Several papers find a positive association between a bank's equity stake in a borrowing firm and lending to that firm. While such a positive cross-sectional correlation may be due to equity stakes benefiting lending, it may also be driven by endogeneity. To distinguish the two, we study a German...

We study how contingent capital affects banks' risk choices. When triggered in highly levered states, going-concern conversion reduces risk-taking incentives, unlike conversion at default by traditional bail-inable debt. Interestingly, contingent capital (CoCo) may be less risky than bail-inable...

Using data from a quantitative survey of German banks at three points in time (2015, 2017 and 2019), we analyze the impact of changes in the interest rate level on banks' net interest income and the countermeasures they take. A decline in the interest rate level has a more negative impact on net...

House-purchasing decisions and the possibility of existing homeowners to tap into their housing equity depend decisively on prevailing loan-to-value (LTV) ratios in mortgage markets with borrowing constrained households. Utilizing a smooth transition local projection (STLP) approach, I show that...

We investigate whether banks actively manage their exposure to interest rate risk in the short run. Using bank-level data of German banks for the period 2011Q4- 2017Q2, we find evidence that banks actively manage their interest rate risk exposure in their banking books: They take account of...

This paper deals with stress tests for credit risk and shows how exploiting the discretion when setting up and implementing a model can drive the results of a quantitative stress test for default probabilities. For this purpose, we employ several variations of a CreditPortfolioView-style model...

Broker-dealer leverage has recently proven to be strongly procyclical, exhibiting impressive explanatory power for a large cross-section of asset returns in the US. In this paper we add empirical evidence to this finding, showing that European and German broker-dealers actively manage their...

This paper presents a framework for estimating losses in the residential real estate mortgage portfolios of German banks. We develop an EL model where LGD estimates are based on current collateral values and PD dynamics are estimated using a structural PVAR approach. We confirm empirically that...

For the largest 55 German banks, we detect the presence of countercyclical yield seeking in the form of acquisition of high-yielding periphery bonds in the period from Q1 2008 to Q2 2011. This investment strategy is pursued by banks not subject to a bailout, banks characterised by high...

Traditional theory suggests that higher bank profitability (or franchise value) dissuades bank risk-taking. We highlight an opposite effect: higher profitability loosens bank borrowing constraints. This enables profitable banks to take risk on a larger scale, inducing risk-taking. This effect is...