Strategic Communication among Banks
(with Christian Bittner, Falko Fecht und Farzad Saidi)

Journal of Financial Economics (forthcoming)

How do bank networks facilitate information flows that shape market outcomes? Using international banks’ advisory activities in corporate takeovers as their source of private information, we show in supervisory data that banks with closer ties to the target, but not the acquirer, advisor trade profitably in the target’s stock prior to the deal announcement. This trading behavior is associated with a higher premium paid without compromising deal success. As connected banks’ incentives are aligned only with target shareholders’ interests, which are represented by the target advi- sor, our evidence suggests that economic incentives determine which banks share information and with whom.

COVID-19 and the Fragmentation of the European Interbank Market

Bundesbank Discussion Paper No 07/2024

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.