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Working Paper
Bargaining Power and Outside Options in the Interbank Lending Market
Abbassi, Puriya; Bräuning, Falk; Schulze, Niels (2020-06-01)
We study the role of bargaining power and outside options with respect to the pricing of over-the-counter interbank loans using a bilateral Nash bargaining model, and we test the model predictions with detailed transaction-level data from the euro-area interbank market. We find that lender banks with greater bargaining power over their borrowers charge higher interest rates, while the lack of alternative investment opportunities for lenders lowers bilateral interest rates. Moreover, we find that when lenders that are not eligible to earn interest on excess reserves (IOER) lend funds to ...
Working Papers , Paper 20-10

Working Paper
A dynamic network model of the unsecured interbank lending market
Blasques, Francisco; Lelyveld, Iman Van; Bräuning, Falk (2016-04-01)
The unsecured interbank lending market plays a crucial role in financing business activity, a fact underscored by the market's disruption following the Lehman Brothers failure in September 2008. This event, a defining moment in the global financial crisis, fostered greater uncertainty about counterparty risk, an adverse shock that severely curtailed credit supply, hampered monetary policy, and negatively impacted the real economy. To counteract the consequences of the crisis, central banks became the primary intermediaries for a large portion of the money market. However, a single main ...
Working Papers , Paper 16-3

Report
Cost-Price Relationships in a Concentrated Economy
Bräuning, Falk; Fillat, José; Joaquim, Gustavo (2022-05-23)
The US economy is at least 50 percent more concentrated today than it was in 2005. In this paper, we estimate the effect of this increase on the pass-through of cost shocks into prices. Our estimates imply that the pass-through becomes about 25 percentage points greater when there is an increase in concentration similar to the one observed since the beginning of this century. The resulting above-trend price growth lasts for about four quarters. Our findings suggest that the increase in industry concentration over the past two decades could be amplifying the inflationary pressure from current ...
Current Policy Perspectives

Working Paper
High-Yield Debt Covenants and Their Real Effects
Bräuning, Falk; Ivashina, Victoria; Ozdagli, Ali K. (2022-03-01)
High-yield debt, including leveraged loans, is characterized by incurrence financial covenants, or “cov-lite” provisions. Unlike, traditional, maintenance covenants, incurrence covenants preserve equity control rights but trigger pre-specified restrictions on the borrower’s actions once the covenant threshold is crossed. We show that restricted actions impose significant constraints on investments: Similar to the effects of the shift of control rights to creditors in traditional loans, the drop in investment under incurrence covenants is large and sudden. This evidence suggests a new ...
Working Papers , Paper 22-5

Working Paper
The Effect of Primary Dealer Constraints on Intermediation in the Treasury Market
Bräuning, Falk; Stein, Hillary (2024-07-01)
Using confidential microdata, we show that shocks to primary dealers’ risk-bearing constraints have significant effects on the US Treasury securities market. In response to tighter constraints, dealers reduce their Treasury positions, triggering a reduction in aggregate turnover and an increase in bid–ask spreads. These effects are more pronounced in securities that contribute more to the utilization of risk constraints. The impaired intermediation also affects Treasury yields, amplifying the yield response to net demand shifts. Moreover, tighter dealer constraints weaken Treasury auction ...
Working Papers , Paper 24-7

Working Paper
Relationship lending in the interbank market and the price of liquidity
Bräuning, Falk; Fecht, Falko (2016-07-14)
We empirically investigate the effect that relationship lending has on the availability and pricing of interbank liquidity. Our analysis is based on a daily panel of unsecured overnight loans between 1,079 distinct German bank pairs from March 2006 to November 2007, a period that includes the 2007 liquidity crisis that marked the beginning of the 2007/08 global financial crisis. We find that (i) relationship lenders are more likely to provide liquidity to their closest borrowers, (ii) particularly opaque borrowers obtain liquidity at lower rates when borrowing from their relationship lenders, ...
Working Papers , Paper 16-7

Working Paper
The pricing of FX forward contracts: micro evidence from banks’ dollar hedging
Bräuning, Falk; Abbassi, Puriya (2018-03-01)
We use transaction-level data on foreign exchange (FX) forward contracts for the period 2014 through 2016 in conjunction with supervisory balance sheet information to study the drivers of banks? dollar hedging costs. Comparing contracts of the same maturity that are initiated during the same hour of the same day, we find large heterogeneity in banks? hedging costs. We show that these costs (i) are higher for banks with a larger FX funding gap, (ii) depend on banks? FX funding composition in terms of the source (interbank versus retail) and rollover structure (long-term versus short-term), ...
Working Papers , Paper 18-6

Report
Uncovering covered interest parity: the role of bank regulation and monetary policy
Bräuning, Falk; Puria, Kovid (2017-06-01)
We analyze the factors underlying the recent deviations from covered interest parity. We show that these deviations can be explained by tighter post-crisis bank capital regulations that made the provision of foreign exchange swaps more costly. Moreover, the recent monetary policy and related interest rate divergence between the United States and other major foreign countries has led to a surge in demand for swapping low interest rate currencies into the U.S. dollar. Given the higher bank balance sheet costs resulting from these regulatory changes, the increased demand for U.S. dollars in the ...
Current Policy Perspectives , Paper 17-3

Working Paper
Technology Providers and Financial Stability: Overview of Risks and Regulatory Frameworks
Amromin, Gene; Chmielewski, Rebecca; Cowperthwait, Patricia K.; Hull, Cindy E.; Solimine, Brett; Weiss, Emma; Anadu, Kenechukwu E.; Bräuning, Falk; Sanders, Siobhan; Chapel, Amy; Cho, Meeoak; Garza, Lorenzo; Schulhofer-Wohl, Sam (2025-06-23)
Technology-focused Third-Party Service Providers (TPSPs) have become important players in the operations of financial institutions and the financial markets. This paper summarizes the micro- and macro-prudential regulatory frameworks in place to address risks that TPSPs may pose to the financial system.
Supervisory Research and Analysis Working Papers , Paper SRA 25-01

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