From purchases to exit: Central bank interventions in corporate debt markets* (with J. Breckenfelder)
Revise and Resubmit, Journal of Monetary Economics
We study a complete cycle of market freeze, central bank intervention, and exit in short-term debt markets using security-level data for the euro-area. A run on money market funds (MMFs)led to a market collapse in March 2020., with firms only able to replace 27% of lost short-term funding by drawing credit lines. The European Central Bank (ECB) intervened by purchasing firms' short-term debt, allowing them to issue more debt at lower rates and longer maturities. When the intervention ended, firms more reliant on the intervention encountered higher yields, decreased MMF investment, and fewer new relationships post-exit, suggesting a more challenging commercial paper market for those firms after the intervention ended.
*An earlier version of this paper circulated under the title "Non-bank liquidity provision to firms: Fund runs and central bank interventions"
Climate Regulation, Firm Emissions, and Green Takeovers * (with O. De Jonghe, and K. Mulier, and L. Stimpfle)
Revise and Resubmit, Journal of Money, Credit and Banking
We exploit an unexpected tightening in the EU Emissions Trading System to investigate firms' responses to carbon pricing. After the regulatory tightening, firms with a high emission intensity significantly reduced their emissions relative to firms in the same industry with a low emission intensity. They reduced emissions without reducing output, thereby improving their emission efficiency. Emission reductions are higher for power producers than manufacturing firms, in line with higher marginal abatement costs in manufacturing industries. We investigate the role of mergers and acquisitions and find that manufacturing firms with a high emission intensity acquire more green targets after the regulatory tightening compared to manufacturing firms with a low emission intensity. However, there is no difference in the amount of acquisitions, indicating a shift in focus rather than an increase in M&A activity.
*An earlier version of this paper circulated under the title "Going green by putting a price on pollution: Firm-level evidence from the EU"
Inflation and floating rate loans: Evidence from the euro area (with F. Core, F. De Marco and T. Eisert)
Tightening monetary policy to fight inflation is less effective in markets dominated by floating-rate loans, as firms may keep prices elevated to offset higher borrowing cost. The varying prevalence of floating-rate loans helps explain the heterogeneity in monetary policy transmission within the euro-area.
Banks use synthetic risk transfers (SRTs) to sell potential losses in their loan portfolios to non-bank investors while retaining the loans on their balance sheets. We show that euro-area become less-capitalized after a synthetically transfer capital-expensive loans. As banks encumber the freed-up capital, they become effectively less capitalized. Second, after the SRT, banks reduce their monitoring efforts compared to other banks lending to the same firm. Third, SRT investors are interconnected with the banking sector. Banks are more likely to sell SRTs to investors to whom they also lend credit, and total bank credit to these investors increases before the SRT investment, implying that on average 26 percent of the SRT is debt-financed. This number may be higher for U.S. SRTs.
Banks can grant loans to firms bilaterally or in syndicates. We study this choice by combining bilateral loan data with syndicated loan data. We show that loan size alone does not adequately explain syndication. Instead, banks' ability to manage risks and firm riskiness drive the choice to syndicate. Banks are more likely to syndicate loans if their risk-bearing capacity is low and if screening and monitoring come at a high cost. Syndicated loans are more expensive and more sensitive to loan risk than bilateral loans. Our findings contradict the hypothesis that reputable borrowers graduate to the syndicated loan market.
The augmented bank balance-sheet channel of monetary policy (with C. Bittner, D. Bonfim, F. Heider, F. Saidi and C. Soares )
This paper studies how banks’ balance sheets and funding costs interact in the transmission of monetary-policy rates to banks’ credit supply to firms. To do so, we use credit registry data from Germany and Portugal together with the European Central Bank’s policy-rate cuts in mid-2014. The pass-through of the rate cuts to banks’ funding costs differs across the euro-area because deposit rates vary in their distance to the zero lower bound (ZLB). When the distance is shorter, banks’ financing constraints matter less for the supply of credit and there is more risk taking. To rationalize these findings, we provide a simple model of an augmented bank balance-sheet channel where in addition to costly external financing, there is screening of borrowers and a ZLB on retail deposit rates. An impaired pass-through of monetary policy to banks’ funding costs reduces their ability to lever up and weakens their lending standards.