Working Papers

Bank Loan Supply During Crises: The Importance of Geographic Diversification (with Sebastian Doerr)

We classify a large sample of banks according to the geographic diversification of their international syndicated loan portfolio. Our results show that diversified banks maintain higher loan supply during banking crises in borrower countries. The positive loan supply effects lead to higher investment and employment growth for firms. Diversified banks are stabilizing due to their ability to raise additional funding during times of distress, which also shields connected markets from spillovers. Further distinguishing banks by nationality reveals a pecking order: diversified domestic banks are the most stable source of funding, while foreign banks with little diversification are the most fickle. Our findings suggest that the decline in financial integration since the recent crisis increases countries' vulnerability to local shocks.

Link to paper:  PDF  SSRN

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The Real Effects of Financial Protectionism

This paper analyzes the effects of government support of banks on European financial integration and firm outcomes using data on syndicated lending. Results show that banks increase their home bias in lending by 24.6%, after receiving government support. In turn, discriminated foreign firms can only imperfectly substitute this fall in lending by switching banks or issuing corporate bonds. Thus, the negative loan supply effect translates into lower sales and employment growth for foreign firms. In addition, government support distorts credit allocation in the home market by shifting lending to larger, safer and less innovative firms. Moreover, I document that politicians gain influence over banks by transferring control rights to the government as part of the support scheme. These results suggest that leaving bank bailouts at the national level within the European Banking Union, discourages international economic activity, distorts credit towards less productive firms and harms growth.

Link to paper:  PDF  SSRN




Policy

Makroökonomische Dynamik von Arbeitsmärkten. Ein Vergleich interner und externer Flexibilitäten in den USA und in Deutschland, WSI Mitteilungen

Die internationale Finanz- und Immobilienkrise hat in den USA ihren Ausgang genommen und eine weltweite Wirtschaftskrise mit tiefen Einbrüchen der gesamtwirtschaftlichen Produktion in den Industrieländern herbeigeführt. Die deutsche Volkswirtschaft war aufgrund ihrer ausgeprägten Abhängigkeit von den Exportmöglichkeiten besonders stark betroffen. Trotz eines tiefen Einbruchs der gesamtwirtschaftlichen Produktion erwies sich der Arbeitsmarkt in Deutschland als erstaunlich robust. In der relativ milden Rezession in den USA gingen dagegen viele Arbeitsplätze verloren, und die Arbeitslosigkeit stieg kräftig an. In diesem Beitrag werden aus einer makroökonomischen Perspektive Gründe für diese national sehr unterschiedlichen Krisenreaktionen am Arbeitsmarkt analysiert.

Link to paper:  PDF  WSI




Dissertation

The Real Effects of Banking Crises

This thesis investigates the effect of banking crises on real economic outcomes in three independent chapters. In chapter one, I classify a large sample of banks according to the geographic diversification of their international syndicated loan portfolio. Results show that diversified banks maintain higher loan supply during banking crises in borrower countries. The positive loan supply effects lead to higher investment and employment growth for firms. Further distinguishing banks by nationality reveals a pecking order: diversified domestic banks are the most stable source of funding, while foreign banks with little diversification are the most fickle. In chapter two, I show that banks' industry specialization determines how banks transmit funding shocks during banking crises to borrowers and how they spill over to non-crisis countries. Results show that banks insulate their main industries from the banking crisis while they reduce lending most to their non-main industries. Moreover, I provide evidence on spillover effects, as banks hit by a banking crisis in one borrower country reduce lending to firms in non-crisis countries. However, this contagion effect is significantly weaker for firms in banks' main industries. In chapter three, I examine the effect of government support for European banks, such as recapitalizations on financial integration and firm outcomes. Results show that bailout banks increase their home bias in lending by a quarter more than non-bailout banks. In turn, the negative loan supply effect on discriminated foreign firms translates into lower sales and employment growth. In the home market, government support distorts credit allocation by shifting lending to larger, safer and less innovative firms. Moreover, I document that politicians gain influence over banks by transferring control rights to the government as part of the support scheme.

Link to dissertation:  PDF  HU-eDoc




Work in Progress

Bank Specialization and Spillover Effects (with Ana Boskovic and Sebastian Doerr)

We show that banks' industry specialization determines how banks transmit funding shocks during banking crises to borrowers and how they spill over to non-crisis countries. Using detailed bank-firm level data on cross-country syndicated loans, we show that banks insulate their main industries from the banking crisis while they reduce lending most to their non-main industries. A one standard deviation increase in banks' average loan share to a given industries increases loan supply by 6.3% to firms within the industry during a banking crisis in the firm country. When we look at industry level real effects, we find that a one standard deviation increase in industry exposure to specialized banks cushions the negative effect of the crisis on employment by 2.8% and on value added by 1.7%. To analyze spillover effects, we investigate how banking crises are transmitted through cross-border bank lending to non-crisis countries.
Banks hit by a banking crisis in one borrower country reduce lending to firms in non-crisis countries by 7%. However, this contagion effect is significantly weaker for firms in banks' main industries. We use loan level data to show that results are not driven by bank characteristics, firm quality, or bank-firm specific information that banks collected through previous interactions. Our findings suggest that bank industry specialization plays a crucial role in the transmission of financial shocks within and across markets.


Bank Bailouts and Political Connections (with Pia Hüttl)