We analyze how the establishment of the Single Supervisory Mechanism (SSM) relates to patterns in banks' lending activities, risk outcomes, and granular risks within the banking system. Using data on euro area banks from 2010 to 2021, we estimate idiosyncratic shocks to banks' loan growth to construct a measure of loan growth volatility and to compute the "Banking Granular Residual.'' Banks under SSM supervision exhibit lower volatility in loan portfolio growth, indicating more stable lending dynamics. Furthermore, the implementation of the SSM is associated with positive spillover effects on non-SSM banks' lending and a weaker relationship between granular banking shocks and economic growth.
We study how individuals' views on current and future levels of income inequality change during periods of expansionary fiscal policy. In a randomized controlled trial (RCT), we provide information on fiscal expansion to a representative sample of the German population. Our findings reveal that combining a fact-based (numerical) information treatment with a narrative treatment about fiscal expansion plans reduces inequality expectations among respondents who are ex-ante dissatisfied with the government's economic policy. These effects are more pronounced among respondents without a college degree or with low political interest, highlighting the importance of narrative information for individuals who are likely to benefit most from it. We explore potential mechanisms by examining revisions in macro- and micro-level assessments of future economic conditions and find that respondents primarily update their expectations regarding economic growth and individual layoff risk.
We examine whether combining factual information on inflation levels and forecasts with a narrative can persistently shape consumers' inflation expectations. In a pre-registered randomized controlled trial with a representative sample of 3,000 German consumers, participants received either numerical or textual information about inflation rates, with or without an accompanying narrative. All treatments immediately lower inflation expectations, with numerical information eliciting stronger adjustments. Adding a narrative produces no additional immediate effect, confirming that it conveys no new information. However, only the combination of numerical information with a narrative yields a lasting reduction in inflation expectations and forecast uncertainty still observable after four weeks. Our results suggest that combining precise information with a narrative enhances information retention and can lead to more persistent shifts in consumers' beliefs. The effects are strongest when respondents perceive the narrative as relatable and emotionally engaging, and among those with low financial literacy and limited knowledge of inflation.
This paper examines the effect of CoCo bonds that qualify as additional tier 1 capital on bank stability and reporting. The results reveal a significant reduction in the distance to insolvency following the hybrid bond issuance due to increased earnings volatility. Banks report less stable net income due to more volatile loss provisions, which increases earnings opacity rather than reflects changes in asset quality. The findings are consistent with the premise that persistent uncertainty and misconceptions among investors about bail-in likelihoods limit their monitoring engagement, which results in banks becoming less transparent.
Work in Progress
Beyond multipliers: Distributional income effects of government spending in the euro area(with Göckhan Ider, Alexander Kriwoluzky, Madalina Patru, and Lena Tonzer).
Passing the keys: How public policy can shape intergenerational homeownership(with Madalina Patru and Lena Tonzer).
Fiscal policy adjustments, fairness perception, and institutional trust(with Sabrina Jeworrek and Lena Tonzer).
Individual social responsibility and risk-taking for others: Experimental evidence(with Sabrina Jeworrek and Jatin Taneja).