Schliephake, E. (2016) Capital Regulation and Endogenous Competition: Competition as a Moderator for Stability, Journal of Money, Credit and Banking, 48(8), pp.1787-1814. (Rated among the Journal’s top 20 downloaded articles in the 12 months after online publication)
Buck, F. & Schliephake, E., (2013) The Regulator's Trade-off: Bank Supervision vs. Minimum Capital, Journal of Banking & Finance, 37(11), 4584–4598.
Schliephake, E. & Kirstein, R., (2013) Strategic effects of regulatory capital requirements in imperfect banking competition. Journal of Money, Credit and Banking 45 (4), 675–700.
Learning in Bank Runs, with Joel Shapiro (Saïd Business School, University of Oxford).
Bank runs often begin with informed capital pulling money out and other investors trying to figure out whether to run. We examine a model in which investor learning exacerbates bank runs. Sophisticated investors can gather information and quickly withdraw when the quality of the bank’s assets is low. Less informed investors can panic or defer their withdrawal, which allows them to learn by observing informed investors’ actions. The (real) option to learn from previous withdrawals leads to costly liquidation in bad states, which increases the payoff of running ex-ante. Moreover, when more investors learn the bank’s asset quality early, remaining investors have a fear of missing out, which also makes pre-emptive runs more likely. More information may thus lead to more panic runs and welfare may be non-monotonic in the amount of information available.
Bank Capital Regulation with Unregulated Competitors, with David Martinez-Miera (Madrid Carlos III).
We analyze optimal capital regulation in a setup in which regulated banks are confronted with competition from unregulated institutions. The existence of unregulated competitors reduces the contraction in credit following an increase in capital requirements. However, it also increases possible inefficient reallocations of credit from banks to unregulated institutions. We show how in regulated banking sectors with high (low) market power, an increase in competition from unregulated banks results in higher (lower) optimal capital requirements and higher (lower) welfare.
The Allocation of Liquidity and Bank Stability, with Hendrik Hakenes (Uni Bonn).
The fragility to panic runs of financial institutions depends—among others—on its liquidity base: the short term funds available to the bank for investment regardless of the withdrawal option available to customers. Institutions that are able to offer higher yield curves are able to lure the liquidity base away from their competitors. Using the standard global games approach, we show that financial institutions that are able to attract a broad liquidity base are less prone to panic runs, but the stability of the residual institutions decreases. As a result, the aggregate stability of the banking system may decrease.
Market-Triggered Contingent Capital with Incomplete Information, with Tobias Berg (Frankfurt School of Finance & Management,), submitted.
We show that multiple equilibria in market-triggered contingent capital can largely be ruled out if a bank’s asset value is not common knowledge. Financial intermediation theory lends support to the argument that a bank’s assets are opaque and therefore not common knowledge. In a global games setup, we show that private uncertainty about the true asset value of a bank secures a unique equilibrium when multiple equilibria would exist otherwise. Our results open up the possibility for market-triggered contingent capital that does not abide by the ”no value transfer” restriction.
Risk Weighted Capital Regulation and Government Debt, Revise&Resubmit at Journal of Financial Regulation.
This paper analyzes a government that simultaneously regulates the banking sector and borrows from it. I argue that a government may have the incentive to misuse capital requirement regulation to alleviate its budget burden. The risk weights for risky assets may be placed relatively too high compared to the risk weight on government bonds. This could have a negative impact on welfare: The supply of loans for the risky sector shrinks, which may have a negative impact on long term growth. Moreover, the government may be tempted to increase its debt level due to better funding conditions, which increases the risk of a future sovereign debt crisis. A short-term focused government may be tempted to neglect this risk and, thereby, may introduce systemic risk in the banking sector.
Work In Progress
Bank Rents and Risk Taking: An International Comparison, with Gianni De Nicolo (IMF and CESifo) and Viktoriya Zotova (IMF).
How do Negative Interest Rates Affect Bank Lending and Risk-Taking? Evidence from Switzerland, with Narly Dwarkasing (Uni Bonn).
Constrained Transmission of Monetary Policy and Non-bank Competition, with Philipp König (Deutsche Bundesbank)