TY  - UNPD
A1  - Haselmann, Rainer
A1  - Leuz, Christian
A1  - Schreiber, Sebastian
T1  - Know your customer: informed trading by banks
N2  - This study analyzes information production and trading behavior of banks with lending relationships. We combine trade-by-trade supervisory data and credit-registry data to examine banks' proprietary trading in borrower stocks around a large number of corporate events. We find that relationship banks build up positive (negative) trading positions in the two weeks before events with positive (negative) news, even when these events are unscheduled, and unwind positions shortly after the event. This trading pattern is more pronounced in situations when banks are likely to possess private information about their borrowers, and cannot be explained by specialized expertise in certain industries or certain firms. The results suggest that banks' lending relationships inform their trading and underscore the potential for conflicts of interest in universal banking, which have been a prominent concern in the regulatory debate for a long time. Our analysis illustrates how combining large data sets can uncover unusual trading patterns and enhance the supervision of financial institutions.
T3  - CFS working paper series - No. 705 
KW  - Universal banks
KW  - bank regulation
KW  - big data
KW  - proprietary trading
KW  - Volcker Rule
KW  - insider trading
KW  - market supervision
Y1  - 2022
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/69124
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-691248
UR  - https://ssrn.com/abstract=4365175
N1  - The paper also benefited significantly from a fellow visit of Leuz at the Center for Advanced Studies Foundations of Law and Finance funded by the German Research Foundation (DFG) – project FOR 2774. The project was conducted under Bundesbank research project number
2016/0116.
PB  - Center for Financial Studies
CY  - Frankfurt, M.
ER  -