Pub Date : 2025-12-01Epub Date: 2025-11-03DOI: 10.1016/j.jfs.2025.101474
Desislava Andreeva , Andra Coman , Mary Everett , Maren Froemel , Kelvin Ho , Simon Lloyd , Baptiste Meunier , Justine Pedrono , Dennis Reinhardt , Andrew Wong , Eric Wong , Dawid Żochowski
We study the effects of negative interest rate policies (NIRP) on the transmission of monetary policy through cross-border lending. Using bank-level data from international financial centers (IFCs) – the United Kingdom and Hong Kong, as well as Ireland – we examine how NIRP in the economies where banks have their headquarters influences cross-border lending from financial-center affiliates. Outside of NIRP periods, tighter monetary policy in affiliates’ headquarter country is associated with a reduction in cross-border lending from the UK and Hong Kong to non-bank borrowers abroad. In contrast, we find evidence that NIRP impairs the bank-lending channel for cross-border lending to non-bank sectors from the UK and Hong Kong, especially for those banks that have only a weak deposit base in these IFCs – and are thus relatively more exposed to NIRP in their headquarters. Consistent with these IFC findings, using euro-area data that includes bank-level information for France, we find that NIRP also impairs headquarter-banks’ lending to bank borrowers in IFCs, which include their IFC affiliates.
{"title":"Negative rates, monetary policy transmission and cross-border lending via international financial centers","authors":"Desislava Andreeva , Andra Coman , Mary Everett , Maren Froemel , Kelvin Ho , Simon Lloyd , Baptiste Meunier , Justine Pedrono , Dennis Reinhardt , Andrew Wong , Eric Wong , Dawid Żochowski","doi":"10.1016/j.jfs.2025.101474","DOIUrl":"10.1016/j.jfs.2025.101474","url":null,"abstract":"<div><div>We study the effects of negative interest rate policies (NIRP) on the transmission of monetary policy through cross-border lending. Using bank-level data from international financial centers (IFCs) – the United Kingdom and Hong Kong, as well as Ireland – we examine how NIRP in the economies where banks have their headquarters influences cross-border lending from financial-center affiliates. Outside of NIRP periods, tighter monetary policy in affiliates’ headquarter country is associated with a reduction in cross-border lending from the UK and Hong Kong to non-bank borrowers abroad. In contrast, we find evidence that NIRP impairs the bank-lending channel for cross-border lending to non-bank sectors from the UK and Hong Kong, especially for those banks that have only a weak deposit base in these IFCs – and are thus relatively more exposed to NIRP in their headquarters. Consistent with these IFC findings, using euro-area data that includes bank-level information for France, we find that NIRP also impairs headquarter-banks’ lending to bank borrowers in IFCs, which include their IFC affiliates.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"81 ","pages":"Article 101474"},"PeriodicalIF":4.2,"publicationDate":"2025-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145525677","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-01Epub Date: 2025-10-27DOI: 10.1016/j.jfs.2025.101470
Matthew Schaffer , Nimrod Segev
This paper suggests a new channel through which central bank Quantitative Easing (QE) policies can amplify aggregate fluctuations. By significantly increasing excess reserve holdings in the banking sector, QE policies reduce liquidity risk and increase banks’ lending potential. Thus, disturbances that increase credit demand generate a stronger increase in lending, further amplifying the shock’s impact. We offer empirical evidence supporting this mechanism by utilizing two sources of variation in the US during the COVID-19 pandemic. First, we use cross-bank variation in mortgage-backed security (MBS) holdings to measure banks’ exposure to QE policies. Second, we use cross-state variation in the per capita Economic Impact Payments (EIP) to quantify the local aggregate demand shock stemming from pandemic-related fiscal relief. Bank-level analysis reveals that while QE is associated with an overall increase in reserves, its impact on credit expansion depends on the magnitude of the economic stimulus payments. Additionally, state-level evidence suggests increases in credit expansion and house prices following the shock were larger in states with greater banking sector exposure to QE. The results, therefore, suggest that QE amplified the impact of government stimulus programs during COVID-19.
{"title":"Quantitative easing, bank lending, and aggregate fluctuations","authors":"Matthew Schaffer , Nimrod Segev","doi":"10.1016/j.jfs.2025.101470","DOIUrl":"10.1016/j.jfs.2025.101470","url":null,"abstract":"<div><div>This paper suggests a new channel through which central bank Quantitative Easing (QE) policies can amplify aggregate fluctuations. By significantly increasing excess reserve holdings in the banking sector, QE policies reduce liquidity risk and increase banks’ lending potential. Thus, disturbances that increase credit demand generate a stronger increase in lending, further amplifying the shock’s impact. We offer empirical evidence supporting this mechanism by utilizing two sources of variation in the US during the COVID-19 pandemic. First, we use cross-bank variation in mortgage-backed security (MBS) holdings to measure banks’ exposure to QE policies. Second, we use cross-state variation in the per capita Economic Impact Payments (EIP) to quantify the local aggregate demand shock stemming from pandemic-related fiscal relief. Bank-level analysis reveals that while QE is associated with an overall increase in reserves, its impact on credit expansion depends on the magnitude of the economic stimulus payments. Additionally, state-level evidence suggests increases in credit expansion and house prices following the shock were larger in states with greater banking sector exposure to QE. The results, therefore, suggest that QE amplified the impact of government stimulus programs during COVID-19.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"81 ","pages":"Article 101470"},"PeriodicalIF":4.2,"publicationDate":"2025-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145416375","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-01Epub Date: 2025-11-13DOI: 10.1016/j.jfs.2025.101477
Jian Wang , Lin Wu , Xinpei Wu , Youngjin Hwang , Yunjae Nam , Soobin Kwak , Taehui Lee , Junseok Kim
We propose an explicit finite difference method for the Black–Scholes (BS) equation that avoids artificial far-field boundary conditions. The method uses an alternating direction explicit (ADE) update on a dynamically shrinking grid, thereby eliminating the need for boundary values at the far end of the domain. It effectively alleviates the stability constraints of the explicit format through the alternating direction advancement. Numerical experiments on European and cash or nothing options confirm second-order convergence and demonstrate a high level of efficiency. For example, repeatedly doubling time resolution from 160 to 1280 reduces pricing error from to , with observed convergence rates close to 2. This makes the method suitable for low-latency financial applications such as real-time pricing and risk management.
{"title":"A second-order finite difference method for the Black–Scholes model without far-field boundary conditions","authors":"Jian Wang , Lin Wu , Xinpei Wu , Youngjin Hwang , Yunjae Nam , Soobin Kwak , Taehui Lee , Junseok Kim","doi":"10.1016/j.jfs.2025.101477","DOIUrl":"10.1016/j.jfs.2025.101477","url":null,"abstract":"<div><div>We propose an explicit finite difference method for the Black–Scholes (BS) equation that avoids artificial far-field boundary conditions. The method uses an alternating direction explicit (ADE) update on a dynamically shrinking grid, thereby eliminating the need for boundary values at the far end of the domain. It effectively alleviates the stability constraints of the explicit format through the alternating direction advancement. Numerical experiments on European and cash or nothing options confirm second-order convergence and demonstrate a high level of efficiency. For example, repeatedly doubling time resolution from 160 to 1280 reduces pricing error from <span><math><mrow><mn>7</mn><mo>.</mo><mn>45</mn><mo>×</mo><mn>1</mn><msup><mrow><mn>0</mn></mrow><mrow><mo>−</mo><mn>1</mn></mrow></msup></mrow></math></span> to <span><math><mrow><mn>6</mn><mo>.</mo><mn>56</mn><mo>×</mo><mn>1</mn><msup><mrow><mn>0</mn></mrow><mrow><mo>−</mo><mn>3</mn></mrow></msup></mrow></math></span>, with observed convergence rates close to 2. This makes the method suitable for low-latency financial applications such as real-time pricing and risk management.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"81 ","pages":"Article 101477"},"PeriodicalIF":4.2,"publicationDate":"2025-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145525676","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-01Epub Date: 2025-09-17DOI: 10.1016/j.jfs.2025.101469
Ahmad K. Ismail, Assem Safieddine
We investigate how operating synergies from mergers and acquisitions (M&A) influence the acquiring firm’s debt capacity, credit ratings, and market valuation. Our analysis incorporates credit rating quality, revealing that investment-grade acquirers predominantly drive the positive relationship between synergy forecasts and debt issuance. This pattern reflects reduced information asymmetry and strengthens lender confidence. Further, we find that while increased debt issuance generally pressures credit ratings downward, this effect is reversed for high-credit-quality firms with credible synergy forecasts, allowing them to improve their ratings post-merger. Market reactions align with these findings, demonstrating more favorable abnormal returns for deals with high synergy projections that boost debt capacity. Robustness checks, including sample selection correction and alternative leverage measures, confirm the robustness and stability of these results. Our study highlights the critical role of credible synergy forecasts and credit quality in shaping financing strategies and market perceptions in the M&A context.
{"title":"Projected operating efficiencies, credit ratings and the creation of debt capacity","authors":"Ahmad K. Ismail, Assem Safieddine","doi":"10.1016/j.jfs.2025.101469","DOIUrl":"10.1016/j.jfs.2025.101469","url":null,"abstract":"<div><div>We investigate how operating synergies from mergers and acquisitions (M&A) influence the acquiring firm’s debt capacity, credit ratings, and market valuation. Our analysis incorporates credit rating quality, revealing that investment-grade acquirers predominantly drive the positive relationship between synergy forecasts and debt issuance. This pattern reflects reduced information asymmetry and strengthens lender confidence. Further, we find that while increased debt issuance generally pressures credit ratings downward, this effect is reversed for high-credit-quality firms with credible synergy forecasts, allowing them to improve their ratings post-merger. Market reactions align with these findings, demonstrating more favorable abnormal returns for deals with high synergy projections that boost debt capacity. Robustness checks, including sample selection correction and alternative leverage measures, confirm the robustness and stability of these results. Our study highlights the critical role of credible synergy forecasts and credit quality in shaping financing strategies and market perceptions in the M&A context.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"81 ","pages":"Article 101469"},"PeriodicalIF":4.2,"publicationDate":"2025-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145118588","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-01Epub Date: 2025-09-03DOI: 10.1016/j.jfs.2025.101459
Adrian POP, Diana POP
We examine various implementation issues related to the calibration of output floors in setting minimum bank capital requirements under the finalized version of the Basel III capital accord. The main raison d’être of output floors is to limit the capital savings enjoyed by large banks due to regulatory arbitrage under the internal model paradigm. We consider regulatory arbitrage through the bank’s incentive to optimize its grading system in order to lower as much as possible the capital requirement given the structure of its asset portfolio in terms of internal ratings and default probabilities. Based on a fictional portfolio of SME loans observed over a full business cycle, we conduct a counterfactual analysis in order to compare the effect of the output floor implemented with respect to two benchmarks: (i) a standardized approach calibrated from credit ratings assigned by external rating agencies, as proposed in the finalized version of the Basel III capital accord; and (ii) an alternative, more granular, and comprehensive standardized approach benchmark, based on an external grading system that mimics the in-house credit assessment systems used by certain national central banks. Our results show that a more granular, risk-sensitive, benchmark is likely to reduce the effect of the output floor on the minimum capital requirement. We also reveal that output floors exhibit a countercyclical pattern, which is an interesting feature of the mechanism from a macroprudential point of view.
{"title":"Output floors in setting bank capital requirements","authors":"Adrian POP, Diana POP","doi":"10.1016/j.jfs.2025.101459","DOIUrl":"10.1016/j.jfs.2025.101459","url":null,"abstract":"<div><div>We examine various implementation issues related to the calibration of output floors in setting minimum bank capital requirements under the finalized version of the Basel III capital accord. The main <em>raison d’être</em> of output floors is to limit the capital savings enjoyed by large banks due to regulatory arbitrage under the internal model paradigm. We consider regulatory arbitrage through the bank’s incentive to optimize its grading system in order to lower as much as possible the capital requirement given the structure of its asset portfolio in terms of internal ratings and default probabilities. Based on a fictional portfolio of SME loans observed over a full business cycle, we conduct a counterfactual analysis in order to compare the effect of the output floor implemented with respect to two benchmarks: (<em>i</em>) a standardized approach calibrated from credit ratings assigned by external rating agencies, as proposed in the finalized version of the Basel III capital accord; and (<em>ii</em>) an alternative, more granular, and comprehensive standardized approach benchmark, based on an external grading system that mimics the in-house credit assessment systems used by certain national central banks. Our results show that a more granular, risk-sensitive, benchmark is likely to reduce the effect of the output floor on the minimum capital requirement. We also reveal that output floors exhibit a <em>countercyclical</em> pattern, which is an interesting feature of the mechanism from a macroprudential point of view.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"81 ","pages":"Article 101459"},"PeriodicalIF":4.2,"publicationDate":"2025-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145027477","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-01Epub Date: 2025-11-13DOI: 10.1016/j.jfs.2025.101478
Liu Desheng , Mingsheng Li , Xinran Wang , Ying Wang
Firms tend to attract disproportionately more attention from nearby investors, a phenomenon known as local attention bias. While both cognitive biases and market frictions have been proposed as key drivers of investor attention bias, direct evidence on the role of information acquisition costs, especially for retail investors in emerging markets, remains scarce. We address this gap by exploiting the staggered expansion of China’s high-speed rail (HSR) network as a quasinatural experiment that exogenously reduces geographic information frictions. Using province-level internet search activity as a proxy for retail investor attention, we find that HSR development is negatively associated with the proportion of attention that retail investors direct toward local firms. Robustness checks underscore the central role of information friction in shaping investor attention behavior. Increased intercity connectivity from HSR also boosts tourism, which emerges as a key channel for attenuating local attention bias. The effect is more pronounced for firms with lower information transparency and weaker corporate governance. Furthermore, HSR connections encourage firms to expand into nonlocal subsidiaries, reducing investment “home bias,” and lead to stronger stock return comovement, indicating improved information integration across regions. Our findings highlight how infrastructure development can reshape retail investor behavior and support broader economic integration.
{"title":"Fading familiarity: High-speed rail and the decline in retail investors' attention to local firms","authors":"Liu Desheng , Mingsheng Li , Xinran Wang , Ying Wang","doi":"10.1016/j.jfs.2025.101478","DOIUrl":"10.1016/j.jfs.2025.101478","url":null,"abstract":"<div><div>Firms tend to attract disproportionately more attention from nearby investors, a phenomenon known as <em>local attention bias</em>. While both cognitive biases and market frictions have been proposed as key drivers of investor attention bias, direct evidence on the role of information acquisition costs, especially for retail investors in emerging markets, remains scarce. We address this gap by exploiting the staggered expansion of China’s high-speed rail (HSR) network as a quasinatural experiment that exogenously reduces geographic information frictions. Using province-level internet search activity as a proxy for retail investor attention, we find that HSR development is negatively associated with the proportion of attention that retail investors direct toward local firms. Robustness checks underscore the central role of information friction in shaping investor attention behavior. Increased intercity connectivity from HSR also boosts tourism, which emerges as a key channel for attenuating local attention bias. The effect is more pronounced for firms with lower information transparency and weaker corporate governance. Furthermore, HSR connections encourage firms to expand into nonlocal subsidiaries, reducing investment “home bias,” and lead to stronger stock return comovement, indicating improved information integration across regions. Our findings highlight how infrastructure development can reshape retail investor behavior and support broader economic integration.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"81 ","pages":"Article 101478"},"PeriodicalIF":4.2,"publicationDate":"2025-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145578842","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-01Epub Date: 2025-11-16DOI: 10.1016/j.jfs.2025.101480
Jyoti Ranjan Sahoo, Ajay Kumar Mishra
This study investigates the impact of India’s Insolvency and Bankruptcy Code (IBC) on capital allocation efficiency among firms with higher long-term debt maturity. Using a difference-in-differences framework on a panel of listed firms from 2010 to 2021, the analysis examines how strengthened creditor rights under the IBC have influenced firms’ investment behavior, particularly those with greater long-term debt exposure. The results show that the implementation of the IBC significantly enhanced capital allocation efficiency by mitigating both underinvestment and overinvestment. Overall, the results suggest that the reform improved firms’ financial decision-making and contributed to greater capital market stability in India. The results remain robust across alternative model specifications and controls for firm, industry, and time-specific effects.
{"title":"Debt maturity, creditor rights, and capital allocation efficiency: Evidence from quasi-natural experiments in India","authors":"Jyoti Ranjan Sahoo, Ajay Kumar Mishra","doi":"10.1016/j.jfs.2025.101480","DOIUrl":"10.1016/j.jfs.2025.101480","url":null,"abstract":"<div><div>This study investigates the impact of India’s Insolvency and Bankruptcy Code (IBC) on capital allocation efficiency among firms with higher long-term debt maturity. Using a difference-in-differences framework on a panel of listed firms from 2010 to 2021, the analysis examines how strengthened creditor rights under the IBC have influenced firms’ investment behavior, particularly those with greater long-term debt exposure. The results show that the implementation of the IBC significantly enhanced capital allocation efficiency by mitigating both underinvestment and overinvestment. Overall, the results suggest that the reform improved firms’ financial decision-making and contributed to greater capital market stability in India. The results remain robust across alternative model specifications and controls for firm, industry, and time-specific effects.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"81 ","pages":"Article 101480"},"PeriodicalIF":4.2,"publicationDate":"2025-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145578841","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-09-01Epub Date: 2025-07-16DOI: 10.1016/j.jfs.2025.101438
Pauline Gandré , Margarita Rubio
Macroprudential policy is traditionally characterized by countercyclical rules that respond to credit variables. In this paper, we augment these rules with additional indicators, including the credit spread. First, we empirically assess the relevance of the credit spread by showing its correlation with credit booms. Then, we incorporate this variable into a Dynamic Stochastic General Equilibrium (DSGE) model with financial frictions. Using the model, we evaluate the extent to which macroprudential measures that also respond to credit spreads can improve welfare, focusing on both a capital requirement ratio (CRR) rule and a loan-to-value ratio (LTV) rule. We find that credit spreads are particularly useful for credit supply-based measures, while borrower-based measures benefit more from an additional response to house prices. Overall, the augmented rules enhance welfare by reducing output volatility, although this comes at the cost of increased inflation volatility. Finally, we show that the welfare gains from responding to credit spreads are robust to the monetary policy stance in the case of the CRR, while for the LTV rule, they depend on the degree of monetary policy responsiveness to inflation.
{"title":"Designing credit-spread driven macroprudential rules","authors":"Pauline Gandré , Margarita Rubio","doi":"10.1016/j.jfs.2025.101438","DOIUrl":"10.1016/j.jfs.2025.101438","url":null,"abstract":"<div><div>Macroprudential policy is traditionally characterized by countercyclical rules that respond to credit variables. In this paper, we augment these rules with additional indicators, including the credit spread. First, we empirically assess the relevance of the credit spread by showing its correlation with credit booms. Then, we incorporate this variable into a Dynamic Stochastic General Equilibrium (DSGE) model with financial frictions. Using the model, we evaluate the extent to which macroprudential measures that also respond to credit spreads can improve welfare, focusing on both a capital requirement ratio (CRR) rule and a loan-to-value ratio (LTV) rule. We find that credit spreads are particularly useful for credit supply-based measures, while borrower-based measures benefit more from an additional response to house prices. Overall, the augmented rules enhance welfare by reducing output volatility, although this comes at the cost of increased inflation volatility. Finally, we show that the welfare gains from responding to credit spreads are robust to the monetary policy stance in the case of the CRR, while for the LTV rule, they depend on the degree of monetary policy responsiveness to inflation.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"80 ","pages":"Article 101438"},"PeriodicalIF":6.1,"publicationDate":"2025-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144655119","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-09-01Epub Date: 2025-07-14DOI: 10.1016/j.jfs.2025.101436
M. Koetter , P. Marek , A. Mavropoulos
We exploit staggered real estate transaction tax (RETT) hikes across German states to identify the effect on the growth rates of regional house prices and outstanding mortgage loans by all local German banks. The results show that a RETT hike by one percentage point reduces regional house prices by 3%–4%. Furthermore, IV-regressions yield that a 1 percentage point drop in regional house prices induced by a RETT increase leads to a 0.3% decline in regional mortgage lending, particularly among low-capitalized banks in rural regions.
{"title":"Real estate transaction taxes and credit supply","authors":"M. Koetter , P. Marek , A. Mavropoulos","doi":"10.1016/j.jfs.2025.101436","DOIUrl":"10.1016/j.jfs.2025.101436","url":null,"abstract":"<div><div>We exploit staggered real estate transaction tax (RETT) hikes across German states to identify the effect on the growth rates of regional house prices and outstanding mortgage loans by all local German banks. The results show that a RETT hike by one percentage point reduces regional house prices by 3%–4%. Furthermore, IV-regressions yield that a 1 percentage point drop in regional house prices induced by a RETT increase leads to a 0.3% decline in regional mortgage lending, particularly among low-capitalized banks in rural regions.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"80 ","pages":"Article 101436"},"PeriodicalIF":6.1,"publicationDate":"2025-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144655120","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-09-01Epub Date: 2025-07-19DOI: 10.1016/j.jfs.2025.101437
Julio Dávila , Elizaveta Lukmanova
We show the possibility of negative nominal interest rates in a general equilibrium model with financial intermediation. We establish that the decentralization of the planner’s steady state requires a zero nominal lending rate on bank loans to firms, as well as a negative nominal lending rate on central bank loans to banks. We also find that implementing the planner’s steady state requires firms to be bound by collateral requirements that limit their leverage. The key driver of the results is the very defining characteristic of banking, namely banks’ ability to create money by opening deposit accounts that borrowers can withdraw from, and that are unbacked by household deposits. Our results can be used to rationalize the ultra-low rates policy implemented by major central banks in the second half of the 2010’s and early 2020’s.
{"title":"Negative nominal rates","authors":"Julio Dávila , Elizaveta Lukmanova","doi":"10.1016/j.jfs.2025.101437","DOIUrl":"10.1016/j.jfs.2025.101437","url":null,"abstract":"<div><div>We show the possibility of negative nominal interest rates in a general equilibrium model with financial intermediation. We establish that the decentralization of the planner’s steady state requires a zero nominal lending rate on bank loans to firms, as well as a negative nominal lending rate on central bank loans to banks. We also find that implementing the planner’s steady state requires firms to be bound by collateral requirements that limit their leverage. The key driver of the results is the very defining characteristic of banking, namely banks’ ability to create money by opening deposit accounts that borrowers can withdraw from, and that are unbacked by household deposits. Our results can be used to rationalize the ultra-low rates policy implemented by major central banks in the second half of the 2010’s and early 2020’s.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"80 ","pages":"Article 101437"},"PeriodicalIF":6.1,"publicationDate":"2025-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144702832","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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