Tougher than the rest? The resilience of specialized financial intermediation to macroeconomic shocks

Manuel Molterer

The Quarterly Review of Economics and Finance, 2019, vol. 74, issue C, 163-174

Abstract: This paper uses a unique and comprehensive dataset comprised of 41 years of detailed banking data from the German building society industry to provide empirical evidence of the resilience of specialized financial intermediation (SFI) to macroeconomic shocks. Compared to studies on the German banking industry, we show that SFI is extremely stable despite generally less diversified revenue streams. We are also able to illustrate the impact of various economic conditions and cycles on the interactions between the building society sector and macroeconomic development. We use a VAR approach to demonstrate that 1) macroeconomic and mortgage-specific market shocks have limited or no impact on the banking performance (return on equity) or distress (write-off) indicators, and 2) the results of previous studies showing that financial rewards lead to higher bank funding stability on a contractual level also hold when analyzing data on an institutional level. As much research has found, and as the recent worldwide financial crisis highlighted spectacularly, banking stability is fundamental to the overall stability of financial systems and economies as a whole. Therefore, our results contribute to the ongoing discussion of whether specialized financial intermediation can indeed lead to more stable banking systems.

Keywords: Stress testing; Macroeconomic shock; Financial intermediation; Financial stability; Building societies; Savings and loan contracts; VAR (search for similar items in EconPapers)
JEL-codes: C32 E44 G01 G21 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:74:y:2019:i:c:p:163-174

DOI: 10.1016/j.qref.2019.01.018

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