Research

1. Sharing the Pain? Credit Supply and the Real Effects of Bank Bail-ins | R&R at the Review of Financial Studies

with Thorsten Beck (Cass Business School) and Samuel Da-Rocha-Lopes (EBA and Nova SBE)

We analyze the credit supply and real sector effects of bank bail-ins by exploiting the unexpected failure of a major Portuguese bank and subsequent resolution. Using a matched firm-bank dataset on credit exposures and interest rates, we show that while banks more exposed to the bail-in significantly reduced credit supply at the intensive margin, affected firms compensated the tightening of overall credit with other sources of funding. Nevertheless, SMEs were subject to a binding contraction of funds available through credit lines and reduced investment and employment. These dampening effects are explained by the pre-shock internal liquidity position of smaller firms.

  • Conference and Seminar Presentations: 2nd CEPR Annual Spring Symposium in Financial Economics (UK), De Nederlandsche Bank/EBC/CEPR Conference (Netherlands), 5th Emerging Scholars in Banking and Finance Conference (UK), Columbia Business School (US), International Monetary Fund (US), 32nd EEA Conference (Portugal), 4th Bank of Canada/Bank of Spain Workshop (Canada), Single Resolution Board (Belgium), 9th European Banking Center Network Conference (UK), Deutsche Bundesbank/IWH/CEPR Conference (Germany), Basel Committee on Banking Supervision/CEPR Joint Workshop (Switzerland), BI Norwegian Business School (Norway), Bank of Italy (Italy), 4th Workshop of the Empirical Financial Intermediation Research Network (Belgium), Sydney Banking and Financial Stability Conference 2017 (Australia), 2018 AFA PhD Poster Session (US), Universidad Carlos III de Madrid (Spain), 11th Swiss Winter Conference on Financial Intermediation Poster Session (Switzerland), 2018 Fixed Income and Financial Institutions Conference (US), Bank of England (UK), University of Bonn (Germany), 2018 Luso-Brazilian Finance Meeting (Brazil), 2018 Sapienza/BAFFI CAREFIN/RFS Conference (Italy), 2018 FIRS Conference (Spain), 45th EFA Annual Meeting (Poland)
      • Scheduled: 17th CREDIT Conference (Italy), 2019 Day-Ahead Conference (US)
  • Coverage: Wall Street Journal, VoxEU, Eurointelligence, Mondovisione, ECO (Portuguese), Jornal de Negócios (Portuguese - online, paper and front page)

2. Strategic Liquidity Mismatch and Financial Sector Stability | R&R (2nd round) at the Review of Financial Studies

This paper examines the impact of banks' collective liquidity mismatch policies on the stability of the financial sector. Using a novel identification strategy exploiting partially overlapping peer groups, I show that the liquidity created by individual banks is in large part driven by the liquidity transformation activity of their respective peers. Such correlated liquidity mismatch decisions are asymmetric and concentrated on the asset-side component of liquidity creation. Importantly, this strategic behavior increases both the default risk of individual institutions and overall systemic risk. From a macroprudential perspective, the results highlight the importance of explicitly regulating systemic liquidity risk.

  • Conference and Seminar Presentations: Federal Reserve Board (US), Universitat Pompeu Fabra (Spain), Saïd Business School, University of Oxford (UK), Nova SBE (Portugal), INSEAD (France), Rotterdam School of Management (Netherlands), Warwick Business School (UK), Queen Mary University of London (UK), KU Leuven (Belgium), Bank of England (UK), NYU/UoF 8th International Risk Management Conference (Luxembourg), European Central Bank (Germany), 1st IWH/FIN/FIRE Workshop on "Challenges to Financial Stability" (Germany), University of Cambridge/FNA Financial Risk and Networks Conference (UK), Bank of Finland/ESRB/RiskLab Conference (Finland), Banco de Mexico/CEMLA/University of Zurich Conference (Mexico), 4th EBA Policy Research Workshop (UK), 2015 Federal Reserve Bank of Cleveland/OFR Financial Stability Conference (US), 2017 AEA Annual Meeting (US), 5th MoFiR Workshop on Banking (US)

3. Financial Access Under the Microscope | Submitted

with Sumit Agarwal (National University of Singapore), Thomas Kigabo (NBR), Camelia Minoiu (Wharton and IMF) and Andrea Presbitero (IMF)

We examine the impact of a large-scale microcredit expansion program on financial access and the transition of previously unbanked borrowers to commercial banks. Using administrative micro-data covering the universe of loans to individuals from a developing country, we show that the program significantly increased access to credit, particularly in less developed areas. This effect is driven by the newly set-up credit cooperatives (U-SACCOs), which grant loans to previously unbanked individuals. A sizable share of first-time borrowers who need a second loan switch to commercial banks, which cream-skim low-risk borrowers and grant them larger, cheaper, and longer-term loans. These borrowers are not riskier than similar individuals already at commercial banks and only initially receive smaller loans. Our results suggest that the microfinance sector, together with a well-functioning credit reference bureau, help mitigate information frictions in credit markets.

(part of a project on Macroeconomic Research in Low-Income Countries supported by the UK DFID)

  • Conference and Seminar Presentations: IMF-DFID Conference on “Financial Inclusion: Drivers and Real Effects” (US), CSAE Oxford Conference 2018 (UK), 2018 Development Economics and Policy Conference (Switzerland), 7th Navarra Center For International Development Research Workshop (Spain), Villanova University (US), International Monetary Fund (US), National Bank of Rwanda (Rwanda), 2018 Africa Meeting of the Econometric Society (Benin)
      • Scheduled: 1st Endless Summer Conference on Financial Intermediation and Corporate Finance (Cyprus), 33rd European Economic Association Conference (Germany), 8th International Research Workshop in Microfinance (Norway), IBEFA-ASSA Meeting 2019 (US)
  • Coverage: VoxEU

4. Completing the Banking Union with a European Deposit Insurance Scheme: Who is Afraid of Cross-subsidisation? | Submitted

with Jacopo Carmassi (ECB), Sonja Dobkowitz (Bonn), Johanne Evrard (ECB), Laura Parisi (ECB) and Michael Wedow (ECB)

This paper investigates the impact and appropriateness of establishing a European Deposit Insurance Scheme (EDIS) using a unique supervisory micro-level dataset on euro area banks’ covered deposits and other liabilities. Our main findings are as follows: first, an ex-ante funded Deposit Insurance Fund (DIF) with a target size of 0.8% of euro area covered deposits would be sufficient to cover losses even in a severe banking crisis. Second, risk-based contributions to the DIF would be able to internalise specificities of banks and banking systems, thus facilitating tackling moral hazard and moving forward with risk sharing measures towards the completion of the Banking Union. Third, smaller and larger banks would not excessively contribute to EDIS relative to the amount of covered deposits in their balance sheet. Finally, there would be no unwarranted systematic crosssubsidisation within EDIS in the sense of some banking systems systematically contributing less than they would benefit from the DIF.