On average, wages in the finance industry are higher compared to the rest of the economy. Two explanations suggested for this finance wage premium are (1) the positive correlation between risk-taking and wages, and (2) industry differences in information technology intensity. Using a comprehensive worker-firm panel dataset for the Netherlands, we estimate wage models with additive worker and firm fixed effects, and compute the finance wage premium as the average of the firm fixed effects in an industry. We then relate the estimated cross-section of firm fixed effects to a range of firm characteristics, and find that information technology investment, the average level of educational attainment at a firm, and the complementarity of the two are the main drivers of the finance wage premium, while firm risk only makes a small contribution.

Using global share ownership data from 2002 to 2021, we find that investors' aggregate carbon sensitivity, i.e., their tendency to divest from more polluting firms, increases with per capita GDP, especially after the adoption of the Paris Agreement in 2015. As an implication, investors in higher-income countries are predicted to hold greener portfolios, which is borne out by the data. Especially investment managers, who invest on behalf of their clients, and investors with longer investment horizons contribute to the portfolio greening effect of economic development. We find that this effect is weaker for smaller firms and for firms that are included in the MSCI World index.

After the removal of geographic restrictions on branching in 2006, China's city commercial banks (CCBs) can apply for permission to branch outside their province. This paper shows that CCBs report a higher provision coverage ratio (PCR) before filing an application, thereby making the bank look safer to regulators. Our finding is robust to controlling for possible endogeneity of the branching application decision by employing propensity score matching estimators, and it is confirmed when we consider a quasi-natural experiment of deregulation reversal. Tests of the dynamic effects show evidence of reversals in PCR adjustment after applications. Higher PCR before branching applications cannot be explained by alternative rationales for manipulating loan loss reserves such as fundamental provisions, earnings management, capital management, and market signaling. Window dressers receive more supervisory penalties after filing applications relative to other branching banks. Our finding of window dressing in response to bank branching regulation confirms Goodhart's insight that when a regulatory metric becomes a target, it ceases to be a good measure.

This paper examines the impact of international differences in capital regulation on multinational banks' loan origination location decisions. International loan location decisions represent a key banking margin that has previously not been examined in the literature on regulatory arbitrage by banks. Our estimation relies on within-loan contribution variation in location options for individual multinational banks that participate in a syndicated loan. We examine how the loan location choice and the intensity of regulatory arbitrage are affected by borrower transparency. We find that greater borrower transparency to a local bank establishment makes loan location at this establishment more likely, and that regulatory arbitrage is more intense in the case of more transparent borrowers.

This paper finds that shareholders of highly leveraged firms benefit relatively less com-pared to bondholders from the corporate QE announcements by the ECB and the Bank of England, 2020, as evidence of debt overhang. Firms more heavily impacted by the pan-demic gain less from corporate QE, which could also reflect debt overhang. The monetary and fiscal responses to the pandemic are complements in the sense that a stronger pandemic-related fiscal response and higher pre-announcement sovereign CDS spreads enhance the positive effects of corporate QE on equity and debt valuations. (c) 2023 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).

This paper utilizes a comprehensive worker-firm panel for the Netherlands to quantifythe impact of ICT capital-skill complementarity on the finance wage premium after the Global Financial Crisis. We apply additive worker and firm fixed-effect models to account for unobserved worker- and firm-heterogeneity and show that firm fixed-effects correct for a downward bias in the estimated finance wage premium. Our results indicate a sizable finance wage premium for both fixed- and full-hourly wages. The complementarity between ICT capital spending and the share of high skill workers at the firm-level reduces the full-wage premium considerably and the fixed-wage premium almost entirely.

This paper examines how the capital structure of non-financial firms is affected by international variation in bank regulation. A concise model yields an estimating equation that relates a firm's capital structure to bank regulatory variables and their interactions with the tax rate reflecting the tax deductibility of interest. We identify an effect of bank regulation on leverage by considering establishments of the same multinational firm located in different countries. Our results indicate that capital regulation stringency and official supervisory power are negatively related to firm leverage, while restrictions on non-lending activities and on financial conglomerates vary positively with firm leverage. High tax rates mitigate these effects.

This paper provides evidence on how bank performance and strategies vary with the degree of bank internationalization using data for 113 countries during 2000–15. Bank internationalization is associated with lower valuations and lower returns on equity. After the global financial crisis, international banks were revalued particularly if they had stable funding in the form of deposits and if they had more generous deposit insurance coverage. For international banks headquartered in developing countries, bank internationalization is related negatively with the cyclicality of their domestic credit growth with respect to home country GDP growth, smoothing local downturns. In contrast, if the international bank is from a high-income country investing in a developing country, its subsidiary bank lending is relatively procyclical, which can be destabilizing.

This paper examines the impact of capital income taxation on the composition of foreign portfolio investment. Studying bilateral portfolio positions among a sample of 37 countries over the period 2001-2015, we find that capital gains and dividend taxation reduce the share of equities in foreign investments, while interest taxation increases this share. The results suggest that domestic capital income taxation affects the worldwide asset allocation of domestic investors. The estimated tax sensitivities imply a significant increase in country's external wealth following a tax policy change that stimulates investors to hold higher-yielding equity investments.

After the removal of geographic restrictions on branching in 2006, China’s city commercial banks (CCBs) can apply for permission to branch outside their province. This paper shows that CCBs report higher loan loss provisions before filing an application, thereby increasing the provision coverage ratio of nonperforming loans and making the bank look safer to regulators.Our finding is robust to controlling for possible endogeneity of the branching application decision by employing propensity score matching estimators, and it is confirmed when we consider a quasi-natural experiment of deregulation reversal.

Using an event study methodology, this paper examines how European firms have been affected by the announcement of the Pandemic Emergency Purchase Program (PEPP) of the ECB. Firms with an investment-grade rating benefit relatively more as evidenced by higher share prices and lower CDS spreads, which reflects that the ECB is restricted to purchasing investment-grade corporate debt securities. The gains to shareholders relative to the total gains of shareholders and debtholders are negatively related to firm leverage, consistent with the existence of debt overhang. Firms more heavily impacted by the pandemic benefit relatively little from the PEPP, which could reflect that the business models of some of these firms are heavily damaged by the pandemic. Monetary policy in the form of the PEPP and national fiscal responses to the pandemic are shown to be complements in the sense that a strong pre-PEPP fiscal response enhances the potential for the PEPP to positively affect equity and debt valuations.

This paper examines how the sensitivity of cross-border syndicated loan supply varies with the internationalization of borrower country banking sectors, banks and loan syndicates. A higher foreign bank presence in borrower countries mitigates the transmission of monetary policy. Prior lending experience of international banks in borrower countries also attenuates monetary transmission. In contrast, to the extent they become more international, the credit supply of banks and loan syndicates becomes more sensitive to lender-country monetary policy.

This paper examines how the ECB should respond to the currently low profitability of significant banks in the Banking Union. The subdued profitability appears to be a structural problem caused by overbanking, with too many bank assets chasing too few profitable banking sector opportunities. To address the root problem of overbanking, the ECB should use its existing supervisory powers to require significant banks with unsustainably low profitability to restructure reducing their overall size. This document was provided by the Economic Governance Support Unit at the request of the ECON Committee.

This paper investigates how international regulatory and institutional differences affect lending in the cross-border syndicated loan market. Lending provided through a foreign subsidiary is subject to subsidiary-country regulation and institutional arrangements. Multinational banks' choices between loan origination through the parent bank or through a foreign subsidiary provide information about these banks' preferences to operate in countries with varying regulations and institutions. The results indicate that international banks have a tendency to switch loan origination toward countries with less stringent bank regulation and supervision consistent with regulatory arbitrage, but that they prefer to originate loans in countries with higher-quality institutions related to financial market monitoring, creditor rights, and the speed of contract enforcement.

Loan loss provisions in the euro area are negatively related to GDP growth, i.e., they are procyclical. Loan loss provisions tend to be more procyclical at larger and better capitalized banks. The procyclicality of loan loss provisions can explain about two-thirds of the variation in bank capitalization over the business cycle. We estimate that provisioning procyclicality in the euro area is about twice as large as in other advanced economies. This difference reflects a larger procyclicality of provisioning in euro area countries already prior to euro adoption and the divergent growth experiences of euro area countries following the global financial crisis.

We find that shareholder-friendly corporate governance is associated with higher stand-alone and systemic risk in the banking sector. Specifically, shareholder-friendly corporate governance results in higher risk for larger banks and for banks that are located in countries with generous financial safety nets as banks try to shift risk toward taxpayers. We confirm our findings by comparing banks to nonfinancial firms and examining changes in bank risk around an exogenous regulatory change in governance. Our results underline the importance of the financial safety net and too-big-to-fail guarantees in thinking about corporate governance reforms at banks.

On August 31 2018, a Joint Working Group consisting of representatives of the European Central Bank, the European Commission and the European Supervisory Agencies published a document entitled ‘Reflection paper on possible elements of a Roadmap for seamless cooperation between Anti Money Laundering and Prudential Supervisors in the European Union’. The reflection paper straightforwardly calls for additional resources to be made available to the European Banking Authority to counter money laundering. Suggestions for better cooperation and information sharing among anti-money laundering and prudential supervisors, however, risk being ineffective, as long as the underlying incentives to engage in international regulatory competition towards low enforcement of anti-money laundering standards are not addressed. To eliminate the potential for regulatory competition, anti-money laundering supervision needs to be raised to a European level.