Santiago Carbo-Valverde

Trade Credit, the Financial Crisis, and SME Access to Finance

Mounting evidence indicates that firms, particularly SMEs, suffered from a significant credit crunch during this crisis. We analyze for the first time whether trade credit provided an alternative source of external finance to SMEs during the crisis. Using firm‐level Spanish data we find that credit constrained SMEs depend on trade credit, but not bank loans, and that the intensity of this dependence increased during the financial crisis. Unconstrained firms, in contrast, are dependent on bank loans but not on trade credit.

The Economics of Credit Cards, Debit Cards and Atms: A Survey and Some New Evidence

This paper provides a critical survey of the large and diffuse literature on credit cards, debit cards and ATMs. We argue that because there are still many outstanding issues and questions about the pricing, use and substitutability of these payment mechanisms, that there are significant further opportunities for research in these areas. A large number of questions are examined in this survey, including the pricing of credit cards, the impact of networks on the provision and pricing of ATMs, as well as the tradeoffs that consumers make between different types of payment mechanism, including debit cards, credit cards and ATMs. Importantly, this paper is also amongst the first to provide new evidence on this latter question from bank level data (from Spain). We conclude that point of sale (debit card) and ATM transactions are substitutes, and that ATM surcharges impacts point of sale volume significantly.

Safety-net benefits conferred on difficult-to-fail-and-unwind banks in the US and EU before and during the great recession

This paper investigates the links between regulatory arbitrage, financial instability, and taxpayer loss exposures. We model and estimate ex ante safety-net benefits from increased leverage and asset volatility at a sample of large banks in US and Europe during 2003–2008. Hypothesis tests indicate that, in both crisis and precrisis years, difficult-to-fail-and-unwind (DFU) banks enjoyed substantially higher ex ante benefits than other institutions. Compared to the US sample, safety-net benefits prove significantly larger for DFU firms in Europe and bailout decisions are less driven by asset size. Introducing a proxy for differences in government susceptibility to regulatory capture helps to explain bailout decisions in Europe. Our findings suggest that authorities in both venues could better contain safety-net benefits if they refocused their information systems on monitoring volatility as well as capital.

Are Covered Bonds a Substitute for Mortgage-Backed Securities?

Given the problems in the mortgage-backed securities (MBS) market during the financial crisis, some suggest that covered bonds (CB) might be a substitute for MBS. This could lead to a number of policy alternatives in countries where regulation and business have been mainly leaning to one of these types of securities. Examining the use of CB and MBS in the U.S. and Europe, we find that the two often seem to be used for different purposes. Banks are more likely to use CB when they have liquidity needs while MBS are associated with risk management and agency problems. Introducing MBS to markets where only CB are common or CB to markets where only MBS are common could have large effects.

Regulating Two-Sided Markets: An Empirical Investigation

We study the effect of government encouraged or mandated interchange fee ceilings on consumer and merchant adoption and usage of payment cards in an economy where card acceptance is far from complete. We believe that we are the first to use bank-level data to study the impact of interchange fee regulation. We find that consumer and merchant welfare improved because of increased consumer and merchant adoption leading to greater usage of payment cards. We also find that bank revenues increased when interchange fees were reduced although these results are critically dependent on merchant acceptance being far from complete at the beginning and during the implementation of interchange fee ceilings. In addition, there is most likely a threshold interchange fee below which social welfare decreases although our data currently does not allow us to quantify it. JEL Classification: L11, G21, D53

Lending Relationships and Credit Rationing: The Impact of Securitization

Do lending relationships mitigate credit rationing? Does securitization influence the impact of lending relationships on credit rationing? If so, is its impact differently in normal periods versus crisis periods? This paper combines several unique data sets to address these questions. Employing a disequilibrium model to identify credit rationing, we find that more intense lending relationships, measured through their length and lower number, considerable improve credit supply and reduce the degree of credit rationing. In general, we find that a relationship with a bank that is more involved in securitization activities relaxes credit constraints in normal periods; however, it also increases credit rationing during crisis periods. Finally, we study the impact of different types of securitization – covered bonds and mortgage-backed securities (MBS) – on credit rationing. While both types of securitization reduce credit rationing in normal periods, the issuance of MBS by a firm’s main bank aggravates these firm’s credit rationing in crisis periods.

Trust in Banks: Evidence from the Spanish Financial Crisis

In this article we assess the economic problem of trust in banks employing unique survey evidence from Spanish bank customers. Almost no studies have been able to evaluate the impact of bank customers´ perceptions about banks on trust in the financial system, controlling simultaneously for the underlying levels of general distrust. In order to fill in this gap, we study the potential impact of factors that might determine the level of trust in banks and analyse the effects of the perception of the 2007 financial crisis by bank customers. Allowing for bank customer heterogeneity and controlling for general distrust, we show that trust in banks is mainly affected by bank customers assessment of several performance characteristics and attributes of banks. Our results suggest that for the sub-population of bank customers with neutral levels of general distrust – who also consider that Spanish banks are changing their behaviour for the worse – an increase in banks sensitivity towards customers problems and banks commitment to their customers would increase their probability of trusting banks by 34.7% and 34%, respectively.

Feedback Loop Effects in Payment Card Markets: Empirical Evidence

While some studies have assumed that mature and well-established platforms do not exhibit feedback loop effects, other recent contributions have suggested that these effects may exist. Using a unique database that provides detailed information on both cardholder and merchant sides of the Spanish payment card market, we find empirical evidence of feedback loop effects. We also offer some evidence on the relative value that consumers (merchants) place on network characteristics such as the degree of merchant acceptance (cardholder adoption) and prices.

Regulatory response to the financial crisis in Europe: recent developments (2010-2013)

The purpose of this paper by the European Shadow Financial Regulatory Committee is to provide an account of the financial crisis in Europe during the period 2010–2013 and an analysis of how the relevant authorities reacted to the crisis. These actions included measures taken by central banks, governments or fiscal authorities, and by regulatory or supervisory bodies. In a previous study covering the regulatory developments during the financial crisis up until 2009, issues such as the implementation of Basel 3 rules in Europe and the (mostly ad hoc and unilateral) resolution mechanisms set in most European countries to fight the crisis were covered. This study focuses on developments that since 2010 and, in particular, the concerns and actions that emerged with the sovereign debt crisis in the euro area. In particular, the transition from the European Financial Stability Facility (EFSF) to the European Stability Mechanism (ESM) is assessed. Following these institutional developments, the focus after 2012 has progressively turned to the agreements and remaining challenges of the European banking union. These issues are jointly covered, along with some updates on the views of the ESFRC on recent advances in other areas, such as solvency regulation. All in all, we find that of the weaknesses of the global financial system remain to be addressed, and we believe that the banking union is one of the main tools and opportunities for an improved and efficient crisis management in Europe.

The Relationship between Mortgage Credit and Property Prices: The Chinese Case

Over the past decade, both the mortgage market and real estate sector have experienced a dramatic growth. The current financial crisis, which started in 2008 and significantly affecting the whole banking industry, has been attributed largely to the excessive growth of the mortgage and property markets. It started with the US subprime mortgage meltdown, but other countries (principally Ireland and Spain) experienced similar problems. The rapid growth of real estate prices and mortgage loans was extensively documented across many countries. (Wolswijk, 2006; Miles and Pillonca, 2008). In an international context, bank lending and property prices have a strong correlation . This stylized fact is supported by abundant cross-country evidence (Egert and Mihaljek, 2007; Lacoviello and Minetti, 2008; Goodhart and Hofmann, 2008; Davis and Zhu, 2010), as well as the indications from individual countries such as the USA (Capozza et al., 2002), Spain (Gimeno and Martinez-Carrascal, 2006; Carbo-Valverde and Francisco Rodriguez, 2010) and Ireland (Fitzpatrick and McQuinn, 2007). China has also witnessed rapid growth in the real estate industry. The percentage of real estate investment to GDP rose sharply, from 5 per cent in 1999 to 12 per cent in 2010 (see Figure 2.1). Meanwhile we also document the soaring property prices and the mortgage credit boom in the domestic market. At the same time, China experienced a substantial reform in both the banking and the mortgage financing systems.