Against the background of the great financial crisis, this paper assesses the merits of bank-based versus market-based financing by exploring the relationship between financial structure and systemic risk. A fixed effects regression model is estimated over a panel of 22 OECD countries. The results show that bank-based financing generates systemic risk while market-based debt and especially market-based stock financing reduce systemic risk. A threshold regression model estimated over the same panel suggests that banks no longer contribute to systemic risk when there is little bank-based financing. In the case of relatively market-based financial structures, the influence of banks on systemic risk is low. The findings indicate that countries can increase their resilience to systemic risk by reducing the share of bank-based financing and increasing the share of market-based financing.

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Do negative interest rates matter for bank performance? This paper investigates whether monetary policy surprises impact bank stock prices differently in times of positive and negative interest rates. The analysis controls for broad stock market movements and finds that an unanticipated downward shift in the yield curve and a flattening of the shorter-end of the yield curve resulting from monetary policy announcements reduce bank stock prices in a low and especially negative interest rate environment. The effects persist in the days after the monetary policy announcement and are larger for banks relatively dependent on deposit funding. By contrast, a surprise movement in the slope of the longer-end of the yield curve does not impact bank stock prices in a negative interest rate environment. The results indicate that when market interest rates are negative but deposit rates stuck at zero, monetary policy instruments that target the longer-end of the yield curve are less detrimental to bank performance than those that target the shorter-end of the yield curve.

This paper investigates whether ECB corporate sector purchases impact the funding structure of non-financial corporates. Regression models are estimated using a unique microdata panel, combining data on all Eurosystem corporate sector purchases and individual balance sheets of 672 non-financial corporations headquartered in the euro area with access to capital markets. The findings indicate that ECB purchases of corporate bonds reduce the dependence on bank financing of corporates whose debt is purchased. The effects vary according to corporates' interest paid, financial expenses and price-to-book ratio. In addition, this paper shows that the relationship between central bank purchases and corporates' dependence on bank financing is non-linear. The downward effect on bank dependence is largest for those corporates of which most debt is purchased under the CSPP, relative to their total stock of debt.