Outline part 1 Empirics

I. Some descriptives of
a) Euro area financial institutions
b) Belgian financial institutions
II.Shadow banking
III.Are bank loans special?

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I. Some descriptives of
a) Euro area financial institutions
b) Belgian financial institutions

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Source: ECB, statistical warehouse

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NBB,Source: FSR,
Financial 2019 Review 2022
Stability

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 held by Belgian Banks

NBB, Financial Stability Review 2022

Source: FSR, 2019

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Source: FSR, 2019

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Source: FSR, FSR
20192022

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Source: FSR, 2019 FSR 2022

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Source: ESRB, 2022
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II. Shadow banking
a) Definition
b) Some descriptives

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II. Shadow banking
a) Definition:
Pozsar et al (FRBNY 2010)“Shadow banks are financial
intermediaries that conduct maturity, credit, and liquidity
transformation without explicit access to central bank
liquidity or public sector credit guarantees.”

Plantin (RFS 2015) “nexus of financial institutions that

perform the function of traditional banks by financing
loans with the issuance of money-like liabilities while
not being subject to the prudential regulation of banks.”
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b) Some descriptives for Belgium and EU

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c) Some descriptives from FSB

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c) Some descriptives from FSB

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III. Event study methodology and application to
banking : Are banks special?

Based on Chapter 2 of Degryse, Kim and Ongena

(DKO 2009)
 Cumulative Abnormal Returns

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rjt   j   j rmt   jk  jkt   jt
k  20

e. g .CAR ( 1,1)  ˆ j , 1  ˆ j ,0  ˆ j , 1

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 Are bank loans special?

1. Event study of bank loan announcements on

shareholder wealth
A) SOME EVIDENCE ON THE UNIQUENESS OF BANK
LOANS (James (1987))
 Question: does announcement of a bank loan
affect the value of a firm differently than the
announcement of public straight debt or privately
placed debt?
• a positive abnormal price reaction indicates that the action of taking a
bank loan improves shareholder wealth

James (JFE 1987) 19

 Are bank loans special?

 How: he compares stock price reaction to announcements of both privately

placed and publicly placed issued debt
 He finds that bank loan announcements are associated with positive and
statistically significant stock price reactions, while announcements of
privately placed debt and public issues of debt experience zero or negative
stock price reactions.
 Procedure:
 US data for 300 firms
 Period 1974-83: looks for all public straight debt offerings for cash, private
placements of debt and bank borrowing agreements that were not
contaminated.
 Bank loan agreements are new and renewals

James (JFE 1987) 20

 Are bank loans special?

 How: he compares stock price reaction to announcements of both privately

placed and publicly placed issued debt
 He finds that bank loan announcements are associated with positive and
statistically significant stock price reactions, while announcements of
privately placed debt and public issues of debt experience zero or negative
stock price reactions.
 Procedure:
 US data for 300 firms
 Period 1974-83: looks for all public straight debt offerings for cash, private
placements of debt and bank borrowing agreements that were not
contaminated.
 Bank loan agreements are new and renewals

James (JFE 1987) 21

 Are bank loans special?

 Methodology: Look at abnormal returns around event date

James (JFE 1987) 22

 Are bank loans special?

 Results: tables 4 and 5 of James



James (JFE 1987) 23

 Are bank loans special?

 Results: table 4 and 5 of James

James (JFE 1987) 24

 Are bank loans special?

B) Refinements:

 Differentiating between first announcements and renewals of loans

• Lummer and McConnell (JFE1989) find the positive abnormal return only for renewals of loans;
other studies do not find this difference (e.g. Billett, Flannery and Garfinkel (JF1995))

 Look at bank quality and effect on abnormal positive return (Billett, Flannery
and Garfinkel (JF 1995))
• Conjecture: loans from high quality banks are more likely to be viewed as positive news than
loans from low quality lenders (use rating of banks)

• Find evidence that supports this.

James (JFE 1987) 25

 Are bank loans special?

C) Overview loan announcement studies. Table 2.1 of DKO

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Are bank loans special?

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 Are bank loans special?

2. Bank Distress/merger announcements

 Impact of bank distress on firms

• If firms can easily substitute the “relationship” with the distressed bank,
firms should not experience negative abnormal returns
• In contrast, when banks are special, we should expect that bank
distress announcements may generate negative abnormal returns for
bank-dependent borrowers

 Empirical analysis:
• E.g., Slovin, Sushk and Polenchek (JF1993) study the insolvency of
Continental Illinois bank on CARs of its borrowers.
• They find a -416 basispoints CAR upon the insolvency announcement and
a +200bp CAR upon the announcement of the FDIC rescue
• Other studies – see table 2.2 in DKO

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Table 2.2
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 Are bank loans special?

3. Impact of bank distress on long-run firm performance

 Most studies find that bank distress also generates negative effects on
bank-dependent borrowers, i.e., lower investment, lower growth
 For an overview, see table 2.3 in DKO

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