Institutions, contracts, and regulation of housing financing

The real estate market and, more specifically, the housing market is one of the most important markets of an economy. It impacts public health, influences social relations and crime, triggers others sector growth, and thus affects the prosperity of an economy. The close interconnectedness between economic sectors creates mutual dependencies and spillover effects from one market to another. Due to this, a stable and resistant housing market is in common public, economic, and political interest. The prediction of the development of the housing market, however, is highly challenging as it displays several individual features. One is its high capital intensity. What drives housing investment is sustainable access to housing financing. As sufficient funding is a precondition for acquiring residential property, mortgage lending institutions play a decisive role in the housing market. They enable home seekers to become homeowners and, at the same time, decide by whom and when a residential property can be bought. Furthermore, they influence housing prices. By either granting loans or rejecting applicants and conducting other business, the demand for dwellings is influenced which affects prices. This was clearly evidenced by the latest financial crisis. A second special feature of the housing market is its distinct heterogeneity. From various perspectives, housing is, above all, particularly individual. Dwellings must meet individual circumstances, habits, and preferences. Furthermore, they need to fit into geographical or political circumstances. To meet these individual needs, some financial systems are quite diverse, consisting of manifold types of financial intermediaries that offer several products to finance a residential property. Others are rather uniform, characterized mainly by privately organized institutions, focused on common banking business. This dissertation investigates the impact of different types of financial institutions, financial contracts, and financial regulation on the housing market. The first part investigates whether various lending practices of different types of financial institutions affect housing market cycles differently. We develop a heterogeneous agent-based model that mimics a real-world housing market, consisting of potential home buyers and sellers who trade residential property. Financial intermediaries finance residential property and, therefore, mainly determine whether housing investment can be realized. We create a heterogeneous financial market with special emphasis on two institutional bank types: conventional banks (CBs) and building and loan associations (BLs). Especially in Germany and continental Europe, both serve the mortgage lending market while BLs constitute a peculiar but essential real estate financier. In our research, BLs represent an example of specialized financial intermediaries. Contrasting the mortgage granting decisions of the two bank types that arise out of varying business models and specialized institutional regulations, we find that CBs exercise procyclic mortgage lending that exacerbates prevailing up- or downturns in the housing market. Using BLs core product, contractual saving for housing (CSH), they put less emphasis on collateral values. Instead, they use information out of relationship lending which leads to less pronounced market cycles and more stable housing prices. Computational experiments reveal that a heterogeneous financial market, consisting of both CBs and BLs creates the most stable housing market and, at the same time, provides homeownership for a larger share of the economy. As the first part of the dissertation suggests a diversified financial market with differing institutional features and heterogeneous product landscapes to stabilize the housing market and diminish the risk of crises, the second part extends the research scope to embrace regulatory environments. I introduce an extended heterogeneous agent-based model of a housing and a financial market to assess whether it is reasonable to impose homogenous regulatory requirements for heterogeneous financial institutions out of the perspective of housing, capital, and financial market stability. In addition to the real estate market, where potential buyers and sellers can trade dwellings, I model a capital market on which banks can trade a standardized share portfolio that depicts alternative investment opportunities for financial institutions. If banks engage in risky business which is either to finance housing investments or trading shares, Basel III requires them to hold a specified amount of equity. Banks business activities are thus restricted by the prevailing capital adequacy requirements (CAR). Via computational experiments, I introduce a heterogeneous regulation in terms of different levels of CAR for a special type of financial intermediary, BLs, while CAR for CBs are held fixed. The results provide evidence that imposing CAR on banks is effective in increasing market stability and the resilience of the banking sector. The obligation to meet CAR restricts risky business activities and increases banks loss absorbency capacity. However, stability is not only a monotonic function of capital. Elevating CAR for BLs worsens stability measures and banking soundness. The study reveals that the institutional type of BLs and their special regulation imposes a risk-mitigating and stabilizing effect on the housing, the capital, and the financial market which can be intensified if CAR are aligned to their individual business model. These findings advocate in favor of heterogeneous CAR that shape market structures and create most stable market conditions. The third part of this dissertation investigates a special component of the current regulatory requirements of Basel III, the countercyclical capital buffer (CCyB). The macroprudential tool strives to counteract the issue of procyclicality of the previous regulatory rules. Conducting computational experiments in an artificial market setting, we examine the macroeconomic performance of the CCyB by evaluating the dynamics of key stability indicators of the housing and the financial market. Under four different scenarios, an undisturbed market, a financial shock scenario, a positive housing demand shock scenario, and in times of a housing bubble, we test whether the macroprudential tool meets its regulatory goals. Doing this, we find that, in general, the CCyB performs well in stabilizing the housing and the financial market in all of the tested market settings. It is not able, however, to prevent any of the simulated crises to occur. Furthermore, its effectiveness depends on the magnitude of the shock and on how much buffer has been built up by banks in the previous periods. A CCyB introduced at the wrong time might even affect market conditions procyclically. As the introduction of a CCyB is currently discussed in different countries, this study contributes to current regulatory issues and provides valuable insights. With its three parts, this dissertation provides new insights into the relationship between financial and housing markets. Incorporating the special features of the housing market, it reveals the merits of a diversified financial market and the existence of specialized financial institutions and heterogeneous financial products. Furthermore, the results argue in favor of a heterogeneous regulation. Additionally, it provides information about the effectiveness of a currently discussed regulatory component, the CCyB. Hereby, this dissertation contributes to existing literature and has important implications for the design of financial markets and regulatory capital requirements in order to stabilize one of the most important markets of an economy, the housing market.Der Immobilienmarkt, im Speziellen der Markt für Wohnimmobilien, zählt zu den bedeutendsten Märkten einer Volkswirtschaft. Durch zahlreiche Interdependenzen zu angrenzenden Marktsegmenten prägt er gesellschaftliche Belange wie soziale Beziehungen und Kriminalität, beeinträchtigt die öffentliche Gesundheit und beeinflusst den volkswirtschaftlichen Wohlstand. Die enge Verflechtung zwischen Wirtschaftssektoren führt zu gegenseitigen Abhängigkeiten und Spillover-Effekten. Ein stabiler und widerstandsfähiger Wohnungsmarkt liegt daher in einem gemeinsamen öffentlichen, wirtschaftlichen und politischen Interesse. Eine Einschätzung der Marktentwicklung für Wohnimmobilien wird durch dessen spezielle Charakteristika jedoch erheblich erschwert. Eine dieser Besonderheiten ist dessen beträchtliche Kapitalintensität. Voraussetzung für den Erwerb von Wohneigentum ist der Zugang zu Finanzmärkten und die Bereitstellung von adäquaten Finanzierungsprodukten. Durch diese Abhängigkeit kommt den Finanzintermediären eine zentrale Rolle am Immobilienmarkt zu. Sie ermöglichen potentiellen Immobilienanwärtern den Erwerb von Wohneigentum und beeinflussen durch diverse Kreditvergabeprozesse von wem und wann eine Immobilie erworben werden kann. Durch individuell ausgerichtete Geschäftsmodelle prägen Banken zudem die Nachfrage, die wiederum die Preise beeinflusst. Besonders evident wurde dies in der letzten Finanz- und Wirtschaftskrise. Ein weiteres Charakteristikum des Immobilienmarktes ist dessen ausgeprägte Heterogenität. Aus diversen Gesichtspunkten ist Wohneigentum vor allem eines: individuell. Es muss persönlichen Belangen, Gewohnheiten und Präferenzen entsprechen und zudem geographische und politische Umstände erfüllen. Um diesen Gegebenheiten nachzukommen, unterscheiden sich Finanzsysteme in institutioneller sowie produktspezifischer Konstitution. Während einige Finanzsysteme dieser Welt relativ heterogen ausgestaltet sind und der Nachfrage nach Immobilienfinanzierung mit diversen Institutionsformen und Produkten begegnen, zeichnen sich andere durch eher homogene, meist privatwirtschaftlich organisierte und auf das klassische Bankgeschäft fokussierte Institutionslandschaften aus. Diese Dissertation untersucht die Auswirkungen verschiedener Arten von Finanzinstitutionen, Finanzierungsprodukten und bankenregulatorischer Vorgaben auf den Immobilienmarkt. Im Rahmen dessen erörtert die erste Studie der Arbeit, den Einfluss unterschiedlicher Finanzinstitutionen auf die Stabilität des Immobilienmarktes. Am Beispiel zweier Arten von Banken, Universalbanken (CBs) und Bausparkassen (BLs), wird analysiert, wie die individuellen Kreditvergabepraktiken der Finanzintermediäre Immobilienmarktzyklen beeinflussen. Die Bausparkasse dient in der vorliegenden Arbeit als Repräsentant eines Spezialfinanzintermediärs, dessen Geschäftsmodell primär auf die Finanzierung wohnwirtschaftlicher Zwecke ausgerichtet ist. Zur Erörterung der Forschungsfrage entwickeln wir ein heterogenes Agentenmodell, das die Rahmenbedingungen eines realen Immobilienmarktes besitzt. Potentielle Käufer und Verkäufer handeln Immobilienbesitz. Die beiden Finanzintermediäre finanzieren Wohneigentum und bestimmen somit wesentlich, ob und von wem Immobilien erworben werden können. Die Kreditvergabepraktiken der beiden Bankarten sind dabei an den jeweiligen Geschäftsmodellen und institutionsspezifischen Regularien ausgerichtet. Während CBs ihre Kreditentscheidung hauptsächlich auf vergangenheitsorientierte und erwartungswertgetriebene Besicherungswerte der Immobilien stützen, beziehen BLs endogen erworbene Informationen aus institutionsspezifischen Produktarten, wie dem Bausparvertrag, in die Entscheidungsfindung ein. Experimentelle Simulationen zeigen, dass CBs prozyklische Kreditvergabe betreiben und damit bestehende Auf- oder Abschwungphasen auf Immobilienmärkten verschärfen. Die Kreditvergabepraktiken und die individuelle Regulierung der BLs wirken hingegen stabilisierend auf Immobilienmarktzyklen. Die stabilsten Marktbedingungen sind jedoch bei heterogenen Finanzmärkten anzutreffen, bei denen sowohl CBs als auch BLs Wohneigentum finanzieren. Gleichzeitig fördert eine solche Marktkonstellation die Transaktions- und Wohneigentumsrate innerhalb einer Bevölkerung. Nachdem die Resultate des ersten Teils der Dissertation für einen diversifizierten Finanzmarkt mit unterschiedlichen Institutionsformen und heterogenen Produktlandschaften sprechen, um die Stabilität des Immobilienmarktes zu erhöhen und die Krisenresistenz zu stärken, erweitert der zweite Teil der Arbeit den Forschungsbereich auf das regulatorische Umfeld. In einem erweiterten heterogenen Agentenmodell eines Immobilien-, Kapital-, und Finanzmarktes wird untersucht, ob homogene regulatorische Vorschriften für sich unterscheidende Arten von Finanzinstitutionen dazu in der Lage sind, die maximale Stabilität der modellierten Märkte zu gewährleisten. Innerhalb des Modells unterliegen Banken entsprechend der Realität den eigenkapitalregulatorischen Vorschriften nach Basel III. Sowohl bei der Finanzierung von Immobilien als auch bei der Investition in alternative Kapitalanlagen sind Banken dazu verpflichtet eine der Risikoklasse angemessene Höhe an Eigenkapital vorzuhalten. Mittels computertechnischer Simulationen werden den stabilisierenden Institutionen der BLs variierende Eigenkapitalanforderungen auferlegt, während die der CBs konstant den derzeitigen Regularien entsprechen. Anhand diverser Stabilitätsindikatoren wird deutlich, dass die Eigenkapitalanforderungen nach Basel III die Markstabilität und die Widerstandsfähigkeit des Bankensektors nachhaltig erhöhen. Die regulatorische Komponente beschränkt riskante Geschäftsaktivitäten und erhöht gleichzeitig die Absorptionsfähigkeit von Verlusten. Gleichwohl ergibt sich aus den Experimenten, dass die Stabilität von Immobilien- und Finanzmärkten erhöht werden kann, wenn BLs niedrigeren eigenkapitalregulatorischen Vorschriften unterliegen. Die Institutionsform der BLs und ihre individuelle Regulatorik haben einen risikomindernden und stabilisierenden Effekt auf den Immobilien-, Kapital und Finanzmarkt. Diese positiven Effekte können erhöht werden, indem eigenkapitalregulatorische Anforderungen verringert und damit an die individuellen Geschäftspraktiken der BLs angepasst werden. Diese Erkenntnisse sprechen für eine heterogene Regulierungslandschaft innerhalb heterogener Finanzsysteme. Der dritte Teil dieser Dissertation untersucht eine spezielle Komponente der aktuellen regulatorischen Anforderungen nach Basel III, den antizyklischen Kapitalpuffer (CCyB). Ziel dieser makroprudenziellen regulatorischen Maßnahme ist es, der Prozyklizität der bestehenden Regulierung entgegenzuwirken. Anhand diverser Stabilitätsindikatoren des Wohnungs- und Finanzmarkts evaluiert diese Studie inwiefern dies unter vier unterschiedlichen Marktbedingungen gelingt: in einem virtuellen, ungestörten Marktumfeld, in Zeiten eines exogenen Zinsschocks, bei Auftreten eines positiven Nachfrageschocks auf dem Immobilienmarkt sowie während einer Immobilienblase. Die Stabilitätsindikatoren lassen darauf schließen, dass es dem CCyB in allen Marktszenarien gelingt, Immobilienmarktzyklen zu glätten und die Finanzmarktstabilität zu erhöhen. Gleichwohl gelingt es ihm nicht, eine der evaluierten Krisenszenarien zu verhindern. Darüber hinaus hängt seine stabilisierende Wirkung vom Ausmaß des vorherrschenden Schocks sowie von der Höhe zuvor gebildeter Kapitalreserven ab. Eine Einführung der regulatorischen Maßnahme in ungeeigneten Marktphasen kann die Marktbedingungen prozyklisch beeinflussen und damit das eigentliche Ziel des CCyB konterkarieren. Diese Dissertation liefert mit ihren drei individuellen Studien neue Erkenntnisse über die Beziehung und die Interdependenzen zwischen Finanz- und Wohnimmobilienmärkten. Unter Einbezug spezieller Charakteristika des Immobilienmarktes dokumentieren die Resultate die Vorzüge eines diversifizierten Finanzmarktes und die Existenz spezialisierter Finanzinstitute sowie heterogener Finanzprodukte. Im Weiteren deuten sie auf das Erfordernis einer heterogenen Regulierungspraxis hin und geben Aufschluss über die Wirksamkeit einer derzeit diskutierten Regulierungskomponente, dem CCyB. Damit leistet diese Dissertationen einen Beitrag zur bestehenden Literatur und liefert wichtige Erkenntnisse für die Gestaltung von Finanzmärkten und regulatorischen Kapitalanforderungen, um die Stabilität einer der wichtigsten Märkte einer Volkswirtschaft zu erhöhen: den Markt für Wohnimmobilien

Tax Information Exchange with Developing Countries and Tax Havens

The exchange of tax information has received ample attention recently, due to a number of recent headlines on aggressive tax planning and tax evasion. Whilst both participating tax authorities will gain when foreign investments (FDI) are bilateral, we demonstrate that FDI receiving nations will lose in asymmetric situations. We solve a bargaining model that proves that tax information exchange will only happen voluntarily with compensation for this loss. We then present empirical evidence in a global panel and find that a tax information exchange agreement (TIEA) or a double tax treaty with information exchange (DTT) is more likely when the capital importer is compensated through official development assistence (ODA). We finally demonstrate how the foreign account tax compliance act (FATCA) and similar international initiatives bias the bargaining outcome in favour of capital exporting countries. (authors' abstract)Series: WU International Taxation Research Paper Serie

Does Exchange of Information between Tax Authorities Influence Multinationals' Use of Tax Havens?

Since the mid-1990s, countries offering tax systems that facilitate international tax avoidance and evasion have been facing growing political pressure to comply with the internationally agreed standards of exchange of tax information. Using data of German investments in tax havens, we find evidence that the conclusion of a bilateral tax information exchange agreement (TIEA) is associated with fewer operations in tax havens and the number of German affiliates has on average decreased by 46% compared to a control group. This suggests that firms invest in tax havens not only for their low tax rates but also for the secrecy they offer. (authors' abstract)Series: WU International Taxation Research Paper Serie

The true art of the tax deal : evidence on aid flows and bilateral double tax agreements

Out of a total of 2,976 double tax agreements (DTAs), some 60% are signed between a developing and a developed economy. As DTAs shift taxing rights from capital importing to capital exporting countries, the prior would incur a loss. We demonstrate in a theoretical model that in a deal one country does not trump the other, but that the deal must be mutually beneficial. In the case of an asym- metric DTA, this requires compensation from the capital exporting country to the capital importing country. We provide empirical evidence that such compensation is indeed paid, for instance in the form of bilateral official development assistance, which increases on average by six million US$ in the year of the signature of a DTA

A Legal and Economic Analysis of Austria's Double Tax Treaty Network with Developing Countries

To what degree developing countries gain from signing double tax treaties is being hotly debated. In this paper, we analyze the Austrian tax treaty policy. Combining legal and economic perspectives, we find that developing countries are likely to expect both positive and negative impacts from signing a double tax treaty (DTT) with Austria. On the one hand, the results of our econometric analysis suggest that middle-income countries that sign a DTT with Austria may expect an increased number of foreign direct investment projects from Austrian companies. On the other hand, the signatory states may suffer from limited withholding taxation rights established in the DTTs for the source country, which could lead to reduced tax revenues in the developing countries. (authors' abstract)Series: WU International Taxation Research Paper Serie

Fiscal Investment Climate and the Cost of Capital in Germany

Measured in terms of the cost of capital, the investment climate in Germany currently ranks 24th Key Messages out of the 28 EU member states. However, this represents an improvement over the year 2000, when Germany ranked 27th. In fact, among the EU-28, Germany has seen the most significant decline in the cost of capital between 2000 and 2014, from 7.7% to 6.5%. This decline is mainly attributable to considerable reductions in the country’s corporate tax rate. The comprehensive corporate tax reforms enacted in 2001 and 2008 thus appear to have succeeded in improving the investment climate in Germany. Nevertheless, in comparison to most other EU member states, the cost of capital in Germany is still quite high. In order to further improve the investment climate in Germany, the (temporary) re-introduction of reduced-balance tax depreciation for movable fixed assets is currently being discussed. However, our analysis indicates that this would only slightly decrease the cost of capital from 6.5% to 6.3%. When we additionally account for the personal taxation of individual investors, a different picture emerges: The overall cost of capital in Germany currently amounts to 6.0%, and could be reduced considerably by taxing dividends and capital gains at lower rates than interest income

Better risk assessment with glycated hemoglobin instead of cholesterol in CVD risk prediction charts

Traditional risk charts for the prediction of cardiovascular disease (CVD) include cholesterol parameters. We evaluated how models predict fatal CVD when cholesterol is replaced by glucose parameters. We used data from NHANES III, a US survey conducted 1988-1994 (follow-up until 2006); 15,454 participants (1,716 CVD deaths) were included. Based on the ESC SCORE method, we used age, sex, blood pressure, smoking and either of the following: (1) total cholesterol, (2) total-to-HDL-cholesterol, (3) glucose, (4) glycated hemoglobin (A1C). Scaled Brier score (BS), Nagelkerke's R2 (NR) and integrated discrimination improvement (IDI) were used for model comparison. The ranking (best to worst) was: A1C (BS=11.62%; NR=0.0865; IDI=0.0091), glucose (11.16%; 0.0734; 0.0067), total-to-HDL-cholesterol (9.97%; 0.0547; 0.0010), cholesterol (9.75%; 0.0484; 0, reference). Differences between models with cholesterol and glucose or A1C were statistically significant. This study suggests the use of A1C instead of cholesterol parameters in charts to assess CVD ris

Physiological and Morphological Characterization of Organotypic Cocultures of the Chick Forebrain Area MNH and its Main Input Area DMA/DMP

Cocultures of the learning-relevant forebrain region mediorostrai neostriatum and hyperstriatum ventrale (MNH) and its main glutamatergic input area nucleus dorsomedialis anterior thalami/posterior thalami were morphologically and physiologically characterized. Synaptic contacts of thalamic fibers were lightand electron-microscopically detected on MNH neurons by applying the fluorescence tracer DiI-C18(3) into the thalamus part of the coculture. Most thalamic synapses on MNH neurons were symmetric and located on dendritic shafts, but no correlation between Gray-type ultrastructure and dendritic localization was found. Using intraceilular current clamp recordings, we found that the electrophysiological properties, such as input resistance, time constant, action potential threshold, amplitude, and duration of MNH neurons, remain stable for over 30 days in vitro. Pharmacological blockade experiments revealed glutamate as the main neurotransmitter of thalamic synapses on MNH neurons, which were also found on inhibitory neurons. High frequency stimulation of thalamic inputs evoked synaptic potentiation in 22% of MNH neurons. The results indicate that DMA/DMP-MNH cocultures, which can be maintained under stable conditions for at least 4 weeks, provide an attractive in vitro model for investigating synaptic plasticity in the avian brain

Evaluation of clinical and histomorphological parameters as potential predictors of occult metastases in sentinel lymph nodes of early squamous cell carcinoma of the oral cavity

BACKGROUND: Sentinel node biopsy (SNB) for cN0 early squamous cell carcinoma (SCC) of the oral cavity has been validated by numerous studies. Around 30% of SNB will detect occult disease. Several clinical and morphological features of the primary tumor have been claimed to be predictive for occult metastasis in elective neck dissections. The aim of this study was to assess these factors in the context of SNB. METHODS: Seventy-eight patients undergoing SNB for T(1/2) oral SCC from the years 2000 to 2007 were prospectively included. Primary tumors were reviewed for the following morphological and clinical parameters: grade of differentiation, tumor depth, tumor thickness, perineural invasion, lymphatic invasion, vascular invasion, muscle invasion, lymphoplasmacytic infiltration, and mode of invasion, age, gender, primary tumor site, tumor side, and cT category. RESULTS: Statistical analysis revealed significance to predict occult metastasis in the SNB for grade of differentiation (P = 0.002), lymphatic invasion (P < 0.001), and mode of invasion (P < 0.001). None of the other factors reached significance. The mean tumor depth was 6.45 mm (range 0.72-15.15 mm) and the mean tumor thickness was 7.2 mm (range 0.72-15.15 mm). None of the cutoff values reached significance for predicting occult disease. CONCLUSIONS: Tumor depth and tumor thickness failed to achieve statistical significance for prediction of occult metastases in the context of SNB. Patients with cN0 early squamous cell carcinoma of the oral cavity should be offered SNB regardless of their tumor depth and thickness. Poorly differentiated carcinomas, carcinomas with lymphangiosis, and carcinomas with a dissolute mode of invasion show a high probability of positive SN

Obesity but not overweight is associated with increased mortality risk

The association between body mass index (BMI) and survival has been described in various populations. However, the results remain controversial and information from low-prevalence Western countries is sparse. Our aim was to examine this association and its public health impact in Switzerland, a country with internationally low mortality rate and obesity prevalence. We included 9,853 men and women aged 25-74years who participated in the Swiss MONICA (MONItoring of trends and determinants in CArdiovscular disease) study (1983-1992) and could be followed up for survival until 2008 by using anonymous record linkage. Cox regression models were used to calculate mortality hazard ratios (HRs) and to estimate excess deaths. Independent variables were age, sex, survey wave, diet, physical activity, smoking, educational class. After adjustment for age and sex the association between BMI and all-cause mortality was J shaped (non-smokers) or U shaped (smokers). Compared to BMI 18.5-24.9, among those with BMI≥30 (obesity) HR for all-cause mortality was 1.41 (95% confidence interval: 1.23-1.62), for cardiovascular disease (CVD) 2.05 (1.60-2.62), for cancer 1.29 (1.04-1.60). Further adjustment attenuated the obesity-mortality relationship but the associations remained statistically significant. No significant increase was found for overweight (BMI 25-29.9). Between 4 and 6.5% of all deaths, 8.8-13.7% of CVD deaths and 2.4-3.9% of cancer deaths could be attributed to obesity. Obesity, but not overweight was associated with excess mortality, mainly because of an increased risk of death from CVD and cancer. Public health interventions should focus on preventing normal- and overweight persons from becoming obes