Benjamin Guin

We study retail deposit withdrawals from commercial banks that were differentially exposed to distress during the 2007-2009 financial crisis. We show that the propensity of clients to withdraw deposits increases with the severity of bank distress. However, an exclusive pre-crisis bank-client relationship eliminates withdrawal risk. The mechanism through which strong bank-client relationships mitigate withdrawal risk relates to the transaction costs of switching accounts rather than informational rents or differentiated services. Our findings provide empirical support to the Basel III liquidity regulations that emphasize the role of well-established client relationships for the stability of bank funding.

We examine how the geographical proximity to a microfinance bank affects financial inclusion. We study the expansion of the branch network of ProCredit banks in South-East Europe between 2006 and 2010. We report three main findings: First, ProCredit is more likely to open a new branch in areas with a large share of low-income households. Second, in locations where ProCredit opens a new branch the share of banked households increases more than in locations where it does not open a new branch. Third, this increase is particularly strong among low-income households, older households, and households which rely on transfer income.

We study the exposure of mortgage borrowers in Switzerland to interest rate, income and house price risks and examine how the households' choice of risky mortgages is related to individual interest rate expectations and risk-aversion. Our analysis is based on a unique data set of household mortgage applications from September 2012 until January 2014. Our assessment of risk exposure among mortgage borrowers in Switzerland is highly sensitive to the underlying assumptions on mortgage costs, household income and house value. Our main results suggest that the exposure of mortgage borrowers to interest rate and house price risks is limited in the medium-term. We further document that the choice of mortgage contract seems to be more influenced by affordability concerns than risk concerns. In particular, individual interest rate expectations hardly affect mortgage contract choice.

The recent financial crisis has reemphasized the importance of research on issues such as the relevance of too-big-to-fail guarantees, deposit insurance, and risk management by financial institutions, all of which have been widely discussed by practitioners, policymakers, and academics. The book Financial Institutions, In and Out of Crisis by Anthony Saunders, John M. Schiff Professor of Finance at New York University, is a careful selection of 20 academic papers that discuss many of the issues that became relevant during the crisis.

Policy makers and practitioners agree that the scaling up of microfinance requires financial sustainability in the industry and access to commercial capital markets. At the same time they worry that the commercialization of microfinance may lead to a mission drift: Microfinance institutions (MFIs) may abandon their focus on poor, rural, female borrowers and orientate themselves towards more profitable clients. In this contribution we review the empirical evidence on commercialization and mission drift in microfinance, and the evidence is that fears of a mission drift in the industry do not seem warranted. Furthermore, we report on a recent study in which we attempt to broaden the analysis of mission drift, by comparing the impact of commercial microfinance banks as opposed to ordinary retail banks on household access to and use of bank accounts. We find that commercial microfinance banks do expand the frontier of finance providing further justification to their support by bilateral and multilateral donors.

In this paper, I examine the role of culture for households' saving decisions. Exploiting historical language borders within Switzerland, I isolate the effect of culture from economic, institutional, demographic and geographic factors for a homogeneous and representative sample of households. The analysis is based on the Swiss Household Panel that I complement with geographic and socio-economic data. I show that households located in the Romanic-speaking part (Italian, French) are more than 10 percentage points less likely to save than German-speaking households. I show that these differences are consistent with different distributions of time preferences and norms of taking informal consumer credit in financial distress across language regions.

We examine the determinants of households' and banks' choice of mortgage rate fixation periods (FP) in a low interest rate environment. The existing literature interprets equilibrium FP, often reduced to the choice between Fixed Rate Mortgages (FRM) and Adjustable Rate Mortgages (ARM), as purely demand driven. Using a unique dataset with offers from multiple banks for each mortgage request, we are the first to explicitly disentangle demand and supply determinants of FP choices. We show that banks can advance their own FP preferences along several dimensions. Their desired FP must account both for the implied Interest Rate Risk (IRR), and for the Credit Risk implications from shifting that IRR to households. Our empirical results confirm that banks do indeed take into account both types of risk, although some margins of response are used only to small extent.