Lending on Hold: Regulatory Uncertainty and Bank Lending Standards

Gissler, Stefan; Oldfather, Jeremy; Ruffino, Doriana

doi:10.2139/ssrn.2676124

Cited by 11 publications

(12 citation statements)

References 17 publications

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“…This paper's findings of a decline in hedging as a result of regulatory uncertainty supports similar conclusions in Gissler et al (2016) and Bordo et al (2016) where they find that regulatory and policy uncertainty in banking led to less lending. This paper's contribution lies in the identification method of the hedging instrument and the hedged asset, which is unique to this literature.…”

Section: Resultssupporting

confidence: 89%

“…This is precisely what I find in this paper. A reduction in hedging due to regulatory uncertainty would also be broadly consistent with literature on banking regulation and how uncertainty has negative effects on bank lending (Gissler et al, 2016; Bordo et al, 2016), contributing to growing importance on a banking perspective on effects of economic policy uncertainty (Baker et al, 2016; Bonaime et al, 2016; Brogaard & Detzel, 2015; Giavazzi & McMahon, 2012; Koijen et al, 2016) on the economy.…”

Section: Literature Review and Discussionsupporting

confidence: 83%

“…Uncertainty in banking regulations has already shown to have detrimental effects on lending. For instance, Gissler et al (2016) looks at the period of uncertainty in mortgage regulations from 2011 to 2014 and documents its negative effects on bank lending at the firm level. Banks reaction towards uncertainty is in line with Hendricks et al (2016) who found that banks anticipate and adjust to regulatory uncertainty in real‐time.…”

Section: Discussionmentioning

confidence: 99%

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Disproportionate costs of uncertainty: Small bank hedging and Dodd‐Frank

Kim

2021

Journal of Futures Markets

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Uncertainty in banking regulation may impose widespread economic costs by increasing financial constraints on credit availability. Four years of Dodd‐Frank uncertainty over undecided risk weightings increased regulatory uncertainty for smaller banks, restricting “vanilla” interest rate hedging activities. This paper uses newly reported mortgage banking data as an identification strategy and finds that when costs of uncertainty are removed, small banks hedge 97%–120% more interest rate risk while mortgage securitization income increases by 65.2% compared to large banks. These findings support the need for tailored regulations that consider the higher costs of regulatory uncertainty for smaller banks.

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Section: Resultssupporting

confidence: 89%

Section: Literature Review and Discussionsupporting

confidence: 83%

Section: Discussionmentioning

confidence: 99%

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Disproportionate costs of uncertainty: Small bank hedging and Dodd‐Frank

Kim

2021

Journal of Futures Markets

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“…In other words, one can reasonably expect that an increase in EPU would have a negative impact on the activeness of entrepreneurial activities. This expectation could actually be confirmed by the fact that a higher EPU usually has an adverse influence on the credit supply tightening, thereby entrepreneurial activities (Gissler et al, 2016). Such context, increasing the financial constraints and creating entry barriers for entrepreneurs has been observed in Oman (Magd & McCoy, 2014) and Greece (Markatou, 2015), for instance.…”

Section: Literature Reviewmentioning

confidence: 91%

Economic Policy Uncertainty and Entrepreneurship: A Bad for a Good?

Nguyen

Schınckus

Nguyen

et al. 2021

The Journal of Entrepreneurship

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The study examines the influences of the global/domestic economic policy uncertainty (EPU) on entrepreneurship in a sample of 23 economies over the period 2006–2016. Employing the two-step system General Method of Moment estimation for unbalanced panel data, our study provides surprising evidence, indicating that EPU may not always be harmful to entrepreneurship. Precisely, in contrast with existing literature emphasising the negative impact of the uncertainty on entrepreneurship, our article suggests that EPU seems to boost pro-entrepreneurial social and cultural norms (i.e., encouraging actions for creation of new businesses). As such, we suggest that uncertainty may serve as an exogenous shock, filtering ‘good’ business ventures from ‘not-so-good’ ones.

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“…Following this line of thought, Alessandri and Panetta (2015) show that an increase in the EPU of Baker et al (2016) predicts a tightening in the credit standards reported in the ECB's bank lending survey. Finally, Gissler et al (2016), Valencia (2016), and Bordo et al (2016) document a negative relationship between uncertainty and bank lending in the US.…”

Section: Robustness Tests With Volatility and Uncertaintymentioning

confidence: 95%

The Financial Accelerator in the Euro Area: New Evidence Using a Mixture VAR Model

2020

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We estimate a logit mixture vector autoregressive model describing monetary policy transmission in the euro area over the period 2003Q1-2019Q4 with a special emphasis on credit conditions. With the help of this model, monetary policy transmission can be described as mixture of two states (e.g., a normal state and a crisis state), using an underlying logit model determining the relative weight of these states over time. We show that shocks to the credit spread and shocks to credit standards directly lead to a reduction of real GDP growth, whereas shocks to the quantity of credit are less important in explaining growth fluctuations. Credit standards and the credit spread are also the key determinants of the underlying state of the economy in the logit submodel. Together with a more pronounced transmission of monetary policy shocks in the crisis state, this provides further evidence for a financial accelerator in the euro area. Finally, the detrimental effect of credit conditions is also reflected in the labor market.

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Lending on Hold: Regulatory Uncertainty and Bank Lending Standards

Cited by 11 publications

References 17 publications

Disproportionate costs of uncertainty: Small bank hedging and Dodd‐Frank

Disproportionate costs of uncertainty: Small bank hedging and Dodd‐Frank

Economic Policy Uncertainty and Entrepreneurship: A Bad for a Good?

The Financial Accelerator in the Euro Area: New Evidence Using a Mixture VAR Model

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