Research Interests: Banking, Financial Economics, Macroeconomics.
"Bank Capital Regulation and Risk after the Global Financial Crisis" (with Deniz Anginer, Robert Cull, Asli Demirguc-Kunt and Davide S. Mare), Journal of Financial Stability, May 2021, 100891.
Abstract: We explore and summarize the evolution in bank capital regulations and bank risk after the global financial crisis. Using a new survey of bank regulation and supervision covering more than 120 economies, we show that regulatory capital increased, but some elements of capital regulations became laxer. Analyzing bank-level data, we also document the importance of defining bank regulatory capital narrowly as the quality of capital matters in reducing bank risk. This is particularly true for banks that have more discretion in the computation of regulatory capital ratios and are subject to weaker market monitoring.
"Leverage, Bank Employee Compensation and Institutions" (with Burak Uras), Journal of Banking and Finance, Volume 111, Feb 2020, 105701.
Abstract: This paper investigates the empirical relationship between financial structure and employee compensation in the banking industry. Using an international panel of banks, we show that well-capitalized banks pay higher wages to their employees. Our results are robust to changes in measurement, model specification and estimation methods. In order to account for the positive association between bank capital and employee compensation, we illustrate a stylized 3-period model and show that well-capitalized banks have incentives to pay higher wages to induce monitoring. Such monitoring rents of employees at capitalized banks are expected to be higher in societies with weak institutions. Further empirical analysis shows that the weaker is institutional quality of a country the stronger is the positive relationship between bank capital and wages - supporting our theoretical conjectures.
"Securitization and Economic Activity: The Credit Composition Channel" (with Di Gong and Wolf Wagner), Journal of Financial Stability, Vol. 28, 2017, pp. 225-239.
Abstract: Using an international panel of 104 countries over the period 1995 to 2012, we analyze the relationship between country-level securitization and economic activity. Our findings suggest that securitization is negatively related to various proxies of economic activity – even prior to the crisis of 2007-2009. We explain this finding as the results of securitization spurring consumption at the expense of investment and capital formation. Consistent with this, we find that securitization of household loans is negatively associated with economic activity, whereas business securitization displays a weak positive association with it, and that household securitization increases an economy’s consumption-investment ratio. Our results inform recent initiatives aimed at reviving securitization markets, as they indicate that the impact of securitization crucially depends on the underlying collateral.
[Working paper version]
"Should Cross-Border Banking Benefit from Financial Safety Net?" (with Asli Demirguc-Kunt and Harry Huizinga), Journal of Financial Intermediation, Vol. 27, 2016, pp. 51-67.
Abstract: Using bank-level data from 84 countries, we find that a higher degree of bank internationalization is associated with higher interest expenses. Internationalization is proxied by a bank's share of foreign liabilities in total liabilities or a Herfindahl index of international liability concentration. Bank interest expenses rise relatively more with internationalization if the bank is underperforming or headquartered in a country with weak public finances, and especially at times of weak world output growth. These results suggest that liability holders of distressed internationalized banks expect less from the financial safety net since lack of an efficient recovery and resolution regime for international banks can make their insolvency very costly to deal with.
"Bank Ownership and Credit over the Business Cycle: Is Lending by State Banks less Procyclical?" (with Asli Demirguc-Kunt and Harry Huizinga), Journal of Banking and Finance, Vol. 50, 2015, pp. 326-339.
Abstract:This paper finds that lending by state banks is less procyclical than lending by private banks, especially in countries with good governance. Lending by state banks in high income countries is even countercyclical. On the liability side, state banks expand potentially unstable non-deposit liabilities relatively little during booms, especially in countries with good governance. Public banks also report loan non-performance more evenly over the business cycle. Overall our results suggest that state banks can play a useful role in stabilizing credit over the business cycle as well as during periods of financial instability. However, the track record of state banks in credit allocation remains quite poor, questioning the wisdom of using state banks as a short term counter-cyclical tool.
"Do we need big banks? Evidence on performance, strategy and market discipline" (with Asli Demirguc-Kunt and Harry Huizinga), Journal of Financial Intermediation, Vol. 22, No. 4, 2013, pp. 532-558.
Abstract: For an international sample of banks, we construct measures of a bank’s absolute size and its systemic size defined as size relative to the national economy. We then examine how a bank’s risk and return on equity, its activity mix and funding strategy, and the extent to which it faces market discipline depend on both size measures. We show that bank returns increase with absolute size, yet decline with systemic size, while neither size measure is associated with bank risk as implicit in the Z-score. These results are consistent with the view that growing to a size that is systemic is not in the interest of bank shareholders. We also find that systemically large banks are subject to greater market discipline as evidenced by a higher sensitivity of their funding costs to risk proxies, consistent with the view that they can become too large to save. A bank’s interest costs, however, are estimated to decline with bank systemic size for all banks apart from those with very low capitalization levels. This suggests that market discipline, exercised through funding costs, does not prevent banks from attaining larger systemic size.
"The Transmission of Real Estate Shocks through Multinational Banks"
"Is the Financial Safety Net a Barrier to Cross-Border Banking?" (with Asli Demirguc-Kunt and Harry Huizinga)
"Are international banks different? evidence on bank performance and strategy" (with Asli Demirguc-Kunt and Harry Huizinga)
"Gender Inequality and Economic Growth: Evidence from Industry-Level Data" (with Ljubica Dordevic and Can Sever)
"Cross-border Banking in EMDEs: Trends, Scale, and Policy Implications" (with Erik Feyen, Norbert Fiess and Igor Esteban Zuccardi Huertas)
"Recent Trends in Bank Privatization" (with Pietro Calice, Federico Alfonso Diaz Kalan and Oliver Masetti)
Work in Progress:
Bank Capitalization and Business Cycles (with Deniz Anginer and Sanjai Bhagat).
Bank History and Risk-taking (with Ljubica Dordevic)
Bank Bail-ins and Too-big-to-fail Subsidies (with Aslı Demirgüç-Kunt and Harry Huizinga).
Technology and Finance Wage Premium (with Jose Carreno, Harry Huizinga, Burak Uras and Nathanael Vellekoop).
Flexibility of Labor Contracts and Household Financial Dynamics (with Jose Carreno, Harry Huizinga, Burak Uras and Nathanael Vellekoop).