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Loews Philadelphia, Regency Ballroom C1
American Finance Association
Financial Crises and Transmission of Shocks
Sunday, Jan. 7, 2018 10:15 AM - 12:15 PM
- Chair: Tyler Muir, University of California-Los Angeles
Whatever it Takes: The Real Effects of Unconventional Monetary Policy
AbstractLaunched in Summer 2012, the European Central Bank (ECB)'s Outright Monetary Transactions (OMT) program indirectly recapitalized European banks through its positive impact on periphery sovereign bonds. However, the stability reestablished in the banking sector did not fully translate into economic growth. We document zombie lending by banks that remained undercapitalized even post-OMT. In turn, firms receiving loans used these funds not to undertake real economic activity such as employment and investment but to build up cash reserves. Creditworthy firms in industries with a high zombie firm prevalence suffered significantly from this credit misallocation, which further slowed down the economic recovery.
Cross-border Bank Flows and Systemic Risk
AbstractUsing data on cross-border bank flows from Bank for International Settlement (BIS) reporting source countries to 114 recipient countries, we find that heightened bank flows are associated with lower systemic risk in the bank systems in the recipient country. The link between increased flows and reductions in marginal expected shortfall (MES) are concentrated among banks that are larger, profitable, and more efficient. The decline in MES is concentrated among banks in developed markets and those in countries with banking sectors that are larger and have lower capital bases. Additional evidence helps to identify the channels through which cross-border bank flows help to reduce MES, which is by improving recipient-country bank asset quality, efficiency, and profitability. Overall, our findings are consistent with dynamic models of multinational banking that predict lower risk-taking by stimulating local competition and suggest a positive impact of international bank flows on global financial stability.
Marco Di Maggio,
Harvard Business School & NBER
University of Washington
- G2 - Financial Institutions and Services