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2018-01-09T12:04:30+01:00
2018-01-09T12:04:30+01:00
2016-07-04T16:33:36+02:00
Skia/PDF m63
Political connections; government-owned banks; sub-sovereign debt
application/pdf
This article shows that German savings banks appear to increase their holdings of bonds issued by their respective Bundesland (federal state) government if as a result of an election, the local governments at Bundesland and at Kreis (county) level are no longer dominated by the same party. This behaviour is not consistent with other known reasons why banks hold government debt, such as compliance with regulation, the tendency to accumulate risky assets when close to bankruptcy, or political pressure. Instead, we argue that in the wake of a post-election loss of political connections along party lines, local government-owned banks use purchases of sub-sovereign bonds to keep communication channels with state politicians open, a mechanism akin to lobbying.
Alexander Popov
Sub-sovereign bonds in banks’ portfolios: A role for political connections?
Political connections
government-owned banks
sub-sovereign debt
uuid:ec74174a-d229-432d-8d79-77d11bbf0223
uuid:b9e0c24d-45bb-4b77-a9b3-3b80caa968d4
Print
No 42
G21, H63, P16
European Central Bank
www.ecb.europa.eu
Research Bulletin
We analyse the impact of standard and non-standard monetary policy measures on bank profitability. For empirical identification, the analysis focuses on the euro area, thereby exploiting substantial bank and country heterogeneity within a monetary union where the central bank has implemented a broad range of unconventional policies, including quantitative easing and negative interest rates. We use both proprietary and commercial data on individual bank balance sheets and financial market prices. Our results show that monetary policy easing â•fi a decrease in short-term interest rates and/or a flattening of the yield curve â•fi is not associated with lower bank profits once we control for the endogeneity of the policy measures to expected macroeconomic and financial conditions. Importantly, our analysis indicates that the main components of bank profitability are asymmetrically affected by accommodative monetary conditions, with a positive impact on loan loss provisions and non-interest income largely offsetting the negative one on net interest income. We also find that a protracted period of low interest rates might have a negative effect on profits that, however, only materialises after a long period of time and tends to be counterbalanced by improved macroeconomic conditions. In addition, while more operationally efficient banks benefit more from monetary policy easing, banks engaging more extensively in maturity transformation experience a higher increase in profitability after a steepening of the yield curve. Finally, we assess the impact of unconventional monetary policies on market-based measures of expected bank profitability and credit risk, by employing an event study analysis using high frequency data, and find that accommodative monetary policies tend to increase bank stock returns and reduce credit risk.
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