Banking Crises, Firms and their International Affiliates in the EU. Bertelsmann Stiftung Policy Paper September 2019

This study analyzes how banking crises affect European economies. First, we show that European firms grow more slowly if they have relationships to crisis banks in their home country. Second, we argue that the international affiliates of multinational corporations grow more slowly when their parent firm is hit by a banking crisis in its home country. This suggests that the internal networks of multinational firms can transmit banking crises across European countries. The effects could be sizable: for example, back-of-the envelope calculations suggest that a banking crisis in the US could lead to an estimated decrease in sales in the German business economy of about 21 billion euros each year, while a banking crisis in the UK could induce a sales loss of about 13 billion euros in the German business economy. The results suggest that measures to prevent banking crises, for example reductions in political risks (like Brexit) or Eurozone reforms (averting the "diabolical loop"), would significantly reduce cross-country contagion of crises via firms – and this way contribute to a smooth functioning of the real economy in the Single Market

Disentangling the effects of a banking crisis: evidence from German firms and counties

Lending cuts by banks directly affect the firms borrowing from them, but also indirectly depress economic activity in the regions in which they operate. This paper moves beyond firm-level studies by estimating the effects of an exogenous lending cut by a large German bank on firms and counties. I construct an instrument for regional exposure to the lending cut based on a historic, postwar breakup of the bank. I present evidence that the lending cut affected firms independently of their banking relationships, through lower aggregate demand and agglomeration spillovers in counties exposed to the lending cut. Output and employment remained persistently low even after bank lending had normalized. Innovation and productivity fell, consistent with the persistent effects

Are bigger banks better?: firm level evidence from Germany

The effects of large banks on the real economy are theoretically ambiguous and politically controversial. I identify quasi-exogenous increases in bank size in post-war Germany. I show that firms did not grow faster after their relationship banks became bigger. In fact, opaque borrowers grew more slowly. The enlarged banks did not increase profits or efficiency, but worked with riskier borrowers. Bank managers benefited through higher salaries and media attention. The paper presents newly digitized microdata on German firms and their banks. Overall, the findings reveal that bigger banks do not always raise real growth and can actually harm some borrowers

Finance and the real economy

This thesis studies the interaction between the financial sector and the real economy. Chapter 1 analyzes how lending cuts by banks affect firms. I identify an exogenous lending cut by a large German bank and examine the growth of firms and counties dependent on this bank. Firms directly exposed to reduced bank lending grew more slowly. On average, firms suffered when many other firms in their county experienced decreased bank lending, because of lower aggregate demand and agglomeration spillovers. The effects of the lending cut persisted after lending had resumed. Innovation and productivity fell, consistent with the persistent effects. Chapter 2 investigates the effect of house prices on household borrowing using administrative mortgage data from the UK. The chapter develops an empirical approach that exploits individual house price variation coming from the timing of refinancing events around the Great Recession. There is a clear and robust effect of house prices on borrowing. The effect can largely be explained by households using the value of their house as collateral. Chapter 3 focuses on financial institutions. How changes in bank size affect the real economy is an important question in the design of financial regulation. This chapter studies a natural experiment from postwar West Germany. Reforms by the Allied occupiers led to increases in the size of a number of banks. I estimate the effect of increased bank size on the growth of firms. The results suggest that firms did not benefit when their banks became larger. The findings are inconsistent with theories that argue the real economy benefits from increases in bank size. There is evidence that big banks are worse at processing soft information and take more risks. Big banks receive more mentions in the media, which could be an incentive for banks to become big

The persistence of a banking crisis

This paper analyses the effects of bank lending on GDP and employment. Following losses on international financial markets in 2008/09, a large German bank cut its lending to the German economy. I exploit variation in dependence on this bank across counties. To address the correlation between county GDP growth and dependence on this bank, I use the distance to the closest of three temporary, historic bank head offices as instrumental variable. The results show that the effects of the lending cut were persistent, and resembled the growth patterns of developed economies during and after the Great Recession. For two years, the lending cut reduced GDP growth. Thereafter, affected counties remained on a lower, parallel trend. The firm results exhibit similar dynamics, and show that the lending cut primarily affected capital expenditures. Overall, the lending cut reduced aggregate German GDP in 2012 by 3.9 percent and employment by 2.3 percent. This shows that a single bank can persistently shape macroeconomic growth

Discrimination, managers and firm performance: evidence from "Aryanizations" in Nazi Germany

Large-scale increases in discrimination can lead to dismissals of highly qualified business leaders who belong to targeted groups. We study how the forced removal of Jewish managers in Nazi Germany, caused by surging antisemitism, affected large _firms. The loss of Jewish managers led to large and persistent stock price reductions for affected firms. Dividend payments and returns on assets also declined. The effect of losing Jewish managers was distinct from other shocks that hit German firms after 1933, for example Nazi policies or firm-specific demand shocks. A back-of-the-envelope calculation suggests that the aggregate market valuation of firms listed in Berlin fell by 1.8 percent of German GNP because of the expulsion of Jewish managers. The findings imply that discrimination can lead to persistent and first-order economic losses

The effect of house prices on household borrowing: a new approach

We investigate the effect of house prices on household borrowing using administrative mortgage data from the United Kingdom and a new empirical approach. The data contain household-level information on house prices and borrowing in a panel of homeowners, who refinance at regular and quasi-exogenous intervals. The data and setting allow us to develop an empirical approach that exploits house price variation coming from the idiosyncratic and exogenous timing of refinance events around the Great Recession. We present two main results. First, there is a clear and robust effect of house prices on borrowing. Second, the effect of house prices on borrowing can be explained largely by collateral effects. We study the collateral channel through a multivariate and nonparametric heterogeneity analysis of proxies for collateral and wealth effects

Focusing a deterministic single-ion beam

We focus down an ion beam consisting of single 40Ca+ ions to a spot size of a few mum using an einzel-lens. Starting from a segmented linear Paul trap, we have implemented a procedure which allows us to deterministically load a predetermined number of ions by using the potential shaping capabilities of our segmented ion trap. For single-ion loading, an efficiency of 96.7(7)% has been achieved. These ions are then deterministically extracted out of the trap and focused down to a 1sigma-spot radius of (4.6 \pm 1.3)mum at a distance of 257mm from the trap center. Compared to former measurements without ion optics, the einzel-lens is focusing down the single-ion beam by a factor of 12. Due to the small beam divergence and narrow velocity distribution of our ion source, chromatic and spherical aberration at the einzel-lens is vastly reduced, presenting a promising starting point for focusing single ions on their way to a substrate.Comment: 16 pages, 7 figure