions.

This thesis examines the impact of the interest rate increase on March 16th, 2022 on banks using a data set of 287 listed US banks. The impact is measured by using abnormal returns as a proxy. For the analysis, I set up a regression equation with the following five independent variables: duration gap, ZIP code, total assets, Tobin’s q, and beta. I used the abnormal return for a period of 24 hours as the dependent variable. The needed data was collected from the Thomson Reuters Datastream Database, the SEC filings, and the annual reports of the banks. On average, the interest rate increase had a negative impact on the stock price. Moreover, the results show that the estimated coefficients for the duration gap, total assets, and beta are statistically significant. The duration gap has a positive estimated coefficient, which indicates that banks with a higher duration gap have a relatively larger abnormal return in times of interest rate increases. The estimated coefficient of total assets and beta is negative. This indicates that banks with more total assets and a higher beta experience a more negative abnormal return when the interest rate increases. The ZIP codes and Tobin’s q have insignificant estimated coefficients. This means that these variables did not have any impact on the abnormal return in this period. This study contributes to various papers, such as those that examine the determinants of the stock price and the relationship between interest rate changes and the change in the stock price.

Kann man anhand einer Analyse von Lehman Brothers das Schicksal der Credit Suisse voraussagen? Um diese Frage zu beantworten, werden die beiden Banken in dieser Arbeit erst einzeln analysiert und anschliessend verglichen. Dafür werden die Bereiche Geschäftsfelder, Weltwirtschaft, Regulierungsstandards und Gründe, warum man Lehman scheitern liess, betrachtet. Zusätzliches werden noch die Aktienkurse und die Bilanzen der beiden Banken analysiert und einander gegenübergestellt. Mittels des Vergleichs soll eine Aussage getroffen werden, ob sich die beiden Banken ähnlich genug sind, als dass durch das Scheitern der einen Bank auch das Scheitern der anderen vorhergesagt werden kann. Meine Untersuchungen zeigen, dass sich die zwei Banken nur im Punkt Regulierungsstandards gleichen. In allen anderen Bereichen findet man deutliche Unterschiede und nur wenige Gemeinsamkeiten. Auch die Gründe, warum man Lehman scheitern liess, lassen sich nicht auf die Credit Suisse übertragen. Dadurch lässt sich der Schluss ziehen, dass man nicht durch das Schicksal von Lehman Brothers jenes der Credit Suisse vorhersagen kann. Diese Arbeit bringt insoweit einen neuen Beitrag zur Forschung, als dass es sich bei der Credit Suisse um ein sehr aktuelles Thema handelt und somit zu heutigem Stand auch keine wissenschaftliche Arbeit existiert, welche diese zwei Banken in dieser Art und Weise direkt gegenüberstellt.

This thesis investigates the bank lending channel in China from three perspectives: its overall impact on banks’ balance sheets (deposits and loans) and macroeconomic variables (production and financialization), the supply-side effect and the assumption of imperfect substitutability, and the external finance premium. Multiple VAR models are utilized, and the effects of uncertainty stemming from COVID-19 and lockdown measures are analyzed by comparing results across different sample periods. Using monthly data from January 2011 to December 2022, the findings demonstrate the existence of an efficient bank lending channel in China, with the main leakage occurring within the banking system rather than the stock market. The efficiency of the bank lending channel in altering banks’ balance sheets is undermined by the uncertainty associated with COVID-19 and lockdown measures. However, the assumption of imperfect substitutability is found to be invalid for firms without access to corporate bonds throughout the entire period. These results highlight the need for policymakers and researchers to place greater emphasis on the development of alternative transmission channels through financial markets and the improvement of regulations to achieve more effective policy implementation that impacts economic entities. I

Das Ziel dieser Arbeit ist es, dass die Leser*innen ein tieferes Verständnis bezüglich Zombie-Unternehmen erhalten und sich deren Gefahren in der Wirtschaft bewusst werden. Im Rahmen dessen wird anfangs erklärt, welche Kennzahlen ein Zombie-Unternehmen charakterisieren, wobei im Allgemeinen gesagt werden kann, dass diese Unternehmen eine hohe Verschuldung, sowie eine geringe Rentabilität aufweisen. Dabei begünstigen finanziell schwache Banken, ein ineffizientes Insolvenzregime, sowie ein niedriges Zinsniveau und Finanzkrisen die Entstehung und Aufrechthaltung von nicht lebensfähigen Unternehmen. In den meisten Fällen betrifft dies kleine und mittlere Unternehmen mit einem Umsatz von weniger als 500 Millionen US-Dollar. Im Vergleich zu gesunden Unternehmen weisen die Zombie-Firmen eine geringere Investitionstätigkeit wie eine halb so hohe Arbeits- und Gesamtproduktivität auf. Zugleich binden sie begrenzte Ressourcen, wie Human- und Finanzkapital in der Branche, was zur Folge hat, dass gesunde Unternehmen ihr Potenzial nicht ausschöpfen können. Durch die Verzerrung des Marktes gibt es ein Überangebot, daraus resultiert eine geringere Gewinnmarge und höhere Barrieren für Markteinsteiger. Die Immobilienbranche weist mit rund acht Prozent den höchsten Anteil an Zombie-Unternehmen in der Wirtschaft auf. Viele Wissenschaftler*innen sehen mit der Verbesserung der Insolvenzreglungen und der Stabilisierung der schwachen Banken essenzielle Massnahmen, um die Entstehung beziehungsweise Aufrechthaltung der Zombie-Unternehmen zu hemmen.

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We provide evidence that banks increase cross-border lending in response to higher climate policy stringency in their home countries. Saturating with granular set of fixed effects and including a rich set of control variables, we show that the increase in cross-border lending is not driven by loan demand and/or other bank home country characteristics. In line with banks use cross-border lending as a regulatory arbitrage tool, the increase in cross-border lending occurs only if banks' home countries have more stringent climate policy compared to their borrowers' countries. The effect is stronger for large, lowly capitalized banks with high NPL ratios and for banks with more experience in cross-border lending. Our results suggest that without a global cooperation, cross-border lending can be a channel that reduces the effectiveness of climate policies.

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The Dog of the Dow strategy is the most famous approach to dividend investing, originally found in the American stock market in the 1990s. I analyse the Swiss market during the Covid-19 crisis to find evidence of this strategy’s success. In addition, I adapt the strategy by focusing on the difference between financial and non-financial institutions. Furthermore, I implement a dividend stability criterion and analyse the effect of different firm sizes. I find no general success of the DoD strategy in Switzerland when analyzing the whole investable market. However, I find positive effects for the dividend strategy when focusing on big firms and when implementing a dividend strategy. Furthermore, the effect of dividend policy differs between non-financial and financial firms. Although the results show the direction of the effects, I find no statistically significant outperformance of the Swiss market by the DoD strategies during Covid-19. I discuss the results in the face of the dividend restriction policy in the European and Swiss market and find that such interventions may lead to market instability.

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