New Working Paper (with S. Kleimeier and Shusen Qi):
Deposit Insurance in Times of Crises: Safe Haven or Regulatory Arbitrage?
In this paper we examine the impact of deposit insurance (DI) schemes on bilateral cross-border deposits. Our results suggest that not only the existence of explicit DI, but also DI design features, which reflect its credibility have an impact on cross-border deposits, and that the relative differences between reporting and depositor countries also matter. More importantly, in times of crises, depositors rely more on DI in general, but DI acts primarily as a “Safe Haven” rather than enabling “Regulatory Arbitrage”. During the global financial crisis of 2008/09 the emergency actions of bank country governments, which supply and maintain these safe havens, have led to substantial relocations of cross-border deposits.
An updated version of this paper has been presented on the 2017 Biennial IADI Research Conference: Designing an Optimal Deposit Insurance System – Theory and Practice, on 1-2 June 2017 at the Bank for International Settlements in Basel. The paper has also earlier been presented on the 3rd BIS-CGFS workshop on “Research on global financial stability: the use of BIS international banking and financial statistics”. On 7 May 2016 the BIS and the Committee on the Global Financial System (CGFS) jointly hosted the third workshop on research on global financial stability. The workshop focused on empirical work related to international banking and financial markets, with emphasis on analysis based in whole or in part on the international banking, debt securities and derivatives statistics compiled by the BIS on behalf of the CGFS. The workshop was intended to promote the use of these statistics, including the newly enhanced banking statistics, among central bankers, analysts and academics.
New Research Paper (with Stefanie Kleimeier and Sylvia Heuchemer):
The Resurgence of Cultural Borders during the Financial Crisis: The Changing Geography of Eurozone Cross-Border Depositing
This paper has been published by the Journal of Financial Stability 24(2016) and can be dowloaded here (free access until June 23, 2016). The paper investigates the impact of cultural borders on the geography of international finance during stable and crises times. It shows that cultural distance limits international financial integration over and above what can be expected from economic trade and transaction costs. While it provides evidence that cultural borders lost influence during a “Europhoria” phase after the introduction of Euro notes in 2002, it also indicates that cultural borders resurge during the 2007/08 financial crisis and severely limit financial integration.
Special Issue Comparative Economic Studies on Global Banking Symposium
Comparative Economics Studies dedicates a special issue to the Maastricht symposium “Global Banking, Financial Stability, and Post-Crisis Policy Challenges” in the June 2014 issue. In this special issue the panelists reflect on the symposium discussions and share their views on the lessons learned from the financial crisis of 2008 with the broader audience in the profession as well as with policy makers and an interested civil society.
New Working Paper (with S. Kleimeier and S. Heuchemer):
The Resurgence of Cultural Borders in International Finance during the Financial Crisis: Evidence from Eurozone Cross-Border Depositing
Abstract: The paper provides new evidence on the “resurgence of cultural borders in international finance during the financial crisis”. We show that cultural differences across act as invisible borders that limit financial integration in European cross-border depositing. This limiting effect has become weaker during the first years after the Euro notes went into circulation, most likely indicating some “Europhoria”. However, the financial crisis, and in particular the Euro crisis, has led to a strong resurgence of the limiting role of cultural differences.
Our results suggest that integrating cultural variables into theoretical and empirical research can enhance our understanding of financial retrenchment during financial crises and the often-observed over-optimism during stable periods. With respect to political implications, the study suggests that policymakers should acknowledge that cultural barriers have the potential to limit the effectiveness of integration policies. Nevertheless, the paper also indicates that they have effective instruments at their disposal: building confidence in institutions to overcome cultural borders.
Financial Crises and Cross-Border Banking: New Evidence (with S. Kleimeier and S. Heuchemer) in: Journal of International Money and Finance, 32(2013), 884-915
Abstract: The surge in cross-border banking prior to global financial crises took place not only in the interbank market but also in the retail market, e.g. between banks and their private customers abroad. We utilize confidential data to estimate for the first time the effects of banking, currency and twin crises on the geography of cross-border deposits and loans. We show that each crisis type has its own specific effects, that these effects themselves lead to sustained increases in cross-border banking, and that they are different for cross-border loans and deposits, respectively.
E(M)U Effects in Global Cross-Border Banking (with S. Kleimeier and S. Heuchemer), in: Economic Letters, 118 (2013), 91-93.
Abstract: We demonstrate that the European Monetary Union (EMU) increases cross-border depositing but not lending among EMU countries by 31%. While being a member of the European Union (EU) increases cross-border loans by 49%, cross-border deposit volumes are unaffected.