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Banking

Paper Session

Friday, Jan. 3, 2025 2:30 PM - 4:30 PM (PST)

San Francisco Marriott Marquis, Juniper
Hosted By: International Banking, Economics, and Finance Association
  • Chair: Björn Imbierowicz, Deutsche Bundesbank

As Interest Rates Surge: Flighty Deposits and Lending

Giuseppe Cappelletti
,
European Central Bank
David Marques-Ibanez
,
European Central Bank
Alessio Reghezza
,
European Central Bank
Carmelo Salleo
,
European Central Bank

Abstract

How do bank deposits shape lending? We estimate the impact of the deposit channel of monetary policy by looking at a large, and unexpected, increase in policy rates which led to many banks experiencing deposits outflows. By using an extensive credit register that includes the vast majority of bank-firm lending relationships in euro area countries, we find that banks experiencing deposit outflows reduce credit rather than increase the interest rate they charge (to the same borrower relative to other lenders). This credit restriction is stronger for fixed rate and longer maturity loans, but not for riskier borrowers. The effect is larger for banks coming into the hiking period with a larger unhedged duration gap. This result is consistent with banks prioritizing the management of their duration gap, which affects the value of their deposits franchise, rather than short-term profitability considerations linked to their loan book. Monetary policy is transmitted to the loan supply via its impact on funding, and mainly with rationing strategies aimed at managing interest rate risk.

Mobile Internet, Collateral and Banking

Angelo D'Andrea
,
Bank of Italy
Patrick Hitayezu
,
Research Hub
Roland Kpodar
,
International Monetary Fund
Nicola Limodio
,
Bocconi University
Andrea Presbitero
,
International Monetary Fund

Abstract

Combining administrative data on credit, internet penetration and a land reform in Rwanda, this paper shows that the complementarity between technology and law can overcome financial frictions. Leveraging quasi-experimental variation in 3G availability from lightning strikes and incidental coverage, we show that mobile connectivity steers borrowers from microfinance to commercial banks and improves loan terms. These effects are partly due to the role of 3G internet in facilitating the acquisition of land titles from the reform, used as a collateral for bank loans and mortgages. We quantify that the collateral's availability mediates 35% of the overall effect of mobile Internet on credit and 80% for collateralized loans.

Borrowing Beyond Bounds: How Banks Pass on Regulatory Compliance Costs

Felix Corell
,
Vrije Universiteit Amsterdam
Melina Papoutsi
,
European Central Bank

Abstract

Banks in the euro area must inform supervisors about each exposure that exceed 10% of the bank’s capital. Using a granular dataset that combines banks’ loan and security portfolios, we test whether banks pass on the cost of complying with the large-exposure framework to borrowers above the threshold. We show that after a decrease in the reporting threshold, small banks react by shifting more exposures just below the threshold. In addition, banks charge a sizable 76 basis point interest rate premium for large exposures, relative to firms just below the threshold. This premium is more pronounced for small banks and borrowers with fewer banking relationships and hence fewer outside options. In response, when firms approach their bank’s large exposure threshold, they become more likely to borrow from other banks. Despite the “large-exposure penalty”, we find no statistical evidence for bunching below the threshold, suggesting that there are substantial frictions that prevent firms from switching to better-capitalized banks to reduce interest expenses.

Discussant(s)
Sonya Zhu
,
Bank for International Settlements
Jin Cao
,
Norges Bank
JEL Classifications
  • G2 - Financial Institutions and Services
  • G0 - General