Publications

This paper shows that the liquidation value of collateral depends on the interdependency between borrower and collateral risk. Using transaction-level data on short-term repurchase agreements, we show that borrowers pay a 1.1 to 2.6 basis points premium when their default risk is positively correlated with the risk of the collateral that they pledge. Moreover, we show that borrowers internalize this premium when making their collateral choices. Loan-level credit registry data suggest that the results extend to the corporate loan market as well.

We survey the nascent literature on the transmission of negative policy rates. There is growing evidence that negative policy rates are special because the pass-through to banks' retail deposit rates is hindered by a zero lower bound but we also discuss other mechanisms. 

This paper provides evidence on the strategic lending decisions made by banks facing a negative funding shock. Using bank-firm level credit data, we show that banks reallocate credit within their domestic loan portfolio in at least three different ways. First, banks reallocate to sectors where they have high sector presence. Second, they also reallocate to sectors in which they are heavily specialized. Third, they reallocate credit towards low-risk firms. 

Banks are reluctant to pass on negative rates to depositors, which increases the funding cost of high-deposit banks, and reduces their net worth relative to low-deposit banks. As a consequence, the introduction of negative policy rates by the European Central Bank in mid-2014 leads to more risky lending by euro-area banks with greater reliance on deposit funding. 

Current empirical methods to identify and assess the impact of bank credit supply shocks rely strictly on multi-bank firms and ignore firms borrowing from only one bank. We develop an alternative demand control that allows identifying time-varying cross-sectional credit supply shocks using both single- and multi-bank firms.  We show that firms borrowing from banks with negative credit supply shocks exhibit lower financial debt growth, asset growth, investments, and operating margin growth. 

A more equal tax treatment of debt and equity significantly increases bank capital ratios, mainly driven by an increase in common equity through higher retained earnings. More profitable banks are more sensitive to this change, as they have a stronger incentive to take advantage of the tax discrimination between debt and equity. The increase in capital ratios reduces bank riskiness, especially for (ex-ante) low-capitalized banks.

The net effect of diversification on systemic risk exposures varies with banks' size and a country's institutional setting. Non-interest income increases (reduces) small (large) banks’ systemic risk exposures. The bright side of innovation by large banks (lower systemic risk exposure for diversified banks) disappears in countries with more private and asymmetric information, more corruption and in concentrated banking markets. 

We document large cross-country variation in the relationship between bank competition and bank stability. An increase in competition will have a larger impact on banks’ fragility in countries with stricter activity restrictions, lower systemic fragility, better developed stock exchanges, more generous deposit insurance and more effective systems of credit information sharing. 

This paper investigates contagion between bank and sovereign default risk in Europe between 2007 and 2012.  Banks with a low capital buffer, a weak funding structure and less traditional banking activities are particularly vulnerable to spillovers. The impact of government interventions on contagion depends on the type of intervention, with outright capital injections being the most effective measure in reducing spillover intensity.

This Discussion Paper draws on existing research to identify key medium- and long-run economic implications of climate change and the public policies to arrest it. It explores implications for growth, innovation, inflation, financial markets, fiscal policy, and several socio-economic outcomes. 

We analyse euro area money market developments between 2005 and 2020.  We show that (i) central bank liquidity provision reduces money market stress, (ii) central bank asset purchases can induce scarcity in some money market segments, (iii) securities lending helps alleviating this scarcity, (iv) window-dressing  by banks reduces volumes and rates at quarter-ends, likely driven by leverage ratio regulation.  We also consider the macroeconomic impact of changing money market conditions, finding that the impact depends on whether frictions originate in secured or unsecured markets and on central bank policies in place.  

Liquidity regulation cannot completely remove the need for Lender of Last Resort  interventions. Full compliance with current LCR and NSFR rules would have reduced banks’ reliance on publicly provided liquidity during the global financial crisis, but without removing the need for such assistance altogether. Using two macro-financial models we also show that the output costs of introducing the LCR and NSFR regulation are modest.

Article on the relationship between the Bank Lending Survey, the NBB survey on credit conditions and loan growth in Belgium between 2002 and 2012.

We show that there are notable asymmetries in banks’ reactions to deviations from optimal capital levels. Overcapitalized banks prefer to reshuffle risk-weighted assets or increase asset holdings when deviating from their optimal Tier 1 ratio, whereas they rather try to increase equity levels or reshuffle risk weighted assets without changing asset holdings when being below target.