Research
Bank funding and risk taking (with Alessandro Ferrari, Carmen Garcia Galindo and Andreas Winkler)
In this paper we use a novel approach to address issues of endogeneity in estimating a causal effect of leverage on risk taking by banks. Using data on local bank office deposits and local unemployment we construct a shift-share instrument for leverage. We construct a novel measure of risk taking based on the universe of issued mortgage loans in the US. This measure estimates the responsiveness of origination to loan level risk characteristics. which we argue is not affected directly by our instrument, whereas a standard realised risk indicator would be. The results confirm that banks increase their risk taking after an exogenous increase in leverage.
Deposit insurance and risk taking (with Carolina López-Quiles)
This paper aims at assessing the effect of deposit insurance on the risk-taking behaviour of banks. As shown in the theoretical literature, deposit insurance may induce moral hazard and incentivise banks to take on more risk. In this paper we provide an experimental setup in which we exploit an increase in the coverage limit of deposit insurance in the U.S. in order to identify the difference in risk taking by banks that were affected and banks that were not. This difference comes from the fact that state chartered savings banks in Massachusetts had unlimited deposit insurance coverage at the time when it was increased for all other banks in the US. Given that all banks in the sample are subject to the same regulatory and supervisory requirements, and that they are similar in other characteristics, we can isolate the effect of such increase in deposit insurance. We find, contrary to the literature, that this increase in deposit insurance did not increase bank risk-taking.
Local effects of monetary policy: the role of local banks
This paper estimates the effect of monetary policy on local economic outcomes and examines the role of local bank characteristics on the channels of the transmission mechanism of monetary policy. We build a measure of local bank characteristics at the county level and test whether these characteristics strengthen or weaken the effect of monetary policy. Our results suggest that riskier banks with lower liquidity, higher share of non performing loans and higher default probability limit the effect of monetary policy. Our results go in line with the prediction of Drechsler, Savov & Schnabl (QJE, 2017).
Do IFIs make a difference? The impact of EIB lending support for SMEs in Central and Eastern Europe during the global financial crisis. (with Aron Gereben, Anton Rop and Adalbert Winkler)
Does IFI funding provide support to SMEs receiving such funding? We assess the impact of funding by the European Investment Bank (EIB) on the performance of 5,074 SMEs in eight countries of Central and Eastern Europe (CEE) during 2008-2014. Our results – derived from a propensity score matching and difference-in-difference estimation exercises – indicate that EIB lending has a positive effect on employment, revenues and profitability. We also find that the positive impact of EIB funding on employment and revenues is significantly higher when it is provided in a crisis year and firms face a prolonged crisis. Treated firms also record an even larger advantage in terms of profitability. Overall, our results provide support to the view that IFI funding makes a difference in a period characterized by financial and economic turmoil.