Information transmission between banks and the market for corporate control
(with Christian Bittner, Falko Fecht und Farzad Saidi)
Bundesbank Diskussionspapier Nr. 29/2022
CEPR Discussion Paper DP18362
ECONtribute Discussion Paper No. 250
Current Version
This paper provides evidence of deliberate private-information disclosure within banks’ international business networks. Using supervisory trade-level data, we show that banks with closer ties to a target advisor in a takeover buy more stocks of the target firm prior to the deal announcement, enabling them to benefit from the positive announcement return. We do not find such effects for bank connections to acquirer advisors or for trades in acquirer stocks. Target advisors benefit from leaking information about takeover bids to connected banks, as it drives up the final offer price without compromising the probability of bid success.
COVID-19 and the Fragmentation of the European Interbank Market
This paper provides evidence of a highly fragmented European interbank market that is tightened during the COVID-19 pandemic, when the interbank market was under stress. Using a unique dataset of unsecured, overnight interbank loans at the transactional level allows me to apply advanced panel methods. Furthermore, this paper shows liquidity hoarding during the pandemic and relationship lending as a German phenomenon. In addition, there is evidence that borrowers, who have to pay higher rates in the market are more likely to participate in tender auctions and that the COVID-19 pandemic had the greatest impact on smaller interbank borrower.
Forward Contagion
This paper provides evidence that liquidity shocks arising from central bank activities change the lending condi- tions on the interbank market. Using overnight unsecured interbank loan transaction data from the RTGSplus system of the Deutsche Bundesbank, this paper shows that if banks do not receive the liquidity they have bid for as part of a Eurosystems tender auction, they change their own lending behaviour due to the scarcity of their liquidity endowment. They increase loan spreads, decrease loan amounts, and become less likely to trade loans. Furthermore, they compensate for liquidity shocks by paying a higher rate on the market. Borrowers with a high share of loans from shocked lenders face higher borrowing costs due to spillovers. Strong relationships soften these effects.