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Loews Philadelphia, Adams
Hosted By:
International Banking, Economics, and Finance Association
bank runs. As deposit insurance schemes are not fully funded, they need to
be credible ex-ante to serve their purpose. In this paper we look at
specific episodes during the global financial crisis that have threatened
the credibility of deposit insurance. Using monthly bank level data on
deposits from households and firms, we find that depositors actively react
to events that raise doubts about the credibility of deposit insurance. For
some depositors this may entail moving their savings to financial
institutions whose deposits are guaranteed in other countries, while for
others this may be reflected in a preference for intrinsically sounder
banks.
Liquidity Shocks to Markets
Paper Session
Friday, Jan. 5, 2018 2:30 PM - 4:30 PM
- Chair: Jose A. Lopez, Federal Reserve Bank of San Francisco
Sharing the Pain? Credit Supply and Real Effects of Bank Bail-ins
Abstract
We analyze the credit supply and real sector effects of bank bail-ins by exploiting the unexpected failure of a major bank in Portugal and its subsequent resolution. Using a unique dataset of matched firm-bank data on credit exposures and interest rates from the Portuguese credit register, we show that while banks more exposed to the bail-in significantly reduced credit supply after the shock, affected firms were able to compensate this credit contraction with other sources of funding, including new lending relationships. Although there was no loss of external funding, we observe a moderate tightening of credit conditions as well as lower investment and employment at firms more exposed to the intervention, particularly SMEs. We explain the latter real effects by higher precautionary cash holdings due to increased uncertainty.The Importance of Deposit Insurance Credibility
Abstract
Deposit insurance is the most widely used instrument to mitigate the risk ofbank runs. As deposit insurance schemes are not fully funded, they need to
be credible ex-ante to serve their purpose. In this paper we look at
specific episodes during the global financial crisis that have threatened
the credibility of deposit insurance. Using monthly bank level data on
deposits from households and firms, we find that depositors actively react
to events that raise doubts about the credibility of deposit insurance. For
some depositors this may entail moving their savings to financial
institutions whose deposits are guaranteed in other countries, while for
others this may be reflected in a preference for intrinsically sounder
banks.
The Real Effects of Bank Distress: Evidence From Bank Bailouts in Germany
Abstract
How does bank distress impact their customers’ probability of default? We address this question by looking at a unique sample of German firms from 2000 to 2012. We follow their firm-bank relationships through times of crises and distress. We find that a bank bailout leads to a bank-induced increase in the firms’ probability of default. This effect mainly stems from bailouts during the 2008-09 recession. We further find that the direction and magnitude of the effect depends on firm quality and the relationship orientation of banks.Discussant(s)
Camelia Minoiu
,
International Monetary Fund and University of Pennsylvania
Fergal McCann
,
Central Bank of Ireland
Raluca Roman
,
Federal Reserve Bank of Kansas City
Kasper Roszbach
,
Norges Bank and University of Groningen
JEL Classifications
- G2 - Financial Institutions and Services