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The syndicated loan market, as a hybrid between public and private debt markets, comprises financial institutions with access to valuable private information about borrowers as a result of close bank-borrower relationships. In this paper, we seek empirical evidence for the costs of these relationships in a sample of UK syndicated loan contracts for the time period 1996 through 2005. Using detailed financial data for both borrowers (private and public companies) and for financial institutions, we find that undercapitalized banks charge higher loan spreads for loans to opaque borrowers using various measures for borrower opaqueness and controlling for bank, borrower and loan characteristics. We further analyze this hold-up effect over the business cycle and find that it only prevails during recessions. In expansion phases, however, we do not find evidence for banks exploiting their information monopoly. This finding is consistent with theories on bank reputation in bank loan commitments. Ambiguity about borrower financial health, which induces the information monopoly in the first place, also gives banks the discretion to exploit or not exploit informational captured borrowers. Our findings are both statistically and economically significant and robust to alternative bank and macroeconomic risk proxies. We address potential concerns about unobserved borrower heterogeneity exploiting the panel data nature of our sample. Using firm-bank fixed effect regressions, we find supporting evidence for our theoretical framework. JEL Classifications: G14, G21, G22, G23, G24 Keywords: Syndicated loans; Hold-up; Lending relationships; Business cycle
Robustness, validity, and significance of the ECB's asset quality review and stress test exercise
(2014)
As we are moving toward a eurozone banking union, the European Central Bank (ECB) is going to take over the regulatory oversight of 128 banks in November 2014. To that end, the ECB conducted a comprehensive assessment of these banks, which included an asset quality review (AQR) and a stress test. The fundamental question is how accurately will the financial condition of these banks have been assessed by the ECB when it commences its regulatory oversight? And, can the comprehensive assessment lead to a full repair of banks’ balance sheets so that the ECB takes over financially sound banks and is the necessary regulation in place to facilitate this? Overall, the evidence presented in this paper based on the design of the comprehensive assessment as well as own stress test exercises suggest that the ECB’s assessment might not comprehensively deal with the problems in the financial sector and risks may remain that will pose substantial threats to financial stability in the eurozone.
Protective ant-plant mutualisms that are exploited by non-defending parasitic ants represent prominent model systems for ecology and evolutionary biology. The mutualist Pseudomyrmex ferrugineus is an obligate plant-ant and fully depends on acacias for nesting space and food. The parasite Pseudomyrmex gracilis facultatively nests on acacias and uses host-derived food rewards but also external food sources. Integrative analyses of genetic microsatellite data, cuticular hydrocarbons and behavioral assays showed that an individual acacia might be inhabited by the workers of several P. gracilis queens, whereas one P. ferrugineus colony monopolizes one or more host trees. Despite these differences in social organization, neither of the species exhibited aggressive behavior among conspecific workers sharing a tree regardless of their relatedness. This lack of aggression corresponds to the high similarity of cuticular hydrocarbon profiles among ants living on the same tree. Host sharing by unrelated colonies, or the presence of several queens in a single colony are discussed as strategies by which parasite colonies could achieve the observed social organization. We argue that in ecological terms, the non-aggressive behavior of non-sibling P. gracilis workers — regardless of the route to achieve this social structure — enables this species to efficiently occupy and exploit a host plant. By contrast, single large and long-lived colonies of the mutualist P. ferrugineus monopolize individual host plants and defend them aggressively against invaders from other trees. Our findings highlight the necessity for using several methods in combination to fully understand how differing life history strategies affect social organization in ants.
Do current levels of bank capital in Europe suffice to support a swift recovery from the COVID-19 crisis? Recent research shows that a well-capitalized banking sector is a major factor driving the speed and breadth of recoveries from economic downturns. In particular, loan supply is negatively affected by low levels of capital. We estimate a capital shortfall in European banks of up to 600 billion euro in a severe scenario, and around 143 billion euro in a moderate scenario. We propose a precautionary recapitalization on the European level that puts the European Stability Mechanism (ESM) center stage. This proposal would cut through the sovereign-bank nexus, safeguard financial stability, and position the Eurozone for a quick recovery from the pandemic.
We investigate the transmission of central bank liquidity to bank deposits and loan spreads in Europe over the January 2006 to June 2010 period. We find evidence consistent with an impaired transmission channel due to bank risk. Central bank liquidity does not translate into lower loan spreads for high-risk banks, even as it lowers deposit rates for both high-risk and low-risk banks. This adversely affects the balance sheets of high-risk bank borrowers, leading to lower payouts, lower capital expenditures, and lower employment. Overall, our results suggest that banks’ capital constraints at the time of an easing of monetary policy pose a challenge to the effectiveness of the bank lending channel and the effectiveness of the central bank as a lender of last resort.
Von Februar bis Juni 2015 hat die Europäische Zentralbank (EZB) die Notfall-Liquiditätshilfen (emergency liquidity assistance, ELA) für griechische Banken von 50 auf etwa 90 Milliarden Euro ausgeweitet. Dies hat zu einer Diskussion unter Wissenschaftlern, Politikern und Praktikern geführt, ob diese Liquiditätshilfen rechtmäßig sind. Es wurde der Vorwurf erhoben, die EZB trage bewusst zu einer Konkursverschleppung der bereits insolventen griechischen Banken bei.
Wir nehmen diesen Vorwurf zum Anlass, die Grundsätze des ELA-Programms genauer zu betrachten und die Frage zu diskutieren, ob das Programm in der aktuellen Situation rechtmäßig war. Zunächst beschreiben wir hierfür aus finanzwirtschaftlicher Perspektive die komplexe Beziehung zwischen der Europäischen Union, der EZB und den griechischen Banken. Dabei gehen wir insbesondere auf die wirtschaftspolitischen Grundsätze einer Währungsunion mit einer unvollständigen Fiskalunion (oder Haushaltskonsolidierung) ein. Vor diesem Hintergrund analysieren wir dann die Entscheidung der EZB, weiterhin Liquiditätshilfen an griechische Banken bereitzustellen. Wir kommen zu dem Ergebnis, dass das Vorgehen der EZB nicht als Konkursverschleppung zu bezeichnen ist.
The European Central Bank (ECB) increased the emergency liquidity assistance (ELA) for Greek banks from €50 billion in February 2015 to approximately €90 billion in June 2015. Its actions were accompanied by a discussion among academics, politicians and practitioners regarding the legitimacy of the ELA. Some have even accused the ECB of deliberately delaying the bankruptcy filing of already insolvent Greek banks.
We take the claim regarding insolvency delay as an opportunity to highlight the underlying economics of the ELA program and discuss its legitimacy in the current situation. We start by characterizing the complex interrelationship of the European Union, the ECB and the Greek banks through the lens of financial economics, with a particular focus on the political economy of a monetary union with incomplete fiscal union (or fiscal consolidation). Combining these two issues, we examine the decision of the ECB to continue the provision of ELA to Greek banks. Our conclusions, drawn from the analysis, do not support the claim that the ECB’s actions are consistent with a delayed filing for insolvency.
The European Central Bank (ECB) has finalized its comprehensive assessment of the solvency of the largest banks in the euro area and on October 26 disclosed the results of this assessment. In the present paper, Acharya and Steffen compare the outcomes of the ECB's assessment to their own benchmark stress tests conducted for 39 publically listed financial institutions that are also included in the ECB's regulatory review. The authors identify a negative correlation between their benchmark estimates for capital shortfalls and the regulatory capital shortfall, but a positive correlation between their benchmark estimates for losses under stress both in the banking book and in the trading book. They conclude that the regulatory stress test outcomes are potentially heavily affected by discretion of national regulators in measuring what is capital, and especially the use of risk-weighted assets in calculating the prudential capital requirement.
Background: Tuberous sclerosis complex (TSC), a multisystem genetic disorder, affects many organs and systems, characterized by benign growths. This German multicenter study estimated the disease-specific costs and cost-driving factors associated with various organ manifestations in TSC patients. Methods: A validated, three-month, retrospective questionnaire was administered to assess the sociodemographic and clinical characteristics, organ manifestations, direct, indirect, out-of-pocket, and nursing care-level costs, completed by caregivers of patients with TSC throughout Germany. Results: The caregivers of 184 patients (mean age 9.8 ± 5.3 years, range 0.7–21.8 years) submitted questionnaires. The reported TSC disease manifestations included epilepsy (92%), skin disorders (86%), structural brain disorders (83%), heart and circulatory system disorders (67%), kidney and urinary tract disorders (53%), and psychiatric disorders (51%). Genetic variations in TSC2 were reported in 46% of patients, whereas 14% were reported in TSC1. Mean total direct health care costs were EUR 4949 [95% confidence interval (95% CI) EUR 4088–5863, median EUR 2062] per patient over three months. Medication costs represented the largest direct cost category (54% of total direct costs, mean EUR 2658), with mechanistic target of rapamycin (mTOR) inhibitors representing the largest share (47%, EUR 2309). The cost of anti-seizure drugs (ASDs) accounted for a mean of only EUR 260 (5%). Inpatient costs (21%, EUR 1027) and ancillary therapy costs (8%, EUR 407) were also important direct cost components. The mean nursing care-level costs were EUR 1163 (95% CI EUR 1027–1314, median EUR 1635) over three months. Total indirect costs totaled a mean of EUR 2813 (95% CI EUR 2221–3394, median EUR 215) for mothers and EUR 372 (95% CI EUR 193–586, median EUR 0) for fathers. Multiple regression analyses revealed polytherapy with two or more ASDs and the use of mTOR inhibitors as independent cost-driving factors of total direct costs. Disability and psychiatric disease were independent cost-driving factors for total indirect costs as well as for nursing care-level costs. Conclusions: This study revealed substantial direct (including medication), nursing care-level, and indirect costs associated with TSC over three months, highlighting the spectrum of organ manifestations and their treatment needs in the German healthcare setting.
Background: The approval of everolimus (EVE) for the treatment of angiomyolipoma (2013), subependymal giant cell astrocytoma (2013) and drug-refractory epilepsy (2017) in patients with tuberous sclerosis complex (TSC) represents the first disease-modifying treatment option available for this rare and complex genetic disorder. Objective: The objective of this study was to analyse the use, efficacy, tolerability and treatment retention of EVE in patients with TSC in Germany from the patient’s perspective. Methods: A structured cross-age survey was conducted at 26 specialised TSC centres in Germany and by the German TSC patient advocacy group between February and July 2019, enrolling children, adolescents and adult patients with TSC. Results: Of 365 participants, 36.7% (n = 134) reported the current or past intake of EVE, including 31.5% (n = 115) who were taking EVE at study entry. The mean EVE dosage was 6.1 ± 2.9 mg/m2 (median: 5.6 mg/m2, range 2.0–15.1 mg/m2) in children and adolescents and 4 ± 2.1 mg/m2 (median: 3.7 mg/m2, range 0.8–10.1 mg/m2) in adult patients. An early diagnosis of TSC, the presence of angiomyolipoma, drug-refractory epilepsy, neuropsychiatric manifestations, subependymal giant cell astrocytoma, cardiac rhabdomyoma and overall multi-organ involvement were associated with the use of EVE as a disease-modifying treatment. The reported efficacy was 64.0% for angiomyolipoma (75% in adult patients), 66.2% for drug-refractory epilepsy, and 54.4% for subependymal giant cell astrocytoma. The overall retention rate for EVE was 85.8%. The retention rates after 12 months of EVE therapy were higher among adults (93.7%) than among children and adolescents (88.7%; 90.5% vs 77.4% after 24 months; 87.3% vs 77.4% after 36 months). Tolerability was acceptable, with 70.9% of patients overall reporting adverse events, including stomatitis (47.0%), acne-like rash (7.7%), increased susceptibility to common infections and lymphoedema (each 6.0%), which were the most frequently reported symptoms. With a total score of 41.7 compared with 36.8 among patients not taking EVE, patients currently being treated with EVE showed an increased Liverpool Adverse Event Profile. Noticeable deviations in the sub-items ‘tiredness’, ‘skin problems’ and ‘mouth/gum problems’, which are likely related to EVE-typical adverse effects, were more frequently reported among patients taking EVE. Conclusions: From the patients’ perspective, EVE is an effective and relatively well-tolerated disease-modifying treatment option for children, adolescents and adults with TSC, associated with a high long-term retention rate that can be individually considered for each patient. Everolimus therapy should ideally be supervised by a centre experienced in the use of mechanistic target of rapamycin inhibitors, and adverse effects should be monitored on a regular basis.