Foreign Bank Lending during COVID-19, with Yusuf Emre Akgündüz, Seyit Mümin Cilasun, Yavuz Selim Hacihasanoglu, and Ibrahim Yarba, Journal of Banking and Finance, 2025, vol. 178.

We study whether foreign banks’ exposure to the pandemic in their home countries affected their lending in Turkey. Although foreign banks issued more loans than domestic banks, the ones with higher exposure to the pandemic decreased their lending significantly: 1 percentage point higher number of deaths per thousand people in their home countries led to an almost 0.3 percent reduction in lending. This was alleviated by the fiscal support provided in response to the pandemic in their home countries. Our results support an international spillover of the pandemic shock and the implemented fiscal policies via banks.

Monetary Policy, Held-to-Maturity Securities, and Uninsured Deposit Withdrawals, with Steven Ongena and Alexander Schandlbauer, European Accounting Review, 2025, forthcoming.

This paper shows that an increase in the Fed funds rate is associated with an increase in banks' unrealized losses due to their held-to-maturity (HTM) portfolios. This exposes banks to large uninsured deposit withdrawals as the depositors seek a flight-to-safety and, at the same time, to a reduction in their stock prices as the investors become concerned about possible losses. This relationship is more pronounced for banks with less hedging against the interest rate risk and for banks with lower capital ratios. Our results highlight the importance of banks' HTM securities on how monetary policy affects their uninsured deposits and stock prices. 

Countercyclical Capital Buffers and Credit Supply: Evidence from the COVID-19 Crisis, with Alexander Schandlbauer and Colin Wittig, Journal of Banking and Finance, 2023, vol. 154.

This paper examines how European banks adjusted their lending subsequent to the release of the countercyclical capital buffers (CCyB) during the COVID-19 pandemic. At its onset in 2020Q1, being exposed to a higher ex-ante countercyclical capital buffer led to a reduction in banks' lending. Yet the relief of the CCyBs removed this negative effect from 2020Q2 onwards. We find that the reduction in CCyBs led to a significant relative increase in the average bank's lending by about 5.6 percentage points of their total assets. This increase happened mainly in retail mortgage loans and was irrespective of banks' capital ratios. These results imply that the release of the CCyBs was effective in promoting bank lending during the pandemic. 

Cost of Credit, Mortgage Demand and House Prices, with Yusuf Emre Akgündüz, Yavuz Selim Hacihasanoglu and Fatih Yilmaz, Journal of Banking and Finance, 2023, vol. 154.

This paper studies the relationship between mortgage rates and house prices. We exploit a sudden reduction in mortgage rates of state-owned banks in Turkey during the summer of 2020 as an exogenous shock to provide causal estimates of a decrease in the cost of credit on mortgage demand and house prices. The effects are estimated using a detailed dataset on all house sales with mortgages. We find that a 1 percentage point decrease in annual mortgage rates led to an increase in individual mortgage loans by 6.6% and an increase in house prices by 3.2%. 

Bank Specialization, Mortgage Lending and House Prices, Journal of Banking and Finance, 2023, vol. 151.

This paper studies the link between banks' geographic specialization and the growth in their mortgage lending. Specialized banks increase their lending relatively less during the boom (2004 - 2006) and they experience a lower reduction in their loans through the following bust (2007 - 2009). In the aggregate, bank specialization has an impact on the overall credit rather than a mere reallocation of lending: MSAs with a higher exposure to specialized banks experience less expansion and contraction in mortgages. As a result, higher bank specialization is associated with a less severe boom and bust cycle in house prices. 

COVID-19, Bank Deposits and Lending, with Alexander Schandlbauer, Journal of Empirical Finance, 2022, vol. 68, p. 20–33.

During the pandemic, households accumulated savings in their deposit accounts as a result of a reduction in their spending, which occurred due to the restrictions on their mobility. This led to a significant increase in bank deposits for banks located in counties with a larger reduction in spending. Banks, in turn, used these additional funds to issue more real estate loans. This implies that policies that might affect household spending would lead to changes in the volume of deposits in the banking system, which have consequences on banks' loan supply.

COVID-19 and Lending Responses of European Banks, with Alexander Schandlbauer, Journal of Banking and Finance, 2021, vol. 133.

This paper examines how European banks adjusted lending at the onset of the pandemic depending on their local exposure to the COVID-19 outbreak and capitalization. Using a bank-level COVID-19 exposure measure, we show that higher exposure to COVID-19 led to a relative increase in worse-capitalized banks' loans whereas their better-capitalized peers decreased their lending more. At the same time, only better-capitalized banks experienced a significantly larger increase in their delinquent and restructured loans. These findings are in line with the zombie lending literature that banks with low capital have an incentive to issue more loans during contraction times to help their weaker borrowers so that they can avoid loan loss recognition and write-offs on their capital.

Procyclical Leverage: Evidence from Banks' Lending and Financing Decisions,  with Alexander Schandlbauer, Journal of Banking and Finance, 2020, vol. 113.

Middle-aged people have a higher demand for bank loans compared to other age groups and banks that are active in regions with more middle-aged residents are exposed to higher loan demand. This generates a geographically varying demand for loans. Using this variation, we show that banks increase their loan supply and expand their balance sheet with an increase in their loan demand. They finance this expansion with retained earnings and debt, whereas they avoid issuing new equity. This leads to a decrease in their capital ratios and an increase in their leverage, i.e., leverage is procyclical. By differentiating between worse-and better-capitalized banks, we highlight the importance of bank capital in banks' lending and financing decisions.

The Transmission of Bank Liquidity Shocks: Evidence from House Prices, Review of Finance, 2019, vol. 23(3), pp. 629–658.  

Short summary of the results: SAFE newsletter

This article uses the 2007–09 financial crisis as a negative liquidity shock on banks in the USA and analyzes its transmission to the real economy. The ex ante heterogeneity in the amount of long-term debt that matured during the crisis is used to measure the variation in banks’ exposure to the liquidity shock. I find that banks transmitted the liquidity shock to the real economy by reducing their loan supply. The reduction was particularly strong for real estate loans. As a result, house prices declined in the MSAs where these banks have branches. Bank capital plays a significant role in the transmission: under-capitalized banks transmitted the liquidity shock, whereas well-capitalized banks’ lending did not show any decline.