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Securities Trading by Banks and Credit Supply: Micro-Evidence

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  • Puriya Abbassi
  • Rajkamal Iyer
  • José-Luis Peydró
  • Francesc R Tous

Abstract

We analyze securities trading by banks and the associated spillovers to the supply of credit. Empirical analysis has been elusive due to the lack of securities register for banks. We use a unique, proprietary dataset that has the investments of banks at the security level for 2005-2012 in conjunction with the credit register from Germany. Analyzing data at the security level for each bank in each period, we find that during the crisis, banks with higher trading expertise increase their overall investments in securities, especially in those that had a larger price drop. The quantitative effects are largest for trading-expertise banks with higher capital and in securities with lower rating and long-term maturity. In fact, there are no differential effects for triple-A rated securities. Moreover, banks with higher trading expertise reduce their overall supply of credit in crisis times – i.e., for the same borrower at the same time, trading-expertise banks reduce lending relative to other banks. This effect is more pronounced for trading-expertise banks with higher capital, and the credit reduction is binding at the firm level. Finally, these differential effects for trading-expertise banks are not present outside the crisis period.

Suggested Citation

  • Puriya Abbassi & Rajkamal Iyer & José-Luis Peydró & Francesc R Tous, 2015. "Securities Trading by Banks and Credit Supply: Micro-Evidence," Working Papers 848, Barcelona Graduate School of Economics.
  • Handle: RePEc:bge:wpaper:848
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    References listed on IDEAS

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    Cited by:

    1. E. Chrétien & V. Lyonnet, 2017. "Traditional and Shadow Banks during the Crisis," Débats économiques et financiers 27, Banque de France.
    2. Matteo Crosignani & Miguel Faria-e-Castro & Luís Fonseca, 2016. "The (unintended?) consequences of the largest liquidity injection ever," ESRB Working Paper Series 31, European Systemic Risk Board.
    3. André Lucas & Julia Schaumburg & Bernd Schwaab, 2019. "Bank Business Models at Zero Interest Rates," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 37(3), pages 542-555, July.
    4. Dwenger, Nadja & Dr. Fossen, Frank & Dr. Simmler, Martin, 2015. "From financial to real economic crisis. Evidence from individual firm-bank relationships in Germany," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113000, Verein für Socialpolitik / German Economic Association.
    5. Nadja Dwenger & Frank M Fossen & Martin Simmler, 2015. "From financial to real economic crisis: evidence from individual firm¨Cbank relationships in Germany," Working Papers 1516, Oxford University Centre for Business Taxation.
    6. Carla Soares & Diana Bonfim & Nuno Alves, 2016. "Surviving the perfect storm: the role of the lender of last resort," Working Papers w201617, Banco de Portugal, Economics and Research Department.
    7. Sophie Steins Bisschop & Martijn Boermans & Jon Frost, 2016. "A shock to the system? Market illiquidity and concentrated holdings in European bond markets," DNB Occasional Studies 1401, Netherlands Central Bank, Research Department.
    8. Yannick Timmer, 2016. "Cyclical investment behavior across financial institutions," ESRB Working Paper Series 18, European Systemic Risk Board.
    9. José-Luis Peydró & Andrea Polo & Enrico Sette, 2017. "Monetary policy at work: Security and credit application registers evidence," Working Papers 964, Barcelona Graduate School of Economics.
    10. Timmer, Yannick, 2016. "Cyclical investment behavior across financial institutions," Discussion Papers 08/2016, Deutsche Bundesbank.
    11. Luc Laeven & Fabian Valencia, 2018. "Systemic Banking Crises Revisited," IMF Working Papers 18/206, International Monetary Fund.
    12. Wedow, Michael & Koetter, Michael & Podlich, Natalia, 2017. "Inside asset purchase programs: the effects of unconventional policy on banking competition," Working Paper Series 2017, European Central Bank.
    13. Martijn Boermans & Robert Vermeulen, 2016. "International investment positions revisited: Investor heterogeneity and individual security characteristics," DNB Working Papers 531, Netherlands Central Bank, Research Department.
    14. Turalay Kenç, 2016. "Macroprudential regulation: history, theory and policy," BIS Papers chapters,in: Bank for International Settlements (ed.), Macroprudential policy, volume 86, pages 1-15 Bank for International Settlements.

    More about this item

    Keywords

    banking; investments; bank capital; credit supply; risk-taking;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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