Organised by the Banking group of the University of Bristol Business School, the fourth iteration of the Annual Workshop on Banking and Financial Intermediation at the University of Bristol took place on 28 May as a virtual conference. The aim of the workshop was to highlight recent progress at the research frontier in all areas of banking and financial intermediation, and to provide a platform to discuss new ideas. The program included several high quality papers and a keynote speech by world-renowned academic, Franklin Allen.
The event was kicked off by Klaus Schaeck with introductory remarks and then handed over the virtual microphone to Franklin Allen who gave an insightful keynote speech. Professor Allen started his speech by pointing to the convincing empirical evidence for a strong link between credit growth and asset price booms. He argued that while monetary policy and macroprudential policy have been often proposed as effective tools to counter credit-fuelled asset price booms, the effects of these policies are not fully understood in a general equilibrium framework. He presented a theoretical model (as part of a joint work with Gadi Barlevy and long-time co-author Douglas Gale), in which inefficient credit and asset price booms arise because of risk-shifting, and showed that monetary and macroprudential policies can have ambiguous welfare effects. Interestingly, in their model leverage restrictions can lead to higher asset prices and more leveraged speculation.
The first paper on the program was presented by Thomas Mosk. Mosk presented empirical evidence using the EBA’s 2011 capital exercise (from joint work with Reint Gropp, Steven Ongena, Ines Simac and Carlo Wix) showing that domestic regulators apply forbearance when a supranational regulator imposes higher capital requirements and implementation is delegated to the national level. The discussant, Filippo De Marco, made several suggestions, including ways to further pin down the mechanisms through which national discretion is applied.
After a break for lunch, Glenn Schepens launched the second session presenting a paper co-authored with Francesca Barbiero and Jean-David Sigaux. Schepens and co-authors show that the liquidation value of collateral may depend on who is pledging it, because lenders take into account the correlation between liquidation value and the likelihood of borrower default. After an insightful discussion by Roberto Steri, Sotirios Kokas presented joint work with Hans Degryse and Raoul Minetti on how different aspects of experience in lending affects banks’ ability and willingness to monitor on the syndicated loan market, discussed by Youngsuk Yook.
Following a short break Sam Rosen presented a theoretical model featuring heterogeneous banks and endogenous fire sales, where higher capital requirements have the potential to lead to more systemic risk. When calibrated to data, his model suggests that a combination of capital requirements and ex-post penalties are least costly policies to mitigate systemic risk. Rosen’s paper was discussed by Yuliyan Mitkov, after which Marcelo Rezende presented a paper on how capital surcharges on global systemically important banks (GSIB) affect their credit supply and borrowers. Rezende and co-authors Ivan Ivanov and Giovanni Favara find that such surcharges reduce GSIBs’ lending, but firms’ total borrowing doesn’t change as they switch banks. As this paper has been recently accepted for publication in the prestigious Journal of Financial Economics, the discussant Gregor Weiss suggested various avenues for future research building on the authors’ findings.
In the last session Matias Ossandon Busch presented a paper on how foreign exchange market dislocations can affect international banks’ lending. Ossandon Busch and coauthors Fernando Eguren-Martin and Dennis Reinhardt show that a greater reliance on FX-swap based funding leads to a greater sensitivity of credit supply to deviations from covered interest rate parity. An insightful and meme-filled discussion was provided by Iñaki Aldasoro. The concluding presentation was delivered by Dominik Supera, who presented joint work with Caterina Mendicino, Kalin Nikolov, Juan Rubio-Ramirez and Javier Suarez. Supera and co-authors study twin default crises, i.e. episodes when borrower and bank default risk is high, using a quantitative, micro-founded model, which can reproduce various aspects of the data. The official program ended with Daniel Neuhann’s discussion of Supera’s paper.