Monetary Policy, Finance, Regulation, Technology, Financial Stability

I am a doctoral candidate in the Finance Department at Frankfurt School of Finance & Management. I have been a visiting Ph.D. student to the finance departments in The University of Virginia Darden School of Business, as well as The University of Chicago Booth School of Business. I use modern applied econometric methods to understand the effects and consequences of monetary policy, financial regulation and new technologies on the banking sector and other macro-financial stability issues. I am focused on producing policy-relevant studies.

I actually conduct my research in the European Central Bank, where I have been working since 2016. There I acquired experience in different fields such as Monetary Policy as well as Banking Supervision (Crisis Management, Market Risk & Valuation Inspections and Quantitative Risk Analysis in the context of Market Risk Stress Testing). I have recently joined the Banking IT Risk Inspections team, where I will be working on IT, cyber and digital security topics.

My research has been the focus of articles in reputable newspapers such as the Financial Times and Les Échos, as well as blogs such as Quantpedia and the Oxford University Business Law Blog. I have obtained the 2018 Best Paper Award by the European Capital Markets Institute and the 2018 Young Economist Best Academic Paper Award, by the Unicredit Foundation.

Latest Updates

Upcoming presentations: Reassessment of the ‘Optimal Currency Area’ theory in the persistently heterogeneous European Union (9 September 2021), IFABS 2021 Financial Systems of Tomorrow (13 September 2021), International Risk Management Conference 2021 (1 October 2021), 34th Australasian Finance and Banking Conference (14 December 2021), World Finance & Banking Symposium (17-18 December 2021).

Research

Publications

Quantitative Easing and Credit Rating Agencies

Joint with Matteo Falagiarda (European Central Bank) and Nordine Abidi (International Monetary Fund).

This paper investigates the behaviour of credit rating agencies (CRAs) using a natural experiment in monetary policy. We exploit the corporate QE of the Eurosystem and its rating-based specific design which generates exogenous variation in the probability for a bond of becoming eligible for outright purchases. We show that after the launch of the policy, rating activity was concentrated precisely on the territory where the incentives of market participants are expected to be more sensitive to the policy design. Our findings contribute to better assessing the consequences of the explicit reliance on CRAs ratings by central banks when designing monetary policy.

International Review of Financial Analysis, Volume 86, 2023.

Working Paper Latest Version: International Monetary Fund Working Paper Series, No. 2022/113.

Working Paper First Version: European Central Bank Working Paper Series, No. 2274/April 2019.

* Unicredit Foundation Young Economist Best Academic Paper Award, 6th Macro Banking and Finance Workshop, Alghero. August 2018.

* European Capital Markets Institute Best Paper Award. ECMI Annual Conference 2018, Brussels. October 2018.

Working Papers

Disciplining Digital Risk: Evidence from Cyber Stress Tests

Joint with Nordine Abidi (IMF), Christoffer Kok (ECB), Leonardo Madio (University of Padova and CESifo) and Alberto Partida (ECB).

Cybersecurity investment generates positive externalities, often resulting in systemic underinvestment due to a free-rider problem. We examine whether targeted, non-capital supervisory interventions can help mitigate this market failure. Leveraging the 2024 European Central Bank Cyber Resilience Stress Test as a quasi-natural experiment, and using confidential supervisory data, we identify “laggards” as banks that underinvest in cybersecurity relative to their risk profiles. Employing a difference-in-differences strategy validated by event study techniques, we find that the stress test significantly altered the behavior of these laggard banks. The observed adjustment is concentrated among institutions subject to more intensive supervisory scrutiny. To our knowledge, this is the first causal evidence that non-capital-based supervisory stress tests can correct coordination failures in operational risk management.

Loan guarantee and portfolio greening: evidence from European credit registers

Joint with Bruno Buchetti (University of Padua and Toulouse Business School), Salvatore Perdichizzi (University of Bologna), Luca X. Lin (State University of New York (SUNY) at Buffalo) and Alessio Reghezza (European Central Bank).

Using pan-European credit register data, we analyze the sharp increase in public guaranteed lending (PGL) during the COVID-19 loan guarantee programs and show that banks leverage PGL to expand lending to low-emission firms. This behavior is driven by industries less affected by COVID-19, banks with «browner» portfolios, and younger firms. Notably, compared to high-emission firms, banks’ internal risk assessments in PGL to low-emission firms are less frequently updated and exhibit weaker predictive power for future credit quality deterioration, indicating lax monitoring efforts. These findings highlight the additional information production costs associated with green lending and shed light on why banks may be slow to transition to greener portfolios.

Latest Version: European Central Bank Working Paper Series, No. 2916/March 2024.

Newspapers, Media and Blogs Coverage: Oxford Business Law Blog, SUERF.

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The Bright Side of Transparency: Evidence from Supervisory Capital Requirements

Joint with Nordine Abidi (International Monetary Fund), Quentin Vandeweyer (University of Chicago) and Livia Amato (University of Chicago).

Should public institutions disclose information about the credit worthiness of the company which it supervises? This paper uses a change in the disclosure policy of the European Central Bank’s regulatory arm to shed light on this question. Specifically we compare European banks along a large number of dimensions before and after the ECB published for the first time bank-by-bank information on Pillar 2 requirements (P2R) in an effort to improve transparency. We show that bond prices and cross-border holdings of debt securities are sensitive to new regulatory information as well as to rating gaps between the ECB and private credit rating agencies. Overall, our results support the view that wider disclosure of prudential requirements are beneficial for market discipline and financial integration. They also support the idea that supervisors have a specific, idiosyncratic and valuable knowledge of the banks they supervise.

Latest Version: SSRN Working Paper, June 2021.
Newspapers, Media and Blogs Coverage: Oxford Business Law Blog.

Who benefits from the corporate QE? A Regression Discontinuity Design Approach

Joint with Nordine Abidi (International Monetary Fund).

On March 10, 2016, the European Central Bank (ECB) announced the Corporate Sector Purchase Programme (CSPP) – commonly known as corporate quantitative easing (QE) – to improve the financing conditions of the Eurozone’s real economy and strengthen the pass-through of unconventional monetary interventions. Using a regression discontinuity design framework that exploits the rating wedge between the ECB and market participants, we show that: (i) bond yield spreads decline by around 15 basis points at the announcement of the programme, (ii) the impact is mostly noticeable in the sample of CSPP-eligible bonds that are perceived as high yield from the viewpoint of market participants and, (iii) the CSPP seems to have stimulated new issuance of corporate bonds. Overall, our results are consistent with the explanation that highlights the portfolio rebalancing mechanism and the liquidity channel.

Latest Version: European Central Bank Working Paper Series, No. 2145/April 2018.

Work in Progress

The Demand for Inflation Hedging

Joint with Nordine Abidi (International Monetary Fund), Benoit Nguyen (Banque de France), Davide Tomio (University of Virginia) and Quentin Vandeweyer (University of Chicago).

Reaching for Yield: Monetary Policy Effects on Asset Demand and Prices

Joint with Nordine Abidi (International Monetary Fund), Damon Petersen (Massachusetts Institute of Technology), Quentin Vandeweyer (University of Chicago) and Christoph Kaufmann (European Central Bank).

Funding European Innovation

Joint with Cristian-Mihail Condrea (Frankfurt School of Finance & Management) and Carola Theunisz (KU Leuven).

The (Procyclical) Structure of Equity Risk Premia

Joint with Nicolas Syrichas (European Central Bank).

Books and Book Chapters

Why Do Banks Fail and What to Do About It

The Role of Risk Management, Governance, Accounting, and More.

Joint with Nordine Abidi (International Monetary Fund), Bruno Buchetti, (University of Padua and Toulouse Business School) and Samuele Crosetti (Single Resolution Board)

Banks play a crucial role in the global economy, yet they are vulnerable to failures that can have catastrophic effects. Key questions arise: What causes bank failures? What drives these failures? Can we avoid a banking crisis? What happens when a bank fails? This book explores the causes, consequences, and potential prevention of banking crises. It begins by examining the fundamental roles of banks in the economic system, focusing on their intermediary functions like liquidity provision, payment management, asset transformation, and borrower oversight. The book then delves into the challenges facing the banking sector, including cyber threats, climate change, and geopolitical instabilities. The second chapter addresses the primary risks banks face, such as liquidity, credit, market, interest rate, IT, and environmental risks, and how these contribute to banking failures. Chapter three shifts focus to financial statements, contrasting those of commercial and investment banks with non-financial companies, and discusses the impact of creative accounting in recent banking collapses. Governance issues and their role in banking failures are the focus of chapter four, highlighting the crucial need for effective risk monitoring by bank directors. The final chapter illustrates the process of bank resolution and the evolving strategies of resolution authorities in ensuring bank stability. Targeted at researchers, regulators, and practitioners, this book comprehensively covers the drivers of banking failures, regulatory improvement suggestions, and real-world case studies. It emphasizes the importance of banks in today’s economy, their unique risks, and the aftermath of their failure, aiming to provide a threefold contribution to understanding and managing banking crises.

Springer, 2024.

Amazon

“Too Tech to Fail?”; In Digitalisation, Sustainability and the Banking and Capital Markets Union.

Edited by Lukas Böffel and Jonas Schürger
Joint with Nordine Abidi (International Monetary Fund)

Do the biggest tech companies have a bond funding edge? Are they the new «Too-big-to-fail» (TBTF)? TBTF represents, among other things, the idea that the biggest firms (usually banks) receive an unfair funding advantage over smaller ones in the bond market. By investigating the tech financial world, our empirical work reveals two important findings. First, within the universe of bond-issuing U.S. firms, the largest tech companies did experience a funding advantage – of about 30bps. on average – from 2014 to 2021. Our estimates suggest that the (implicit) subsidy is in the range of 1 to 2 USD billion per year and that this has been steadily rising over the last years, especially during the Covid-19 period. Second, using a unique dataset of security-level portfolio holdings by sector in each euro area country, we investigate portfolio choices during times of financial distress. We find evidence of a sharp relative increase in portfolio holdings of Big Tech securities during times of market turbulence suggesting that Big Tech bonds act as safe assets. Overall, while the magnitudes of our estimates remain small from a macroeconomic perspective, we find that Big Tech companies are slowly converging towards what we call the «Too-Tech-to-Fail» (TTTF) paradigm. In other words, the unique position they have in the new economy, seems to artificially boost their credit profiles and lower their bond funding costs, potentially creating an uneven playing field.

Palgrave Macmillan, 2022.

Working Paper Latest Version: European Banking Institute Working Paper Series 2022 – no.124.

Newspapers, Media and Blogs Coverage: Financial Times, Les Echos, Quantpedia, Oxford University Business Law Blog.

“Remarks on the Evolution of Central Banking”; In 50 Years of Central Banking in Kenya: Regional and Global Perspectives.

Edited by Patrick Njoroge and Victor Murinde
Joint with Federica Branca and Francesco Paolo Mongelli (European Central Bank)

This chapter provides some observations regarding the evolution of central banking. It is noted that the practice of monetary policy and the scope of central banks have changed over time. The chapter reflects on the path to East African Economic and Monetary Union (EA-EMU). First, how does East Africa stand in terms of economic and financial convergence? Second, what are the milestones of central banking that all central banks of the EA-EMU should master? Third, which monetary lessons could the euro area offer? Fourth, what worked, and has not, in the euro area, what is being fixed? It is noted that East African countries have differences in income per capita, exchange rate volatility, domestic prices, and fiscal discipline. To support sustainable convergence, they should align their monetary policy frameworks and have solid fiscal arrangement.

Oxford University Press, 2021.

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