Finance Seminar Winter term 2019/2020

The finance seminar is organized in collaboration with the Cluster of Excellence 2126 ECONtribute: Markets & Public Policy and with the Collaborative Research Center Transregio 224: Economic Perspectives on Societal Challenges.

Tuesday, 12:15-1:30 PM in the Faculty Lounge, Juridicum, Adenauerallee 24-42, 53113 Bonn


Recent seminars:

Finance Seminar in collaboration with EXC 2126:

January 28, 2020 - Steven Ongena (Universität Zürich)

"Taxing Bank Leverage"
Regulators can monitor bank leverage either by increasing capital requirements or taxing debt. We show in a simple model that, while increasing capital requirements leads banks to shift their assets away from loans, taxing debt makes them refocus their activity on lending. We test empirically these predictions by exploiting the staggered introduction of tax reforms that increased the cost of leverage in the Euro-area from 2005 to 2012. In addition to decreasing leverage, affected banks shift the composition of their assets towards loans away from securities and decrease total risk. Our results suggest that taxes can be a complementary tool to capital requirements that maintains credit supply.


Finance Seminar in collaboration with EXC 2126 and CRC TR 224:

January 21, 2020 - Marie Hoerova (ECB Research)

"Variation margins, fire sales, and information-constrained optimality"
Protection buyers use derivatives to share risk with protection sellers, whose assets are only imperfectly pledgeable because of moral hazard. To mitigate moral hazard, privately optimal derivative contracts involve variation margins. When margins are called, protection sellers must liquidate some of their own assets. We analyse, in a general-equilibrium framework, whether this leads to ineffcient fire sales. If investors buying in a fire sale interim can also trade ex ante with protection buyers, equilibrium is information-constrained effcient even though not all marginal rates of substitution are equalized. Otherwise, privately optimal margin calls are ineffciently high. To address this ineffciency, public policy should facilitate ex-ante contracting among all relevant counterparties.

Finance Seminar in collaboration with EXC 2126:

December 17, 2019 - Marco Pagano (University of Naples Federico II)

"Ownership, Control and Careers"
Careers are often shaped by favoritism rather than merit, even though this saps firm performance. In a model where the controlling shareholder trades off the private benefits of favoritism against its costs, favoritism emerges only if the controlling shareholder’s stake is sufficiently low. As funding investment requires dilution of such stake, it is associated with greater favoritism. Entrepreneurs may precommit to meritocratic promotions by adopting a managerial business model, so as to fund larger projects; however, they will refrain from doing so if the private benefits of favoritism are large. Indeed, to retain such benefits, entrepreneurs may forgo large investment opportunities whose funding would require loss of control.

Finance Seminar in collaboration with EXC 2126
in R. 0.042

December 16, 2019, 16 (c.t.) - Enrico Perotti (University of Amstadam), ECONTribute Fellow

"Interpreting long term trends and financial stagnation"
Enrico Perotti is a Reinhard Selten Fellow at ECONtribute. He will come to Bonn in the future on a regular basis. This presentation is not based on a single paper, but is meant to trigger discussion and possibly create a basis for future collaboration. Hence faculty, but especially also BGSE students are invited to this talk.

Finance Seminar in collaboration with CRC TR 224:

December 10, 2019 - Michael Koetter (IWH & Otto-von-Guericke Univ. Magdeburg)

"Real effects of the ECB’s asset purchases: Plant-level evidence from Germany" ( with M. Antonia, M. Koetter, S. Müller, T. Sondershaus)
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.

Finance Seminar in collaboration with EXC 2126 and CRC TR 224:

December 6, 2019 13h - Farzad Saidi (Boston University)

"Sticky Deposit Rates and Allocative Effects of Monetary Policy" (with Anne Duquerroy and Adrien Matray)
Abstract: This paper documents that monetary policy affects credit supply through banks' cost of funding. Using administrative credit-registry and regulatory bank data, we find that banks can incur funding costs that exceed the monetary-policy rate by up to 120 basis points before they contract lending. For identification, we exploit the existence of regulated-deposit accounts in France whose interest rates are set by the government and are, thus, not directly affected by the monetary-policy rate. Once banks contract lending, we observe portfolio reallocations consistent with risk shifting: banks that depend on regulated deposits lend less to large firms, and relatively more to small firms and entrepreneurs. This reallocation has redistributive effects, favoring more constrained borrowers especially in low-income areas where savings are held primarily in regulated deposits.

Finance Seminar in collaboration with EXC 2126 and CRC TR 224:

November 26, 2019 - Martin Schmalz (University of Oxford)

"(Why) Do Central Banks Care about Their Profits?"
We document that central banks are significantly more likely to report slightly positive profits than slightly negative profits, especially amid greater political pressure, the public’s receptiveness to more extreme political views, and when governors are reappointable. Profit concerns are absent when no such factors are present. The propensity to report small profits over small losses is correlated with a more lenient monetary policy and greater tolerance for inflation. We conclude that profitability concerns, although absent from standard theory, are present and effective in practice. These findings inform a debate about monetary stability and the effectiveness of non-traditional central banking.

Finance Seminar in collaboration with EXC 2126 and CRC TR 224:

November 19, 2019 - Loriana Pelizzon (Goethe University Frankfurt)

"Eligibility Premium and Corporate Debt in the Eurozone"
Abstract: In the unique institutional framework of the Eurosystem, we study the pricing and real effects of central bank collateral eligibility in both the secondary and primary markets for corporate bonds. We find that eligible bonds (i) trade at lower yields, (ii) depending on their initial liquidity, exhibit an asymmetric liquidity response, and (iii) have an increased securities lending market activity, all driven by banks' demand for pledgeable collateral. Moreover, we observe that following bond-issuing firms first-time eligibility list inclusion, they reduce bank debt and expand corporate bond issuance activity, overall increasing the size and maturity of their total debt.

November 12, 2019 - Ralf Meisenzahl (Federal Reserve Bank of Chicago)

"Nonbanks, Banks, and Monetary Policy: U.S. Loan-Level Evidence since the 1990s
We show that credit supply effects and associated real effects of monetary policy depend on the size of nonbank presence in the respective lending market. Nonbank presence also alters how monetary policy a ects the distribution of risk. For identication, we use exhaustive loan-level data since the 1990s and Gertler-Karadi (2015) monetary policy shocks. First, different from the literature showing that low monetary policy rates increase credit supply and risk-taking by banks, we find that higher monetary policy rates shifts credit supply for corporates, mortgages, and consumers shifts from regulated banks to less regulated, more fragile nonbanks. Moreover, this shift is more pronounced for ex-ante riskier borrowers. Second, nonbanks reduce the effectiveness of the bank lending channel of monetary policy at the loan-level. However, this reduction varies substantially across lending markets. Total credit and real e ects are largely neutralized in consumer loans and the associated consumption, but not in corporate loans and investment.

Finance Seminar in collaboration with EXC 2126 and CRC TR 224:

October 29, 2019 - Paul Voß (BGSE)

"The Paralyzing Effect of Short-term Debt"
Abstract: This paper shows how short-term debt can disrupt the informational flow in financial markets. In the model, short-term debt increases share price sensitivity with respect to the arrival of new information. When share prices reveal novel information, short-term creditors adjust interest rates and roll-over decisions which in turn feeds back into share prices. However, ex ante, short-term debt also affects the revelation of information: If the level of short-term debt is large enough, a privately informed blockholder may refrain from trading on adverse information at all. The blockholder is essentially locked-in his position since he fears triggering adverse interest rate reversals or even runs. We use this mechanism to shed light on three phenomena: First, the empirically observable hump-shaped relation between (active) concentrated ownership and short-term debt can arise endogenously in our model. Second, managerial incentives suffer when a company heavily relies on short-term financing. Third, we illustrate how financial institutions endogenously obtain high levels of short-term debt and low levels of concentrated ownership leading to vacuum in corporate governance.

October 08, 2019 - Josef Schroth (Bank of Canada)

"Macroprudential Policy with Capital Buffers"
This paper studies optimal bank capital requirements in a model of endogenous bank funding conditions. I find that requirements should be higher during good times such that a macroprudential “buffer” is provided. However, whether banks can use buffers to maintain lending during a financial crisis depends on the capital requirement during the subsequent recovery. The reason is that a high requirement during the recovery lowers bank shareholder value during the crisis and thus creates funding-market pressure to use buffers for deleveraging rather than for maintaining lending. Therefore, buffers are useful if banks are not required to rebuild them quickly.