Finance / CRC TR 224 Seminar WiSe 2018/2019
Tuesday, 12:15-13:30 in the Faculty Lounge, Juridicum, Adenauerallee 24-42, 53113 Bonn
October 16, 2018
Enrico Perotti, Univ. of Amsterdam
"Funding Shocks and Credit Quality"
Abstract: Some credit booms, though by no means all, result in financial crises. While risk-taking incentives seem a plausible cause, market participants do not appear to anticipate increasing risk. We show how credit expansions driven by credit supply shocks may be misunderstood as productivity driven, due to the opacity of bank balance sheets. Large funding shocks may induce some intermediaries to scale up speculative lending, distorting price signals. Other banks and firms may misjudge actual profitability, reinforcing the credit expansion. Similarly, at times of low saving supply credit may be underpriced.
October 30, 2018
Oliver Rehbein, University of Bonn
"Does publication lead to publication? The effect of author reputation on publication success"
Abstract: I test whether changes in author reputation influence publication success. Using the change in journal reputation after publication of an author's article as an exogenous change to the author's reputation, I demonstrate that this reputation increase significantly enhances the publication success of the next publication. The effect of reputation increases with journal prestige. Reputation also increases the probability to be published in a top journal, excluding the top-5, but does not affect the quantity of publication. The results suggest that a strong prior publication record can influence the success of publication independent of quality or signals thereof.
November 6, 2018
Björn Richter, University of Bonn
"The Profit-Credit Cycle"
Abstract: Bank profitability leads the credit cycle. An increase in return on equity of the banking sector predicts rising credit-to-GDP ratios over the medium term in a panel of 17 advanced economies spanning the years 1870 to 2015. The pattern also holds in bank-level data and for the global financial cycle. The relationship is only partly explained by a balance sheet channel where retained profits relax net worth constraints. Turning to behavioral mechanisms, the results are consistent with a channel that links past profitability through expectation formation to credit expansions. In line with this channel, past profitability is associated with expectations about future profitability and subsequent credit growth in recent survey data from the US. Looking at the further course of the financial cycle, we find that the run-up to crisis episodes is characterized by high return on equity, high bank profits and dividends relative to GDP, and low provisioning for loan losses. The transition from boom to bust is foreshadowed by decreasing profitability, while credit keeps flowing up until the crash.
November 13, 2018
Sascha Steffen, Frankfurt School of Finance & Management
"Loan Syndication Structures and Price Collusion"
Abstract: How does the organizational form of loan syndicates evolve and what are the effects on price collusion? We develop a novel measure of distance in lending expertise among syndicate lenders, and relate this novel measure to the organizational form of loan syndicates and loan pricing. Studying the U.S. syndicated loan market from 1989 to 2017, we find that the organizational form of loan syndicates significantly varies across our lender measure based on similar specializations in lending which we call syndicated distance. Large lead arrangers prefer to form close and concentrated syndicates by letting lenders with similar lending expertise into their syndicates and allocating those lenders higher loan shares. Analyzing loan pricing, we find that concentrated syndicates possess improved screening abilities, but collude on loan pricing. Consistent with Hatfield et al. (2017), we find however that price collusion of concentrated syndicates only occurs during periods of low market concentration. Our findings imply that both the organizational form of loan syndicates and the level of market concentration affect price collusion.
November 20, 2018
Dmitry Kuvshinov, Bonn Graduate School of Economics
"The Time Varying Risk Puzzle"
Abstract: This paper shows that the correlation between discount rates on three major risky asset classes − equity, housing and corporate bonds – is approximately zero. I establish this new stylized fact – the time varying risk puzzle – by using new long-run data for 17 advanced economies from 1870 to today. I confirm that asset valuations and macro-financial risk factors predict returns on individual asset classes, but I show that none of these variables have predictive power across asset classes. The absence of observed discount rate co-movement constitutes a major puzzle since all but a very select set of asset pricing models assume a joint pricing kernel and hence predict a high correlation of risk premia. My findings imply that time-varying discount rates are unlikely to be the key driver of asset price fluctuations. This puts into question prominent asset pricing models relating to time-varying risk aversion, disaster risk, and intermediary risk appetite. The absence of co-movement in the data is not attributable to asset-specific risk, investor heterogeneity or market segmentation. Instead, the data point to volatile expectations as the central source of asset price volatility, in line with behavioural models. The observed expectation volatility has real economic effects on a business cycle frequency. Elevated sentiment – or overoptimistic expectations – predict low future GDP growth, and sentiment reversals often mark the onset of financial crises.
November 27, 2018
Carola Müller, IWH
December 11, 2018
Antonis Kotidis, Barcelona GSE
December 18, 2018
José-Luis Peydro, Barcelona GSE
“From Finance to Fascism: The Real Effects of Germany’s 1931 Banking Crisis”
Abstract: Do financial crises radicalize voters? We analyze a canonical case – Germany in the early 1930s. Following a large bank failure in 1931 caused by fraud, foreign shocks and political inaction, the economic downturn went from bad to worse. We collect new data on bank-firm connections. These suggest a direct link from the banking crisis to both economic distress and extreme radical voting. The failure of the Jewish-led Danatbank strongly reduced the wage bill of connected firms, leading to substantially lower city-level incomes. Moreover, Danat exposure strongly increased Nazi Party support between 1930 and 1933, but not between 1928 and 1930. Effects work through both economic and non-economic channels. Greater economic distress caused by Danat led to more Nazi party votes. In addition, the failure of a Jewish bank was skillfully exploited by propaganda, increasing support above and beyond economic effects. This was particularly true in cities with a history of anti-Semitism. In towns with no such history, Nazi votes were only driven by the economic channel. Greater local exposure to the banking crisis also led to fewer marriages between Jews and gentiles just after the Summer of 1931, and to more attacks on synagogues after 1933, as well as more deportations of Jews.
January 15, 2019
Martin Brown, Univ. of St. Gallen
"Banking Crises, Bail-Ins and Money Holdings"
Abstract: We study changes in deposit and cash holdings by households following the 2013 banking crisis in Cyprus. During this crisis the two largest banks in the country were resolved involving a bail-in of uninsured depositors and debt holders. Our analysis is based on anonymized survey data covering households with differential exposures to the resolved banks: uninsured deposits, subordinated debt and equity holdings. In line with the portfolio theory of money demand, we find that in the intermediate aftermath of the crisis households significantly reduced their holding of bank deposits and increased their cash holdings. This flight to cash was much stronger for clients which experienced a bail-in of deposits or subordinated debt than for households which held equity in the resolved banks or did not suffer any financial loss. In the medium term, however, we find no difference in depositor confidence or intended money holdings between households which suffered a bail-in and those which did not.
January 22, 2019
Deyan Radev, Univ. Bonn
"Can Bank Resolution Regimes Increase Systemic Risk?" (with Thorsten Beck and Isabel Schnabel)
Abstract: "This paper analyzes the relationship between reforms of the bank resolution framework and systemic risk, using a novel and comprehensive database of bank resolution reforms in 22 member countries of the Financial Stability Board (FSB). Focusing on a number of exogenous system-wide and bank-specific events, we find that systemic risk increases more in countries with more comprehensive bank resolution frameworks after negative system-wide events, such as Lehman Brothers' default and the bailout of Greece, and decreases more after a positive system-wide events, such as the Greek sovereign debt swap and Draghi's ``whatever it takes'' speech. In the case of bank-specific negative events, however, such as Deutsche Bank's losses announcements in 2016, we find that systemic risk increases in countries with more comprehensive bank resolution legislation. These results suggest that bank resolution rules are more effective in dealing with bank-specific events, while they appear procyclical in case of a system-wide event."
January 29, 2019
Alexander Popov, European Bank for Reconstr. & Development
"Credit Shocks, Employment Protection, and Growth: Firm-level Evidence from Spain"
Abstract: "We offer new evidence on the real effects of credit shocks in the presence of employment protection regulations by exploiting a unique provision in Spanish labor laws: dismissal rules are less stringent for firms with fewer than 50 employees, lowering the cost of hiring new workers. Using a new dataset, we find that during the financial crisis, healthy firms with fewer than 50 employees borrowing from troubled banks grew faster in sectors where capital and labor were sufficiently substitutable. This result does not obtain when we use a different cut-off for Spain or the same cut-off for firms in Germany. Our evidence suggests that labor market flexibility can dampen the negative effect of credit shocks by allowing firms to keep growing by substituting labor for capital."