[Job market paper]
We use the introduction of covered bonds in Norway in 2007 together with administrative and supervisory data at the bank- and loan-level to investigate the effect of asset encumbrance on the composition of bank balance sheets and bank risk. We show that covered bonds - despite being collateralized with mortgages - leads to a shift in bank lending from mortgages to corporate loans. The marginal corporate borrower is young and low-rated, suggesting that overall credit risk increases. At the same time, we find that total balance sheet liquidity increases. Overall, the beneficial effects of increased liquidity on bank risk outweighs any negative effects of increased credit risk, ultimately reducing risk premia on total and unsecured funding. The effects are driven by banks with low initial liquidity and high risk-adjusted returns on firm lending.
IWH Discussion Papers No.22/2019* , IWH Best Paper Award 2021 (received January 2022)
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.