[Job market paper]
We use administrative and supervisory data at the bank- and loan-level to investigate the impact of the introduction of covered bonds on the composition of bank balance sheets and bank risk. Covered bonds, despite being collateralized by mortgages, lead to a shift from mortgage to firm lending. In particular, young and low rated firms receive more lending, suggesting that overall credit risk increases. Meanwhile we find that total balance sheet liquidity increases. We identify the channel in a theoretical model and provide empirical evidence: Banks with low initial liquidity and banks with sufficiently high risk-adjusted return in firm lending drive the results.
IWH Discussion Papers No.22/2019*
Unconventional monetary policy can stimulate lending from weak banks to weak firms. Do changes in lending behavior induce spillover effects between firms within agglomerations? By exploiting the first asset purchase program of the ECB, I show that firms linked to banks which benefit from asset purchases invest less and induce negative spillovers on firms operating in the same region and sector. The finding is important for two reasons: First, it provides evidence on how zombie lending can delay economic recovery. Second, it shows the importance to consider spillovers when assessing unconventional monetary policy because spillovers can cover up direct effects.
*Formerly circulated under the title "Win-win or joy and sorrow? Spillover of asset purchases within the real sector"
with Manfred Antoni (IAB)
Asset purchase programs (APPs) may allow banks to continue lending to unproductive customers. Using administrative plant and bank data, we test whether APPs impinge on industry dynamics in terms of plant entry and exit. Plants in Germany connected to banks with access to an APP are approximately 20% less likely to exit. In particular, unproductive plants connected to weak banks with APP access are less likely to close. Aggregate entry and exit rates in regional markets with high APP exposures are also lower. Thus, APPs seem to subdue Schumpeterian cleansing mechanisms, which may hamper factor reallocation and aggregate productivity growth.