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Markus Behn

Macro Prud Policy&Financial Stability

Division

Macroprudential Policy

Current Position

Team Lead - Financial Stability

Fields of interest

Financial Economics

Email

Markus.Behn@ecb.europa.eu

Education
2009-2014

PhD in Economics, Bonn Graduate School of Economics

2009-2011

MSc in Economics, Bonn Graduate School of Economics

2006-2009

BSc in Economics, University of Münster & University of Strathclyde

Professional experience
2021-

Team Lead - Macroprudential Policy Division, European Central Bank

2017-2021

Team Lead - Financial Regulation and Policy Division, European Central Bank

2014-2017

Financial Stability Expert - Macro-Financial Policies Division, European Central Bank

2013-2014

Economist - Banking Supervision and Research Department, Deutsche Bundesbank

Teaching experience
2014

Finance I (MSc) - University of Saarbrücken

2011-2013

Empirical Banking & Securitization (MSc) - University of Bonn

6 December 2023
MACROPRUDENTIAL BULLETIN - FOCUS - No. 23
Details
Abstract
This box aims at contributing to the discussion on creating more macroprudential space via a higher amount of releasable capital buffers by proposing a simple and broad quantitative indicator to measure effective macroprudential space which takes into account that releasable buffers might be constrained by overlapping parallel capital requirements. The indicator is defined as a measure of effective releasability of capital buffers, expressed as a percentage of banks’ risk weighted assets. The box further highlights both conceptual and practical implication of considering capital overlaps when assessing macroprudential space for macroprudential authorities.
JEL Code
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
18 August 2023
WORKING PAPER SERIES - No. 2841
Details
Abstract
We analyse the impact of the adoption of expected credit loss accounting (IFRS 9) on the timeliness and potential procyclicality of banks’ loan loss provisioning. We use granular loan-level data from the euro area’s credit register and investigate both firm-level credit events and macroeconomic shocks (2020 COVID-19 pandemic, 2022 energy price shock). We find that provisions under the new standard are higher before default and more responsive to shocks. However, the majority of provisioning still occurs at the time of default and the dynamics around default events are similar to pre-existing national standards. Additionally, banks with a larger capital headroom provision significantly more, particularly for loans using IFRS 9. This suggests a higher risk of underprovisioning for less capitalized banks.
JEL Code
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill
3 July 2023
MACROPRUDENTIAL BULLETIN - ARTICLE - No. 22
Details
Abstract
This article discusses the role of macroprudential policy in the current environment. Although the euro area financial cycle is turning, banks remain profitable, vulnerabilities are still elevated, and financial stability risks have not yet materialised. Against this backdrop, macroprudential policy should not be loosened but should instead focus on preserving the resilience of banks and borrowers.
JEL Code
G01 : Financial Economics→General→Financial Crises
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G38 : Financial Economics→Corporate Finance and Governance→Government Policy and Regulation
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
31 May 2023
FINANCIAL STABILITY REVIEW - BOX
Financial Stability Review Issue 1, 2023
Details
Abstract
This box uses loan-level data from AnaCredit to examine the impact of IFRS 9 on provisioning dynamics around credit events and the role of accounting discretion. The results indicate that provisions for a performing IFRS 9 loan are higher than those for a comparable loan reported under national accounting standards, while the dynamics of provisioning ratios around credit events are similar under both approaches. Specifically, the bulk of provisioning occurs at the time of, or shortly after, default under both approaches, which suggests that IFRS 9 has not fundamentally changed provisioning patterns. Moreover, provisioning patterns for IFRS 9 loans around default events depend on banks’ capital headroom, with better capitalised banks generally provisioning more. This is consistent with banks with less capital using accounting discretion to provision less to preserve their capital. While it is difficult to arrive at firm conclusions on the overall adequacy of current provisions, banks with less capital headroom may be at greater risk of being under-provisioned, possibly due in part to the discretion offered by IFRS 9.
JEL Code
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill
26 April 2023
MACROPRUDENTIAL BULLETIN - ARTICLE - No. 21
Details
Abstract
This article discusses the possible implementation of a positive neutral rate for the countercyclical capital buffer (CCyB) as a means of increasing macroprudential policy space in the European banking union. Drawing on experience from the coronavirus (COVID-19) pandemic, it explains why a positive neutral rate is needed to enhance the effectiveness of the current macroprudential framework. It also describes recent progress on the application of this tool around the globe and concludes with some remarks on the calibration and potential future application of the tool in the banking union.
3 February 2023
WORKING PAPER SERIES - No. 2771
Details
Abstract
This paper investigates both the magnitude and the drivers of bank window dressing behaviour in euro-denominated repo markets. Using a confidential transaction-level data set, our analysis illustrates that banks engineer an economically sizeable contraction in their repo transactions around regulatory reporting dates. We establish a causal link between these reductions and banks’ incentives to window dress and document the role of the leverage ratio and the G-SIB framework as the most relevant drivers of window dressing behaviour. Our findings suggest that regulatory action is warranted to limit banks’ ability to window dress.
JEL Code
C23 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Panel Data Models, Spatio-temporal Models
G14 : Financial Economics→General Financial Markets→Information and Market Efficiency, Event Studies, Insider Trading
G18 : Financial Economics→General Financial Markets→Government Policy and Regulation
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
10 October 2022
MACROPRUDENTIAL BULLETIN - ARTICLE - No. 19
Details
Abstract
Macroprudential measures can effectively support the resilience of households and banks and help tame the build-up of residential real estate (RRE) vulnerabilities. By capping the riskiness of new loans, borrower-based measures contribute to moderating RRE vulnerabilities in the short-term and to increasing the resilience of households over the medium term. By inducing banks to use more equity financing, capital-based measures increase bank resilience in the short and medium term but are unlikely to have a significant dampening effect on RRE vulnerabilities during the upswing phase of a financial cycle. The two categories of measures are mainly complementary and many European countries have therefore implemented them in combination in recent years.
JEL Code
G01 : Financial Economics→General→Financial Crises
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
R38 : Urban, Rural, Regional, Real Estate, and Transportation Economics→Real Estate Markets, Spatial Production Analysis, and Firm Location→Government Policy
10 October 2022
MACROPRUDENTIAL BULLETIN - ARTICLE - No. 19
Details
Abstract
Credit-fuelled real estate booms can pose financial stability risks due to the important direct and indirect links between real estate markets, the economy and the financial system. Different types of macroprudential policy tools can be used to increase resilience to financial stability risks from residential real estate (RRE) markets. Borrower-based tools put a cap on the risk characteristics of new loans, while capital-based tools increase the loss absorption capacity of banks. The ECB, together with the national authorities, has an important role to play in shaping the macroprudential policy response to RRE risks in the euro area.
JEL Code
G01 : Financial Economics→General→Financial Crises
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G38 : Financial Economics→Corporate Finance and Governance→Government Policy and Regulation
G51 : Financial Economics
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
R38 : Urban, Rural, Regional, Real Estate, and Transportation Economics→Real Estate Markets, Spatial Production Analysis, and Firm Location→Government Policy
25 May 2022
FINANCIAL STABILITY REVIEW - BOX
Financial Stability Review Issue 1, 2022
Details
Abstract
This box discusses the transmission mechanisms of macroprudential capital measures and offers important lessons for the assessment of their effectiveness and the design of the capital buffer framework. First, building capital buffers during good times will be effective in increasing banking system resilience, but the muting effect on the build-up of financial imbalances is likely to be limited as bank capital constraints are not usually binding in good times. Second, the economic cost of building capital buffers is also likely to be low when the economy is experiencing an upswing or when banking sector conditions are favourable. Third, the availability and release of capital buffers during crises can effectively support credit supply and economic activity by alleviating potential bank capital constraints when losses materialise. Therefore, enhancing the role of releasable capital buffers within the macroprudential framework and building them up when times are good appears to be a robust policy strategy.
JEL Code
G01 : Financial Economics→General→Financial Crises
E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
19 October 2020
MACROPRUDENTIAL BULLETIN - ARTICLE - No. 11
Details
Abstract
This article discusses capital buffer usability in the Basel III framework. Although buffers are intended to be used in a crisis, a number of factors can prevent banks from drawing them down in case of need, with potentially adverse effects for the economy. The article reviews the functioning of the framework in the COVID-19 crisis and outlines possible implications for future policy design.
JEL Code
G01 : Financial Economics→General→Financial Crises
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
7 October 2020
WORKING PAPER SERIES - No. 2479
Details
Abstract
This paper uses granular data on syndicated loans to analyse the impact of international reforms for Global Systemically Important Banks (G-SIBs) on bank lending behaviour. Using a difference-in-differences estimation strategy, we find no effect of the reforms on overall credit supply, while at the same time documenting a substantial decline in borrower- and loan-specific risk factors for the affected banks. Moreover, we detect a significant decline in the pricing gap between interest rates charged by G-SIBs and other banks, which we interpret as indirect evidence for a reduction in funding cost subsidies. Overall, our results suggest that the G-SIB reforms have helped to mitigate moral hazard problems associated with systemically important banks, while the consequences for the real economy have been limited.
JEL Code
G20 : Financial Economics→Financial Institutions and Services→General
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
Network
Research Task Force (RTF)
29 October 2019
MACROPRUDENTIAL BULLETIN - ARTICLE - No. 9
Details
Abstract
The post-crisis regulatory framework introduced multiple requirements on banks’ capital and liquidity positions, sparking a discussion among policymakers and academics on how the various requirements interact with one another. This article contributes to the discussion on the interaction of different regulatory metrics by empirically examining the interaction between the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR) for banks in the euro area. The findings suggest that the two liquidity requirements are complementary and constrain different types of banks in different ways, similarly to the risk-based and leverage ratio requirements in the capital framework. This dispels claims that the LCR and the NSFR are redundant and underlines the need for a faithful and consistent implementation of both measures (and the entire Basel III package more broadly) across all major jurisdictions, to maintain a level playing field at the global level and to ensure that the post-crisis regulatory framework delivers on its objectives.
JEL Code
G01 : Financial Economics→General→Financial Crises
G18 : Financial Economics→General Financial Markets→Government Policy and Regulation
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
29 July 2019
WORKING PAPER SERIES - No. 2298
Details
Abstract
This paper illustrates that systemically important banks reduce a range of activities at year-end, leading to lower additional capital requirements in the form of G-SIB buffers. The effects are stronger for banks with higher incentives to reduce the indicators, and for banks with balance sheet structures that can more easily be adjusted. The observed reduction in activity may imply an overall underestimation of banks' systemic importance as well as a distortion in their relative ranking, with implications for banks' ability to absorb losses. Moreover, a reduction in the provision of certain services at year-end may adversely affect overall market functioning.
JEL Code
G20 : Financial Economics→Financial Institutions and Services→General
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
31 January 2019
WORKING PAPER SERIES - No. 2233
Details
Abstract
We develop a dynamic structural model of bank behaviour that provides a microeconomic foundation for bank capital and liquidity structures and analyses the effects of changes in regulatory capital and liquidity requirements as well as their interaction. Our findings suggest that adjustments in both types of requirements can have an impact on loan supply, with considerable heterogeneity across banks and over time. The model illustrates that banks' reactions depend on initial balance sheet conditions and reconciles evidence on short-term reductions in loan supply with findings suggesting that better capitalized banks are better able to lend in the medium- to long-term.
JEL Code
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill
Network
Research Task Force (RTF)
2 October 2018
MACROPRUDENTIAL BULLETIN - ARTICLE - No. 6
Details
Abstract
This article evaluates whether the global systemically important bank (G-SIB) framework has incentivised banks to adopt window-dressing behaviour, and whether their engagement in capital market activities has facilitated it. Window-dressing behaviour could have detrimental effects on financial stability, for at least two reasons: first, it may imply an underestimation of banks’ overall systemic importance and a distortion of the relative ranking in favour of banks that engage in more window-dressing behaviour; second, overall market functioning may be adversely affected if banks reduce the provision of certain services towards the end of the year. The evidence presented in this article suggests that both G-SIBs and banks with reporting obligations have reduced their overall risk score and some of their individual risk indicators at the end of a calendar year, both in absolute terms and relative to the other banks in the sample. The results also indicate that year-end reductions in capital market activities are a main driver of the observed window-dressing behaviour.
JEL Code
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
G38 : Financial Economics→Corporate Finance and Governance→Government Policy and Regulation
12 July 2016
WORKING PAPER SERIES - No. 1935
Details
Abstract
We develop an integrated Early Warning Global Vector Autoregressive (EW-GVAR) model to quantify the costs and benefits of capital-based macroprudential policy measures. Our findings illustrate that capital-based measures are transmitted both via their impact on the banking system's resilience and via indirect macro-financial feedback effects. The feedback effects relate to dampened credit and asset price growth and, depending on how banks move to higher capital ratios, can account for up to a half of the overall effectiveness of capital- based measures. Moreover, we document significant cross-country spillover effects, especially for measures implemented in larger countries. Overall, our model helps to understand how and through which channels changes in capitalization affect bank lending and the wider economy and can inform policy makers on the optimal calibration and timing of capital-based macroprudential instruments.
JEL Code
G01 : Financial Economics→General→Financial Crises
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
4 July 2016
WORKING PAPER SERIES - No. 1928
Details
Abstract
In this paper, we investigate how the introduction of sophisticated, model-based capital regulation affected the measurement of credit risk by financial institutions. Model-based regulation was meant to enhance the stability of the financial sector by making capital charges more sensitive to risk. Exploiting the introduction of the model-based approach in Germany and the richness of our loan-level data set, we show that (1) internal risk estimates employed for regulatory purposes systematically underpredict actual default rates by 0.5 to 1 percentage points; (2) both default rates and loss rates are higher for loans that were originated under the model-based approach, while corresponding risk-weights are significantly lower; and (3) interest rates are higher for loans originated under the model-based approach, suggesting that banks were aware of the higher risk associated with these loans and priced them accordingly. Counter to the stated objective of the reform, financial institutions have lower capital charges and at the same time experience higher loan losses. Further, we document that large banks benefited from the reform as they experienced a reduction in capital charges and consequently expanded their lending at the expense of smaller banks that did not introduce the model-based approach. Overall, our results highlight that if the challenges that accompanies complex regulation are too high simpler rules may increase the efficacy of financial regulation.
JEL Code
G01 : Financial Economics→General→Financial Crises
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
5 November 2013
WORKING PAPER SERIES - No. 1604
Details
Abstract
This paper assesses the usefulness of private credit variables and other macrofinancial and banking sector indicators for the setting of Basel III / CRD IV countercyclical capital buffers (CCBs) in a multivariate early warning model framework, using data for 23 EU Members States from 1982 Q2 to 2012 Q3. We find that in addition to credit variables, other domestic and global financial factors such as equity and house prices as well as banking sector variables help to predict vulnerable states of the economy in EU Member States. We therefore suggest that policy makers take a broad approach in their analytical models supporting CCB policy measures.
JEL Code
G01 : Financial Economics→General→Financial Crises
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
Network
Macroprudential Research Network
2022
Journal of Finance
  • Behn, M., Haselmann, R. and Vig, V.
2021
International Journal of Central Banking
  • Behn, M., Mangiante, G., Parisi, L. and Wedow, M.
2021
Journal of Financial Stability
  • Behn, M. and Schramm, A.
2017
Journal of Finance
  • Behn, M., Haselmann, R., and Wachtel, P.
2017
International Journal of Central Banking
  • Behn, M., Detken, C., Peltonen, T. and Schudel, W.
2013
Zeitschrift für betriebswirtschaftliche Forschung
  • Behn, M., Haselmann, R., Sobott, J., Weber, R. and Wulf, D.