Conference Agenda

Session
FI 08: Lenders and Borrowers
Time:
Friday, 18/Aug/2023:
10:30am - 12:00pm

Session Chair: Loriana Pelizzon, Leibniz Institute for Financial Research SAFE
Location: 2A-33 (floor 2)


Presentations
ID: 785

The price of leverage: what LTV constraints tell about job search and wages?

Gazi Kabas1, Kasper Roszbach2

1Tilburg University; 2Norges Bank

Discussant: Marc Gabarro (Erasmus University)

Does household leverage matter for workers' job search, matching in the labor market, and wages? Theoretically, household leverage has been shown to have opposing effects on the labor market through, among others, a debt-overhang and a liquidity constraint channel. To test which channels dominate empirically, we exploit the introduction of a macroprudential borrowing restriction that exogenously reduces household leverage in Norway. We study home-owners who lose their job and find that a reduction in leverage raises wages by 3.3 percentage points after unemployment. The mandated restriction of leverage enables workers to search longer for jobs, and thereby find positions in firms that pay higher wage premia and switch to new occupations and industries. We observe no evidence that greater use of credit during unemployment drives the extended job search. The positive effect on wages is persistent and more pronounced for workers who are more likely to benefit from improved job search, such as young people. Our findings contribute to the debate on the costs and benefits of policies that constrain household leverage and show that such policies, while primarily aiming at enhancing financial stability, have other positive effects such as improved labor market outcomes.

EFA2023_785_FI 08_1_The price of leverage.pdf


ID: 974

Asset-side Bank Runs and Liquidity Rationing: A Vicious Cycle

Zongbo Huang

The Chinese University of Hong Kong, Shenzhen, China, People's Republic of

Discussant: Hans Degryse (KU Leuven)

I study asset-side runs on credit lines in an infinite-horizon banking model. Strategic complementarity between bankers and credit line borrowers arises: borrowers' panic drawdowns and bankers' liquidity rationing reinforce each other, leading to a vicious cycle. Using data from U.S. banks, I estimate the model and quantify the amplification effect due to the strategic complementarity. This amplification effect accounts for two-thirds of the overall credit shortfalls during the 2008-09 crisis. My estimation also suggests policies targeting banks and borrowers simultaneously to support bank credit.

EFA2023_974_FI 08_2_Asset-side Bank Runs and Liquidity Rationing.pdf


ID: 2238

Concentrating on Bailouts: Government Guarantees and Bank Asset Composition

Christian Eufinger1, Juan Pablo Gorostiaga1, Björn Richter2

1IESE Business School, Spain; 2UPF & BSE

This paper studies the link between government guarantees for banks and bank asset concentration. We show theoretically that these guarantees, when combined with high leverage, incentivize banks to further invest in asset classes they are already heavily exposed to. We confirm these predictions using U.S. panel data, exploiting exogenous changes in banks' political connections for variation in bailout expectations. At the bank level, we find that higher bailout probabilities are associated with higher portfolio concentration. At the bank-loan class level, we find that banks respond to an increase in their bailout expectations by further loading up on loan classes that already have a high weight in their portfolio.

EFA2023_2238_FI 08_3_Concentrating on Bailouts.pdf