Contributions published at Banking (Steven Ongena)

Economic theories provide conflicting hypotheses on how wealth inequality affects entrepreneurial dynamism. To empirically investigate its impact, we construct local measures of household wealth inequality based on financial rents, home equity, and 1880 farmland. We identify its effects on entrepreneurship by instrumenting it with land distribution under the 1862 Homestead Act or US states’ removal of “death taxes”. Wealth inequality decreases firm entry and exit, and the proportion of high-tech businesses across metropolitan statistical areas. There is also less redistribution into public goods supportive of entrepreneurship such as schooling and the judiciary. Income per capita consequently grows more slowly.

Im Jahr 2014 hat die Europäische Zentralbank negative Leitzinsen eingeführt. Ein Jahr später hat die Schweizerische Nationalbank nachgezogen. Nicht nur in Europa, sondern auch in den USA existiert ein Niedrigzinsumfeld. Somit sind die grössten wirtschaftlichen Regionen der Welt von den niedrigen Zinsen betroffen. Der Hauptauslöser für deren Einführung war die Finanzkrise im Jahr 2008. Um Investitionen lukrativer und Sparen unattraktiver zu machen, sind die Zinsen nach unten angepasst worden. Dies soll das Wirtschaftswachstum stimulieren und eine Erholung von der Krise bewirken. Nominale Negativzinsen sind für das Selbstverständnis der Finanzwelt ein neues Phänomen. Bei der Entwicklung von Finanz- und Bewertungsmodellen wurden teilweise nur positive Zinssätze angenommen. Zurzeit sind einige europäische und schweizerische Staatsanleihen- Renditen negativ. Diese werden unter anderem als Approximation für den risikolosen Zinssatz verwendet. Somit sind zurzeit risikolose Zinssätze im negativen Bereich. Die Finanzkrise hat nicht nur zu negativen risikolosen Zinssätzen geführt, sondern auch das Selbstverständnis einer risikolosen Anlage verändert. Nach dem Jahr 2008 wurde klar, dass auch europäische Staaten zahlungsunfähig werden können. Zudem haben im Jahr 2014 Manipulationsskandale die Frage nach einem adäquaten risikolosen Zinssatz aufgeworfen.

Do credit ratings help enforce market discipline on banks? Analyzing a uniquely comprehensive dataset consisting of 1,081 rating change announcements for 154 international financial institutions between January 2004 and December 2015, we find that rating downgrades for internal reasons, such as adverse changes in the operating performance or capital structure of banks, are associated with a significant CDS spread widening. However, this widening only occurs for banks that are not perceived as to be Too-Big-to-Fail (TBTF). Our findings question the reliability of credit ratings as a tool to discipline TBTF banks and suggest that regulatory monitoring should remain the main mechanism for disciplining these banks.

The effect of regulations on the banking sector is a key question for financial intermediation. This paper provides evidence that merger control regulation, although not directly targeted at the banking sector, has substantial economic effects on bank mergers. Based on an extensive sample of European countries, we show that target announcement premia increased by up to 16 percentage points for mergers involving control shifts after changes in merger legislation, consistent with a market expectation of increased profitability. These effects go hand-in-hand with a reduction in the propensity for mergers to create banks that are too-big-to-fail in their country.

La place financière suisse continue de se montrer à la hauteur de sa bonne réputation internationale en matière de réglementation. C'est ce que montre la récente étude menée par le Swiss Finance Institute (SFI), qui, pour la seconde fois après l’édition inaugurale de 2020, compare 31 centres financiers internationaux grâce à son indice de réglementation récemment actualisé. Comme l'année dernière, la Suisse occupe la quatrième place, juste derrière la Finlande, la Suède et le Danemark

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We study the impact of monetary policy on the supply of bank credit when bank lending is denominated in foreign currencies. Accessing a comprehensive supervisory dataset from Hungary, we find that the supply of bank credit in a foreign currency is less sensitive to changes in domestic monetary conditions than the equivalent supply in the domestic currency. Changes in foreign monetary conditions similarly affect bank lending more in the foreign than in the domestic currency. Hence when banks lend in multiple currencies the domestic bank lending channel is weakened and international bank lending channels become operational.

Die Finanzkrise von 2008 machte deutlich, dass eine übermässige Verschuldung der Banken schwere Folgen für die Allgemeinwirtschaft haben kann. Die Wichtigkeit von Banken und der regulierten Überwachung dieser gewann über die Jahre immer mehr an Bedeutung. Der Basler Ausschuss ist bemüht, seit ihrer Gründung diese Aufgabe zu bewäl-tigen. Mit den Basler Regulierungen wurde die Leverage Ratio eingeführt, eine Kennzahl zur Bekämpfung der Verschuldung von Finanzinstituten. In dieser Arbeit wird aufgezeigt, wie sich die Regelungen von Basel I bis zu Basel III entwickelt haben. Dabei wird sich speziell auf die Entwicklung und Zyklizität der Leverage Ratio sowie dem Verhalten von Leverage in Krisenzeiten fokussiert

Climate change is set to dramatically impact both financial markets and the wider economy. Most immediate risks that stem from climate change, relate to the risk of physical changes such as extreme weather events or alteration of climate patterns and the implied risk of economic impact and damages from such events. However, the impact of the transition to a low carbon economy manifests itself also in an alteration of the financial viability of a part of the capital stock and business models, particularly impacted are fossil-fuel companies and other high-carbon projects.

We analyze how banks offer and price mortgages through an online platform where they reach also regions in which they lack branches. We use unique data on responses from different banks to each applying household and exploit exogenous variation in prior competition. We find banks to offer more often and at lower margins to more concentrated markets, arguably motivated by more profitable refinancing and cross-selling opportunities. Banks also improve their inter-regional portfolio diversification with more attractive offers to regions more complementary to home markets. Choices become increasingly automated, reducing operating costs.

One of the concerns in the debate on climate change is whether financial flows contribute to the reduction of emissions. This column looks at the role bond market-based and bank-based debt plays in the allocation of resources to fossil fuel in the context of the risk of stranded assets. The authors show that banks continue to provide financing to fossil fuel firms that the bond market would not finance as long as they do not price the risk of stranded assets. In this setting, stranded assets risks may have shifted to large banks.

The stringency of climate policy varies from one country to the next. This column examines global syndicated loans to show that banks increase their cross-border lending in response to greater climate policy stringency in their home country, if the home country has more stringent climate policy than the borrowers' countries. Used in this way as a regulatory arbitrage tool, cross-border lending can reduce the effectiveness of climate policies if global coordination is not enforced.

Profit shifting has come to the fore with the recently released Pandora Papers. This column uses a new global profit-shifting database covering 95 countries to show that profit shifting on average has gradually declined since 2011 following efforts from governments and international organisations to contain the practice, most notably the OECD’s Base Erosion and Profit Shifting initiative. But firms across industries with high shares of intangible assets display an increase in profit shifting.

Firms may face bottlenecks forcing them to cut activity and adjust prices when monetary tightening financially constrains their business partners. This column focuses on firms producing intermediate goods in the US to show how monetary policy can have ‘ripple effects’ along supply chains through input-output linkages involving financially constrained firms. These transmission channels of monetary policy may be especially relevant in the post-Covid context of higher corporate leverage, significant supply chain disruptions, and inflationary pressures

Access to credit plays a central role in shaping economic opportunities of households and businesses. Access to credit also plays a crucial role in helping an economy successfully exit from the pandemic doldrums. The ability to get a loan may allow individuals to purchase a home, invest in education and training, or start and then expand a business. Hence access to credit has important implications for upward mobility and potentially also for inequality. Adverse selection and moral hazard problems due to asymmetric information between lenders and borrowers affect credit availability. Because of these information issues, lenders may limit credit or post higher lending rates and often require borrowers to pledge collateral. Consequently, relatively poor individuals with limited capital endowment may experience credit denial, irrespective of the quality of their investment ideas. As a result, their exclusion from credit access can hinder economic mobility and entrench income inequality. In this post, we describe the results of our recent paper which contributes to the understanding of this mechanism.

Financial sanctions against Russia’s state-owned and controlled banks were imposed consecutively between 2014 and 2019, allowing banks that would potentially be targeted in the future to adjust their international and domestic exposures. This column explores the informational effects of financial sanctions, showing that compared to similar private banks, ‘not yet sanctioned’ financial institutions immediately reduced their foreign assets while, rather unexpectedly, expanding their foreign liabilities. These informational effects crucially depend on geography, with targeted banks located further from Moscow decreasing their foreign assets by more and raising foreign liabilities by less than those located near the Kremlin.

Since the financial crisis, stress tests have become an important supervisory and financial stability tool. Relying on confidential data available at the ECB, this column presents novel evidence that supervisory scrutiny associated with stress testing has a disciplining effect on bank risk. Banks that participated in the 2016 EU-wide stress test subsequently reduced their credit risk relative to banks that were not part of this exercise. Relying on new metrics for supervisory scrutiny, it also shows that the disciplining effect is stronger for banks subject to more intrusive supervisory scrutiny during the stress test.