Our “Research Features” are designed to give general readers an accessible snapshot of the most recent research projects published by Bank of Spain staff economists.
Asset Encumbrance and Bank Risk: Theory and First Evidence from Public Disclosures in Europe (159 KB)
Albert Banal-Estañol, Enrique Benito, Dmitry Khametshin, Jianxing Wei
We document that overcollateralisation of banks' secured liabilities is positively associated with the risk premium on their unsecured funding. We rationalize this finding in a theoretical model in which costs of asset encumbrance increase collateral haircuts and the endogenous risk of a liquidity-driven bank run. We then test the model's predictions using a novel dataset on asset encumbrance of the European banks. Our empirical analysis demonstrates that banks with more costly asset encumbrance have higher rates of overcollateralisation and rely less on secured debt. Consistent with theory, the effects are stronger for banks that are likely to face higher fire-sales discounts. This evidence acts in favour of the hypothesis that asset encumbrance increases bank risk, although this relationship is rather heterogeneous.
The causal impact of removing children from abusive and neglectful homes (152 KB)
Anthony Bald, Eric Chyn, Justine S. Hastings, Margarita Machelett
Each year, nearly 200,000 abused and neglected children are placed into foster care in the U.S., yet the causal impacts of this policy are not fully understood. Using administrative data, we find that out-of-home placements result in significant increases in the test scores and decrease the likelihood of grade repetition of young girls (removed before the age of six). We do not find detectable impacts in young boys. Our findings suggest that removal impacts are particular to gender.
ECB Euro liquidity lines (214 KB)
S. Albrizio, I. Kataryniuk, L. Molina, y J. Schäfer
Central bank liquidity lines gained momentum since the global financial crisis and were used extensively throughout the pandemic. US dollar swap lines are well studied, but much less is known about the effects of liquidity lines in euros. Do ECB euro liquidity lines decrease Euro funding costs in the targeted economies? And are there positive spillbacks for the Euro Area Economies? Our paper answers these questions by studying the direct and indirect effects of ECB liquidity lines. We use a difference-in-differences strategy to show that the announcement of ECB euro liquidity lines has a direct positive signalling effect since the premium paid by foreign agents to borrow euros in FX markets decreases up to 76 basis points relative to currencies not covered by these facilities. Additionally, the paper provides suggestive evidence that these facilities generate positive spillbacks to the euro area since domestic bank equity prices increase by 6.7% in euro area countries highly exposed via banking linkages to countries whose currencies are targeted by liquidity lines.
This paper analyses the contribution of import competition to the regional divergence among US metropolitan areas over recent decades. It documents that the sharp rise in imports of Chinese manufacturing goods had a significant effect on the spatial skill polarisation and the divergence of college wage premium among local labor markets. The effects of the China trade shock were systematically different depending on the skill intensity of local services. Among regions with skill-intensive services, a higher exposure to import competition in manufacturing increased the number and wages of college-educated workers. The negative effects of the China shock concentrated in exposed regions with a low density of college-educated workers. The heterogeneous effects of import competition explain one third of the spatial skill polarisation and one fourth of the divergence in college wage premium. It is shown that the contribution of the trade shock operates through the reallocation of workers across sectors and regions. Using a novel measure of ‘labor market exposure’ to the China shock, the author shows that service industries expand when local manufacturers face import competition. High human capital regions exposed to the China shock undergo a faster transition from manufacturing to skill-intensive service industries and attract college-educated workers from other locations.
Firm level heterogeneity in the impact of the COVID-19 pandemic (150 KB)
A. Fernandez Cerezo, B. Gonzalez, M. Izquierdo and E. Moral Benito
We explore the heterogeneity across firms in the impact of and response to the COVID-19 shock using a survey conducted in November 2020 matched to balance-sheet information on firm characteristics. According to our results, the impact of the COVID-19 shock was larger in the case of small, young and less productive firms located in urban areas. Moreover, these firms resorted relatively more to public-guaranteed loans, tax deferrals, and furlough schemes (ERTEs). More indebted companies, which were not hit relatively harder by the shock, also perceived public-guaranteed loans as very useful. Firms consider that uncertainty represents a key hindrance to the recovery while the announcement of the effectiveness of the Pfizer vaccine on November 9th 2020 increased significantly firms' subjective recovery expectations.
Fed’s financial stability concerns and monetary policy (319 KB)
Klodiana Istrefi, Florens Odendahl and Giulia Sestieri
Even though the Fed does not have an explicit financial stability objective extending beyond its supervisory responsibilities, the public speeches of Fed officials, during the period 1997 to 2013, reveal that a higher speaking time or a higher negative tone on Financial Stability topics correlate with a more accommodative monetary policy stance. In contrast, communication on Housing topics correlates with a tighter policy stance. These results are mainly driven by the information in speeches of regional Fed presidents.