3. Research
Working papers
Andrieș A.M., Ongena S., Sprincean N., 2024, Good and Bad Credit Growth: Sectoral Credit Allocation and Systemic Risk, Swiss Finance Institute Research Paper No. 24-23.
We examine the association between sectoral credit dynamics and systemic risk. Contrary to most studies that only delve into broad-based credit development, we focus on sectoral credit allocation, specifically to households versus firms, and to the tradable versus non-tradable sector. Based on a global sample of 417 banks across 46 countries over the period 2000-2014, we find that lending to households and corporates in the non-tradable sector increases system-wide distress. Conversely, credit granted to corporations and to the tradable sector reduces banks’ systemic behavior. The findings emphasize critical policy implications considering sectoral heterogeneity. Authorities can intervene in the most systemic economic sectors and limit the accumulation of “bad credit” and preserve systemic resilience, while still benefiting from the positive impact of “good credit” on growth and financial stability.
Andrieș A.M., Lazar S., Ihnatov I., Sprincean N., 2024, Bank Size and Effective Tax Rates. Evidence from the U.S. Banks
This paper investigates the effect of bank size and the corresponding tax deductibility rules of loan loss provisions (reserve method vs. charge-off method) on bank-specific effective tax rates (ETRs) for U.S. commercial and savings banks over 2011-2020 period. By exploiting the single-country scenario of the U.S. that sets different tax deductibility rules for banks’ loan loss provisions according to the size of the banks (small vs. large banks with $500 million assets threshold as a cut-off) within the same regulatory framework, we document that while size is positively associated with bank-specific ETR, large banks that are required to deduct loss provisions under the charge-off method enjoy a lower tax reduction effect compared to small banks that can deduct losses under the reserve method. The findings remain consistent both for small and large banks, across a battery of robustness checks, including alternative definitions of ETR and different estimators, both static and dynamic, in which we account for endogeneity concerns. Results bear critical policy implications for both policymakers and bank executives.
Andrieș A.M., Chiperi A., Ongena S., Sprincean N., 2022, External Wealth of Nations and Systemic Risk, Swiss Finance Institute Research Paper No. 22-74.
External imbalances played a pivotal role in the run-up to the global financial crisis, being an important underlying cause of the ensuing turmoil. While current account (flow) imbalances have narrowed in the aftermath of the crisis, net international investment position (stock) imbalances still persist. In this paper, we explore the implications of countries’ net foreign positions on systemic risk. Using a sample composed of 450 banks located in 46 advanced, developing and emerging countries over the period 2000-2020, we document that banks can reduce their systemic risk exposure when the countries where they are incorporated maintain creditor positions vis-à-vis the rest of the world. However, only the equity components of the net international investment positions are responsible for this outcome, whereas debt flows do not contribute significantly. In addition, we find that the heterogeneity across countries is substantial and that only banks located in advanced markets that maintain their creditor positions have the potential to improve their resilience to system-wide shocks. Our findings are relevant for policy makers who seek to improve banks’ resilience to adverse shocks and to maintain financial stability.
Aevoae G.M., Andrieș A.M., , Ongena S., Sprincean N., 2022, ESG and Systemic Risk, Swiss Finance Institute Research Paper No. 22-25.
How do changes in Environmental, Social and Governance (ESG) scores influence banks’ systemic risk contribution? We document a beneficial impact of the ESG Combined Score and Governance pillar on banks’ contribution to system-wide distress analysing a panel of 367 publicly listed banks from 47 countries over the period 2007-2020. Stakeholder theory and theory relating social performance to expected returns in which enhanced investments in corporate social responsibility mitigate bank specific risks explain our findings. However, only better corporate governance represents a tool in reducing bank interconnectedness and maintaining financial stability. A similar relationship for banks’ exposure to systemic risk is also found. Our findings stress the importance of integrating banks’ ESG disclosure into regulatory authorities’ supervisory mechanisms as qualitative information.
Andrieș A.M., Copaciu A., Popa R., Vlahu R., 2021, Recourse and (strategic) mortgage defaults: Evidence from changes in housing market laws, DNB Working Paper, No 727
We study the impact of changes in recourse legislation on mortgage defaults. Romania provides us with an ideal experimental setting to identify this impact. Using a large dataset of mortgage loans granted between 2003 and 2016, we exploit an exogenous variation in Romanian recourse policy and analyze the behavior of borrowers with mortgages issued under a recourse regime after a change in policy limited lender recourse. We find robust evidence that eliminating penalties for default raises the delinquency probability of existing borrowers, particularly those traditionally considered least likely to default. Our findings highlight the ex-post effects of a switch from a creditor-friendly to a debtor-friendly recourse policy. Broadly, our results point to the importance of assessing borrowers’ default incentives before introducing recourse legislation with retroactive applicability.
Andrieș A.M., , Podpiera A., Sprincean N., 2020, Central Bank Independence and Systemic Risk, BOFIT Discussion Papers 13/2020
In this study we investigate the relationship between central bank independence and banks’ measures of systemic relevance. We find a robust, negative and significant impact of central bank independence on banks’ contribution and exposure, respectively, to systemic risk as well on stand-alone bank risk. These results lend support for maintaining the independence of central banks. However, the results also show that the degree of central bank independence could exacerbate the effect of a crisis on systemic risk exposure and contribution. In parallel, we find that in environments dominated by high market power, systemic risk contribution of the banks is enhanced, but the effect is reduced if the central bank acts independently. Therefore, preserving central bank independence is important for financial stability even if at times additional interaction with governments is needed.
Andrieș A.M., Ongena S., Sprincean N., 2020, The COVID-19 pandemic and sovereign bond risk, Swiss Finance Institute Research Paper No. 20-42.
Governments around the world are tackling the COVID-19 pandemic with a mix of public health, fiscal, macroprudential, monetary, or market-based policies. We assess the impact of the pandemic in Europe on sovereign CDS spreads using an event study methodology. We find that a higher number of cases and deaths and public health containment responses significantly increase the uncertainty among investors in European government bonds. Other governmental policies magnify the effect in the short run as supply chains are disrupted.
Andrieș A.M., Ongena S., Sprincean N., Tunaru R., 2020, Risk spillovers and interconnectedness between systemically important institutions, Swiss Finance Institute Research Paper No. 20-40
In this paper we gauge the degree of interconnectedness and quantify the linkages between global and other systemically important institutions, and the global financial system. We document that the two groups and the financial system become more interconnected during the global financial crisis when linkages across groups grow. In contrast, during tranquil times linkages within groups prevail. Global systemically important banks contribute most to system-wide distress, but are also most exposed. Other systemically important institutions bear more individual market risk. The two groups and the global financial system also co-vary for periods of up to 60 days. In sum, both groups perform in ways that defy any straightforward categorization.
Andrieș A.M., Capraru B., Mínguez-Vera A., Nistor S., 2022, Gender diversity on boards and bank efficiency across Central and Eastern European countries
This paper investigates the impact of gender diversity on bank efficiency using a unique hand-collected dataset specific to a sample of 128 commercial banks from Central and Eastern European countries during the period 2005-2012. Robust findings that account for endogeneity indicate that the absence of women in the boardroom is associated with lower cost and technical efficiency scores, while greater gender diversity among members of banks’ boards enhances the efficiency, especially for small banks. We empirically show that strengthening the women participation in less independent or domestic supervisory boards has a positive and significant effect on efficiency.
Andrieș A.M., Andreas F., Pinar Y., 2015, The impact of international swap lines on stock returns in emerging markets, Swiss National Bank Working Papers 7/2015 , CEPR Discussion Papers 1167 and Study Center Gerzensee Working Paper 16-01
This paper investigates the impact of international swap lines on stock returns using data from banks in emerging markets. The analysis first shows that swap lines by the Swiss National Bank (SNB) had a positive impact on bank stocks in Central and Eastern Europe. Next, the analysis highlights the importance of individual bank characteristics in identifying the impact effect of swap lines on bank stocks. The bank-level evidence suggests that stock prices of local and weaker capitalized banks responded strongly to SNB swap lines. This new evidence is consistent with the view that swap lines not only enhanced market liquidity but also reduced risks linked to financial stability.
Andrieș A.M., Brown M., 2014, Credit booms and busts in emerging markets: The role of bank governance and regulation, University of St. Gallen, Working Papers on Finance no. 2014/14 (Link to Database)
We investigate to what extent risk management and corporate governance mitigate the involvement of banks in credit boom and bust cycles. Using a unique, hand-collected dataset on 156 banks from Central and Eastern Europe during 2005-2012, we assess whether banks with stronger risk management and corporate governance display more moderate credit growth in the pre-crisis credit boom and fewer credit losses in the crisis period. With respect to bank governance we document that a higher share of foreign members on the supervisory board is associated with less rapid credit growth in the pre-crisis period and a lower level of credit losses during crisis. With respect to risk management we document that a strong risk committee is associated with more moderate pre-crisis credit growth but not with fewer credit losses in the crisis.Banks with stronger Corporate governance index are characterized by more moderate credit growth in the pre-crisis boom period. We find no evidence of an organizational learning process among crisis-hit banks: those banks with the largest credit losses during the crisis are less likely to improve their risk management in the aftermath of the crisis.