Disclaimer: The scientific works in this project should not be reported as representing the views of the European Commission or the European Research Council. The views expressed are those of the authors and do not necessarily reflect those of the EC or the ERC.
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NOTE: The working papers on this website will be updated until publication


Durante, R., Fabiani, A. & Peydró, J.-L. (March 2022). Media capture by banks. PDF

Abstract: Do media slant news in favor of the banks they borrow from? We study how lending connections affect news coverage of banks earnings reports and of the Eurozone sovereign debt crisis on major newspapers from several European countries. We find that newspapers cover announcements by their lenders - relative to those of other banks - significantly more when they report profits than when they report losses. Such pro-lender bias is stronger for more leveraged outlets and banks, and operates on the extensive margin for general-interest newspapers and on the intensive margin for financial newspapers. Regarding the Eurozone crisis we find that newspapers connected to banks more exposed to stressed sovereign bonds are more likely to promote a narrative of the crisis favorable to banks and to oppose debt-restructuring measures detrimental to creditors. Our findings support the concern that financial distress and increased dependence on creditors may undermine media companies' editorial independence.

Fabiani, A., López-Piñeros, M., Peydró, J.-L. & Soto, P.E. (September 2021). Capital controls, corporate debt and real effects. PDF.

Abstract: Non-US firms have massively borrowed dollars (foreign currency, FX), which may lead to booms and crises. We show the real effects of capital controls, including prudential benefits, through a firm-debt mechanism. Our identification exploits the introduction of a tax on FX-debt inflows in Colombia before the global financial crisis (GFC), and administrative, proprietary datasets, including loan-level credit register data and firm-level information on FX-debt inflows and imports/exports. Our results show that capital controls substantially reduce FX-debt inflows, particularly for firms with larger ex-ante FX-debt exposure. Moreover, firms with weaker local banking relationships cannot substitute FX-debt with domestic-debt and experience a reduction in total debt and imports upon implementation of the policy. However, our results suggest that, by preemptively reducing pre-crisis firm-level debt, capital controls boost exports during the subsequent GFC, especially among financially-constrained firms.

Peydró, J.-L., Polo, A., Sette, E. & Vanasco, V. (February 2023). Risk mitigating versus risk shifting: Evidence from banks security trading in crises. PDF

Abstract: We show that risk-mitigating incentives dominate risk-shifting incentives in fragile banks. We study security trading by banks, as banks can easily and quickly change their risk exposure within their security portfolio. For identification, we exploit different crisis shocks and supervisory ISIN-bank-month-level data. Less capitalized banks take relatively less risk after financial stress shocks. Results hold within identical regulatory capital risk weights categories. Moreover, additional tests suggest that banks’ own incentives, rather than supervision, are the main drivers. Results hold for the different crisis shocks since 2007/08, including the COVID-19 one. A model of bank behavior rationalizes our findings.

Winner of the 2021 ECGI Finance Prize for the best working paper in 2020 (Jury: M. Burkart, F. Allen, J. Franks, M. Pagano, X. Vives & L. Zingales)

Bedayo, M., Jiménez, G., Peydró, J.-L. & Vegas, R. (August 2022). Screening and loan origination time: Lending standards, loan defaults and bank failures. PDF

Abstract: We show that loan origination time is key for bank credit standards, defaults and failures over the cycle. We use the credit register from Spain, with the time of a loan application and its granting. When VIX is lower, banks shorten loan origination time, especially to less-capitalized firms. Bank moral hazard incentives (competition and capital) are crucial drivers. Moreover, shorter (loan-level) origination time implies higher ex-post defaults, especially for less-capitalized firms in areas with higher bank competition or when VIX is lower. Finally, shorter pre-crisis origination time involves more bank-level failures, even more than other lending conditions, consistent with lower screening.

Michelangeli, V., Peydró, J.L. & Sette, E. (December 2021). Borrower versus bank channels in lending: Experimental and administrative based evidence. PDF

Abstract: We identify the relative importance for lending of borrower (demand-side) versus bank (supply-side) factors. We submit thousands of fictitious mortgage applications, changing one borrower-level factor at time, to the major Italian online mortgage platform. Each application goes to all banks. Borrower and bank factors are equally strong in causing and explaining loan acceptance. For pricing, borrower factors are instead stronger. Moreover, banks supplying less credit accept riskier borrowers. Exploiting the administrative credit register, there is borrower-lender assortative matching and the bank-level strength measure estimated on the experimental data is associated to credit supply and risk-taking to real firms.

Jasova, M., Mendicino, C., Panetti, E., Peydró, J.-L. & Supera, D. (March 2023). Monetary policy, labor income redistribution and the credit channel: Evidence from matched employer-employee and credit registers. PDF

Abstract: This paper documents the redistributive effects of monetary policy on labor market outcomes via the credit channel. For identification, we exploit matched administrative datasets in Portugal -employee-employer and credit registers- and monetary policy since the Eurozone creation in 1999. We find that softer monetary policy improves worker labor market outcomes (wages, hours worked and firm employment) more in small and young firms, which are more financially constrained. Within small and young firms, the wage effects accrue to incumbent workers, in line with the back-loaded wage mechanism. Consistent with the capital-skill complementarity mechanism, we document an increase in skill premium and show that financially constrained firms increase both physical and human capital investment by most. Our findings uncover a central role for both the firm-balance sheet and the bank lending channels of the monetary policy transmission to labor income inequality, with state-dependent effects that are substantially stronger during crisis times. Importantly, we do not find any redistributive effects for firms without bank credit.

Morais, B., Ormazabal, G., Peydró, J.-L., Roa, M. & Sarmiento, M. (August 2020). Forward looking loan provisions: Credit supply and risk-taking. PDF

Abstract: We show corporate-level real, financial, and (bank) risk-taking effects associated with calculating loan provisions based on expected—rather than incurred—credit losses. For identification, we exploit unique features of a Colombian reform and supervisory, matched loan-level data. The regulatory change induces a dramatic increase in provisions. Banks tighten all new lending conditions, adversely affecting borrowing-firms, with stronger effects for risky-firms. Moreover, to minimize provisioning, more affected (less-capitalized) banks cut credit supply to risky-firms—SMEs with shorter credit history, less tangible assets or more defaulted loans—but engage in “search-for-yield” within regulatory constraints and increase portfolio concentration, thereby decreasing risk diversification.

Watch a presentation by Prof. Peydró at the Annual ECB Banking Supervision Research Conference ‘Banking Supervision in a New Economy: Digitalisation, Climate and Financial Innovation’ (Frankfurt, May 2023): Link to Youtube · Link to conference

Giambona, E., Matta, R., Peydró, J.-L. & Wang, Y. (May 2020). Quantitative easing, investment, and safe assets: The corporate-bond lending channel. PDF

Abstract: We show that Quantitative Easing (QE) stimulates investment via a corporate-bond lending channel. Fed's large-scale asset purchases of MBS and treasuries through QE creates a vacuum of safe assets, prompting safer firms to invest more by issuing relatively "safe" bonds. Using micro-data around QE, we find that QE increases firm-level investment by 7.4 percentage points for firms with bond market access. This growth is financed with senior bonds. We find no evidence of higher shareholders' payouts associated to QE. The robust findings are consistent with a model in which reducing the supply of government debt lowers "safe" corporate bond yields, stimulating investment.

Abbassi, P., Iyer, R., Peydró, J.-L. & Soto, P.E. (March 2023). Stressed banks? Evidence from largest-ever supervisory review. Revise & resubmit at Management Science. Link

Earlier title: 'Dressing up for the regulator: Evidence from the largest-ever supervisory review'

Abstract: We study short-term and medium-term changes in bank risk-taking as a result of supervision, and the associated real effects. For identification, we exploit the European Central Bank’s assetquality-review (AQR) in conjunction with security and credit registers. After the AQR announcement, reviewed banks reduce riskier securities and credit supply, with the greatest effect on riskiest securities. We find negative spillovers on asset prices and firm-level credit availability. Moreover, non-banks with higher exposure to reviewed banks acquire the shed risk. After the AQR compliance, reviewed banks reload riskier securities but not riskier credit, resulting in negative medium-term firm-level real effects. These effects are especially strong for firms with high ex-ante credit risk. Among these non-safe firms, even those with high ex-ante productivity experience negative real effects. Our findings suggest that banks’ liquid assets help them to mask risk from supervisors and risk adjustments banks make in response to supervision have persistent corporate real effects.

Watch a presentation at the Asociación Española de Finanzas (AEFIN) ‘25th Foro de Finanzas’ (2017) YOUTUBE

Jiménez, G., Peydró, J.-L., Repullo, R. & Saurina, J. (March 2019). Burning money? Government lending in a credit crunch. Revise & resubmit at the Review of Economic StudiesPDF

Abstract: We analyze a small, new credit facility of a Spanish state-owned bank during the crisis, using its continuous credit scoring system, its firm-level scores, and the credit register. Compared to privately-owned banks, the state-owned bank faces worse applicants, (softens) tightens its credit supply to (un)observed riskier firms, and has much higher defaults, especially driven by unobserved ex-ante borrower risk. In a regression discontinuity design, the supply of public credit causes: large positive real effects to financially-constrained firms (whose relationship banks reduced substantially credit supply); crowding-in of new private-bank credit; and positive spillovers to other firms. Private returns of the credit facility are negative, while social returns are positive. Overall, our results provide evidence on the existence of significant adverse selection problems in credit markets.

Jiménez, G., Ongena, S., Peydró, J.-L., & Saurina, J. (April 2017). Do demand or supply factors drive bank credit, in good and crisis times? PDF

Previously circulated as: ‘Credit demand forever?’ On the strengths of bank and firm balance-sheet channels in good and crisis times'

Abstract: We analyze the impact of balance-sheet strength on credit availability. Bank balance sheets are weak in crisis times, but so are those of firms, and credit demand is then also weak. For identification, we exploit an administrative dataset of loan applications matched with bank and firm variables covering Spain from 2002 to 2010. Bank balance-sheet strength determines the granting of loan applications only in crisis times, while firm balance-sheet strength – notably leverage – determines strongly this granting in both good and crisis times. Our findings underscore the importance of the strength of corporate balance sheets over credit supply for credit availability.

Gabarro, M., Irani, R.M., Peydró, J.-L. & Van Bekkum, S. (February 2022). Take it to the limit? The effects of household leverage caps. PDF

Previously circulated as ‘Macroprudential policy and household leverage: Evidence from administrative household-level data’

Abstract: We analyze the effects of borrower-based macroprudential policy at the household-level. For identification, we exploit administrative Dutch tax-return and property ownership data linked to the universe of housing transactions, and the introduction of a mortgage loan-to-value limit. The regulation reduces mortgage leverage, with bunching in its limit. Ex-ante more-affected households substantially reduce overall leverage and debt servicing costs but consume greater liquidity to satisfy the regulation. Improvements in household solvency result in less financial distress and, given negative idiosyncratic shocks, better liquidity management. However, fewer households transition from renting into ownership. All of these effects are stronger for liquidity-constrained households.

Elliott, D., Meisenzahl, R.R., Peydró, J.-L. & Turner, B.C. (June 2022). Nonbanks, banks, and monetary policy: U.S. loan-level evidence since the 1990s. PDF

Abstract: We show that nonbanks (funds, shadow banks, fintech) a ect the transmission of monetary policy to output, prices and the distribution of risk via credit supply. For identication, we exploit exhaustive US loan-level data since the 1990s, borrower-lender relationships and Gertler-Karadi monetary policy shocks. Higher policy rates shift credit supply from banks to nonbanks, thereby largely neutralizing associated consumption effects (via consumer loans), while just attenuating firm investment and house price spillovers (via corporate loans and mortgages). Moreover, different from the risk-taking channel, higher policy rates increase risk-taking, as less-regulated, fragile nonbanks -in all credit markets- expand supply to riskier borrowers.

Dassatti Camors, C., Peydró, J.-L., Rodríguez-Tous, F. & Vicente, S. (November 2019). Macroprudential and monetary policy: Loan-level evidence from reserve requirements. PDF

Abstract: We analyze the impact of reserve requirements on the supply of credit to the real sector. For identification, we exploit a tightening of reserve requirements in Uruguay during a global capital in ows boom, where the change affected more foreign liabilities, in conjunction with its credit register that follows all bank loans granted to non-financial firms. Following a difference-in-differences approach, we compare lending to the same firm before and after the policy change among banks differently affected by the policy. The results show that the tightening of the reserve requirements for banks lead to a reduction of the supply of credit to firms. Importantly, the stronger quantitative results are for the tightening of reserve requirements to bank liabilities stemming from non-residents. Moreover, more affected banks increase their exposure into riskier firms, and larger banks mitigate the tightening effects. Finally, the firm-level analysis reveals that the cut in credit supply in the loan-level analysis is binding for firms. The results have implications for global monetary and financial stability policies.

Barbone-Gonzalez, R., Khametshin, D., Peydró, J.-L. & Polo, A. (November 2022). Hedger of last resort: Evidence from Brazilian FX interventions, local credit, and global financial cycles. PDF

Previously circulated as ‘US Monetary policy and exchange rate: Micro evidence on the Brazilian credit channel’

Abstract: We show that FX interventions attenuate global financial cycle (GFC)’s spillovers. We exploit GFC shocks and Brazilian central bank interventions in FX derivatives using three matched administrative registers: credit, foreign credit to banks, and employer-employee. After U.S. Taper Tantrum (followed by Emerging Markets FX turbulence), Brazilian banks with more foreign debt cut credit supply, thereby reducing firm-level employment. A subsequent large policy intervention supplying derivatives against FX risks—hedger of last resort—halves the negative effects. A 2008-2015 panel exploiting GFC shocks and
FX interventions confirms these results and the hedging channel. However, the policy entails fiscal and moral hazard costs.

Fendoglu, S., Gulsen, E. & Peydró, J.-L. (November 2019). Global liquidity and impairment of local monetary policy. Revise & resubmit at American Economic Journal: MacroeconomicsPDF

Abstract: We show that global liquidity limits the effectiveness of local monetary policy on credit markets. The mechanism is via a bank carry trade in international markets when local monetary policy tightens. For identification, we exploit global (VIX, U.S. monetary policy) shocks and loan-level data —the credit and international interbank registers— from a large emerging market, Turkey. Softer global liquidity conditions attenuate the pass-through of local monetary policy tightening on loan rates, especially for banks with more access to international wholesale markets. Effects are also important for other credit margins and for risk-taking, e.g. riskier borrowers in FX loans or defaults.

Altavilla, C., Boucinha, M., Peydró, J.-L. & Smets, F. (December 2020). Banking supervision, monetary policy and risk-taking: Big data evidence from 15 credit registers. Revise and resubmit at the Journal of FinancePDF

Abstract: We analyse the effects of national versus supranational banking supervision on bank risk-taking, and its interactions with monetary policy. For identification, we exploit: (i) a new, proprietary dataset based on 15 European credit registers; (ii) the institutional change in European banking supervision; (iii) high-frequency monetary policy surprises; (iv) cross-country difference within and outside the euro area. First, supranational supervision reduces credit supply to firms with high credit risk, but strengthens credit supply to firms without loan delinquencies, especially for banks operating in stressed countries. Results are driven by two mechanisms: the country’s institutional quality where banks operate, and bank-level systemic importance. Second, there are important complementarities between monetary policy and supervision: centralised supervision offsets high credit risk-taking induced by accommodative monetary policy, but not credit supply to more productive firms. Overall, we show that using multiple credit registers – first time in the literature – is crucial for external validity.

Blanco Barroso, J.B.R., Barbone Gonzalez, R, Nazar van Doornik, B., Peydró, J.-L. (February 2020). Countercyclical liquidity policy and credit cycles: Evidence from macroprudential and monetary policy in Brazil. PDF

Abstract: We show that countercyclical liquidity policy smooths credit supply cycles, with stronger crisis effects. For identification, we exploit the Brazilian supervisory credit register and liquidity policy changes on reserve requirements, that affected banks differentially and have a monetary and prudential purpose. Liquidity policy strongly attenuates both the credit crunch in bad times and high credit supply in booms. Strong economic effects are twice as large during the crisis easing than during the boom tightening. Finally, in crises, liquidity easing: increase less credit supply by more financially constrained banks; and collateral requirements increase substantially, especially by banks providing higher credit supply.