Alin Marius Andrieș, Steven Ongena, Nicu Sprincean, The Effects of the COVID-19 Pandemic Through the Lens of the CDS Spreads, In: A New World Post COVID-19 Lessons for Business, the Finance Industry and Policy Makers, Ca’ Foscari University Press, Venice, p. 85 - 96, 2020. (Book Chapter)
In this paper we are analysing the impact of the general lockdown meas-ures imposed in Italy in the context of the COVID-19 pandemic on European banks’ CDS spreads. Compared to the impact of the COVID-19 pandemic on sovereign risk, we find little evidence of increased bank risk following the event. However, investors’ reaction was clearly negative in longer time frames. In addition, we quantify the feedback loop be-tween sovereign and bank risk and document an increased interconnectedness between sovereigns and banks during the current health crisis, however with a smaller magnitude comparing to the sovereign debt crisis. Banks are now more resilient to shocks, being a direct consequence of the post-crisis regulator y framework. |
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Antonio Moreno, Steven Ongena, Alexia Ventula Veghazy, Alexander Wagner, The Global Financial Crisis and the COVID-19 Pandemic, In: A New World Post COVID-19: Lessons for Business, the Finance Industry and Policy Makers, Fondazione Università Ca’ Foscari, Venice, p. 23 - 34, 2020. (Book Chapter)
We sketch possible linkages between features of the 2008-2009 financial crisis and outcomes of the 2020 COVID-19 pandemic. We start from three features of the financial crisis, i.e. (1) costly bank bailouts, (2) constrained SME credit, and (3) strict bank regulation. We then discuss their intermediate outcomes in terms of: (1) sovereign debt accumulation and possible cuts in public health spending, (2) the slowing of economic growth and labour mobility; and (3) bank zombie lending, to arrive at the COVID-19 pan-demic severity in terms of infection and death rates and the difficulties in designing and implementing economic support policies. |
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Mrinal Mishra, Steven Ongena, Effect of conflict on bank lending: Evidence from Indian border areas, 2020. (Other Publication)
Conflict can affect economic outcomes through the decisions of key individuals. This article studies the effect of repeated incidents of shelling across the India-Pakistan border, on loan officers working in districts along the border. It finds that in bank branches in affected areas, there is a pronounced increase in interest rates but only a negligible change in disbursed loan amounts. |
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Pauline Gandré, Mike Mariathasan, Ouarda Merrouche, Steven Ongena, Regulatory arbitrage and the G20's global derivatives market reform, VoxEU, CEPR Policy Portal, London, https://voxeu.org/article/regulatory-arbitrage-and-g20-s-global-derivatives-market-reform, 2020. (Scientific Publication In Electronic Form)
Managing global financial risks requires coordinated policies and a firm commitment by national actors. In the absence of such commitment, risks are reallocated and concentrate where they are least effectively addressed. Using data on the staggered implementation of the G20’s global derivatives market reform, this column documents US banks’ response to reform progress. It finds that banks shift trading activities towards less regulated jurisdictions and adopt riskier portfolios overall. The effects are driven by agenda items – like the promotion of central clearing – that are costly and do not benefit banks directly. |
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Mrinal Mishra, Jonathan Fu, The Global Impact of COVID-19 on Fintech Adoption, 2020-01-01. (Other Publication)
We draw on mobile application data from 74 countries to document the effects of the COVID-19 pandemic on the adoption of digital finance and fintech. We estimate that the spread of COVID-19 and related government lockdown have led to between a 24 and 32 percent increase in the relative rate of daily downloads of finance mobile applications in the sample countries. In absolute terms, this equates to an average daily increase of roughly 5.2 to 6.3 million application downloads and an ggregate increase of about 316 million app downloads since the pandemic’s outbreak, taking into account prior trends. Most regions across the world exhibit notable increases in absolute, relative, and per capita terms. Preliminary analysis of country-level characteristics suggest that market size and demographics, rather than level of economic development and ex-ante adoption rates, drive differential trends. |
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Andrada Bilan, Three Essays on the Consequences of Financial Market Frictions, University of Zurich, Faculty of Business, Economics and Informatics, 2020. (Dissertation)
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Winta Beyene, Manthos D Delis, Kathrin De Greiff, Steven Ongena, Fuelling fossil fuel: bond to bank substitution in the transition to a low-carbon economy, principles for responsible investment, Principles for Responsible Investment, London, https://www.unpri.org/pri-blog/fuelling-fossil-fuel-bond-to-bank-substitution-in-the-transition-to-a-low-carbon-economy/5712.article, 2020. (Scientific Publication In Electronic Form)
Fossil fuel investments over the past few years are at the centre of political debates about climate change policy. This article explores the role market- and bank-based debt play in the climate transition process. It presents evidence that fossil fuel firms increasingly substitute bonds for syndicated bank loans, when banks price the risk of stranded assets less than the bond market. |
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Olivier De Jonghe, Hans Dewachter, Klaas Mulier, Steven Ongena, Glenn Schepens, Some borrowers are more equal than others: Bank funding shocks and credit reallocation, VOX CEPR Policy Portal, VoxEU.org, https://voxeu.org/article/bank-funding-shocks-and-credit-reallocation, 2020. (Scientific Publication In Electronic Form)
The collapse of Lehman Brothers in September 2008 was an unprecedented shock to banks’ funding opportunities. Banks transmitted this funding shock to their borrowers, but not necessarily in a homogeneous way. For example, several papers indicate that there was significant heterogeneity in the geographical reallocation decisions of banks (e.g. De Haas and Van Horen 2012, Giannetti and Laeven 2012). In this column, we investigate a different type of reallocation, by providing a comprehensive and detailed analysis of the reallocation that Belgian banks pursued across sectors and firms.
Banks operating in Belgium relied significantly on the interbank market for their funding. As can be seen in Figure 1, the total volume of interbank funding of banks active in Belgium was more than €500 billion in August 2008; a year later, more than half of that funding had dried up. This drying-up was significant for the banks and firms active in Belgium. The average firm in Belgium borrowed from a bank for which this interbank funding outflow represented 10% of its total assets. |
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Melina Stüssi, Islamic Banking - Eine Alternative zum konventionellen Bankensystem, University of Zurich, Faculty of Business, Economics and Informatics, 2020. (Bachelor's Thesis)
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Dardan Vokshi, Analyse der Neuemissionsprämie von Unternehmensanleihen bei Emission durch Schweizer Grossbanken, University of Zurich, Faculty of Business, Economics and Informatics, 2020. (Bachelor's Thesis)
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Steven Ongena, Raphael Auer, Spillovers and the optimal design of macroprudential measures: Evidence from Switzerland, VoxEU, CEPR Policy Portal, London, https://voxeu.org/article/spillovers-and-optimal-design-macroprudential-measures, 2020. (Scientific Publication In Electronic Form)
Targeted macroprudential policies may spill across sectors, but this does not mean that they are ineffective. This column shows how the effects of a countercyclical capital buffer designed to curb house price growth in Switzerland spilled over into commercial lending. But a model that matches the uncovered spillovers in volumes and interest rates shows that they by no means undermine the rationale for focusing policy measures on specific sectors. On the contrary, it suggests that regulators can avail themselves of this new tool to increase the overall resilience of banks. |
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Steven Ongena, Sascha Kolaric, Florian Kiesel, Market discipline through credit ratings and Too-Big-To-Fail in banking, In: Swiss Finance Institute Research Paper, No. 17-09, 2020. (Working Paper)
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. |
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Steven Ongena, Michael R. King, Nikola Tarashev, Bank standalone credit ratings, In: BIS Working Paper, No. 542, 2020. (Working Paper)
We study a unique experiment to examine the importance of rating agencies' private information for bank shareholders. On July 20, 2011, Fitch Ratings refined their bank standalone ratings, which measure intrinsic financial strength, from a 9-point to a 21-point scale. This refinement did not affect their all-in ratings, which combine assessments of intrinsic strength and extraordinary sovereign support and provide an estimate of banks' creditworthiness. Thus, the impact of the standalone rating refinement was cleanly limited to bank shareholders. We find evidence suggesting that the refinement resulted in higher than expected standalone ratings, but we find only weak evidence of ratings catering. We also find a positive relationship between stock price reactions and rating surprises, revealing that the rating refinement delivered useful information about the importance of bank characteristics for assessing intrinsic financial strength. |
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Steven Ongena, Manthos D. Delis, Kathrin De Greiff, Being Stranded with Fossil Fuel Reserves? Climate Policy Risk and the Pricing of Bank Loans, In: Faculty Seminar Series. 2019. (Conference Presentation)
Do banks price the risk of stranded fossil fuel reserves? To address this question, 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 exposure. After 2015, however, our results show an increase in the cost of credit by 16 basis points for a fossil fuel firm with mean proved reserves, implying an increase in the total cost of borrowing for the mean loan by USD 1.5 million. We also provide some evidence that “green banks” charge marginally higher loan rates to fossil fuel firms. |
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Mina Ridjesic, Comparing the Performance of Passive Index Funds and Actively Managed Mutual Funds, University of Zurich, Faculty of Business, Economics and Informatics, 2019. (Master's Thesis)
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Steven Ongena, Taxing Bank Leverage, In: 7th Bordeaux Workshop in International Economics and Finance. 2019. (Conference Presentation)
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PIet Eichholtz, Steven Ongena, Nagihan Mimiroglu, Erkan Yönder, Distance effects in CMBS loan pricing banks versus non-banks, In: Swiss Finance Institute Research Paper, No. 19-58, 2019. (Working Paper)
The composition of lenders has changed dramatically since the crisis, and non-bank lenders have become important players in the commercial mortgage-backed securities (CMBS) markets. Comparing banks to non-bank lenders, we investigate whether the geographical distance between lenders, borrowers and their properties is reflected in the pricing of US mortgages that were included in US CMBS pools during the 2000 to 2017 period. We find that a doubling in bank borrower distance is associated with a 2.5 basis point increase in the spread, and that this effect is more pronounced if the loan is collateralized by a riskier property. Geographical distance does not seem to have any effect on the loan spread for mortgages granted by non-bank lenders. The difference in loan pricing across originator types (even after controlling for key mortgage and property characteristics) suggests banks and non-bank lenders have different incentives, lending technologies, and/or different types of borrowers. |
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Gzim Nevzadi, Finanzinnovation: Werden traditionelle Kreditvergabemodelle durch Crowdlending ersetzt? Welche kleinen und mittleren Unternehmen bevorzugen diese innovativen Kreditangebote?, University of Zurich, Faculty of Business, Economics and Informatics, 2019. (Bachelor's Thesis)
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Steven Ongena, On Applications Using Credit Registers, In: Use of credit register data for financial stability purposes. 2019. (Conference Presentation)
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Andrada Bilan, Yalin Gunduz, CDS Market Liquidity and Bond Spreads , In: -, No. -, 2019. (Working Paper)
This paper studies the effects of a supply shock to the liquidity of credit default swap (CDS) markets on bond spreads. Using as a laboratory the universe of CDS transactions done by German banks, our model is identified by changes in CDS market liquidity due to the exit of a large dealer. We find that the CDS market converges to a new equilibrium, where traded volumes are lower and bid-ask spreads are higher. Bond yields increase in response, with stronger effects for the non-investment-grade class. Individual portfolio data indicate that the effect is partly driven by investors decreasing their holdings of both CDS and related bonds. We, therefore, show that derivative markets can affect demand in underlying securities and, subsequently, the issuers’ cost of capital. |
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