Interbank network and bank bailouts: Insurance mechanism for non-insured creditors? : [Version 20 Februar 2013]

This paper presents a theory that explains why it is beneficial for banks to engage in circular lending activities on the interbank market. Using a simple network structure, it shows that if there is a non-zero bailout probability, banks can significantly increase the expected repayment of uninsured creditors by entering into cyclical liabilities on the interbank market before investing in loan portfolios. Therefore, banks are better able to attract funds from uninsured creditors. Our results show that implicit government guarantees incentivize banks to have large interbank exposures, to be highly interconnected, and to invest in highly correlated, risky portfolios. This can serve as an explanation for the observed high interconnectedness between banks and their investment behavior in the run-up to the subprime mortgage crisis

Aplicabilidade da teoria das essential facilities à propriedade industrial no sistema antitruste brasileiro

Orientador: Márcia Carla Pereira RibeiroMonografia (graduação) - Universidade Federal do Paraná,Setor de Ciências Jurídicas, Curso de Graduação em DireitoO presente trabalho apresenta a interação existente entre a propriedade industrial e as normas antitruste e busca demonstrar como a inovação adquire um papel central no processo competitivo. Além disso, analisa a propriedade industrial sob um aspecto funcional, destacando como seus objetivos fundamentais o incentivo económico à inovação e a disseminação de tecnologia, a partir de conceitos derivados da análise económica do direito e da economia da informação. Posteriormente, trata da teoria das essential facilities e descreve seus pressupostos de aplicação, bem como trata da sua compatibilidade com o ordenamento jurídico brasileiro. Por fim, versa das características das condutas anticoncorrenciais envolvendo o uso de propriedade industrial e as situações em que se apresenta como uma um bem essencial ao desenvolvimento de uma atividade económica, ponderando-se sobre as possibilidades de aplicação da teoria das essential facilities a estes casos

Interbank Networks and Backdoor Bailouts: Benefiting from other Banks’ Government Guarantees

This paper explains why banks derive a benefit from being highly interconnected. We show that when banks are protected by government guarantees, they can significantly increase their expected returns by channeling funds through the interbank market before these funds are invested in real assets. If banks that are protected by implicit or explicit government guarantees act as intermediaries between other banks and real investments, there is the possibility that these intermediary banks will be rescued by their governments if the real assets fail. This additional hedge increases the likelihood that banks and their creditors are repaid relative to a direct investment in those same real assets. We show that this incentive to exploit the government guarantees of other banks leads to long intermediation chains and a degree of interconnectedness that is above the welfare-optimal level, which justifies regulatory intervention

Interbank network and bank bailouts: insurance mechanism for non-insured creditors : [Version 10 April 2012]

This paper presents a theory that explains why it is beneficial for banks to engage in circular lending activities on the interbank market. Using a simple network structure, it shows that if there is a non-zero bailout probability, banks can significantly increase the expected repayment of uninsured creditors by entering into cyclical liabilities on the interbank market before investing in loan portfolios. Therefore, banks are better able to attract funds from uninsured creditors. Our results show that implicit government guarantees incentivize banks to have large interbank exposures, to be highly interconnected, and to invest in highly correlated, risky portfolios. This can serve as an explanation for the observed high interconnectedness between banks and their investment behavior in the run-up to the subprime mortgage crisis

Zombie Lending: Theoretical, International, and Historical Perspectives

This paper surveys the theory on zombie lending incentives and the consequences of zombie lending for the real economy. It also offers a historical perspective by reviewing the growing empirical evidence on zombie lending along three dimensions: (i) the role of under-capitalized banks, (ii) effects on zombie firms, and (iii) spillovers and distortions for non-zombie firms. We then provide an overview of how zombie lending can be attenuated. Finally, we use a sample of U.S. publicly listed firms to compare various measures proposed in the literature to classify firms as ``zombies." We identify definitions of zombie firms that are adequate to investigate economic inefficiency in the form of real sector competitive distortions of zombie lending. We find that only definitions that are based on interest rate subsidies are able to detect these spillovers and thereby provide evidence in support of credit misallocation

Real Effects of the Sovereign Debt Crisis in Europe: Evidence from Syndicated Loans

We explore the causes of the credit crunch during the European sovereign debt crisis and its impact on the corporate policies of European firms. Our results show that value impairment in banks’ exposures to sovereign debt and the risk-shifting behavior of weakly capitalized banks reduced the probability of firms being granted new syndicated loans by up to 53%. This lending contraction depressed investment, employment, and sales growth of firms affiliated with affected banks. Our estimates based on firm-level data suggest that the credit crunch explains between 44% and 66% of the overall negative real effects suffered by European firms

The Anatomy of the Transmission of Macroprudential Policies

We analyze how regulatory constraints on household leverage---in the form of loan-to-income and loan-to-value limits---affect residential mortgage credit and house prices as well as other asset classes not directly targeted by the limits. Supervisory loan level data suggest that mortgage credit is reallocated from low- to high-income borrowers and from urban to rural counties. This reallocation weakens the feedback loop between credit and house prices and slows down house price growth in ``hot'' housing markets. Banks whose lending to households is more affected by the regulatory constraint drive this stabilizing reallocation; these same banks, however, substitute their risk-taking into holdings of securities and corporate credit