FEB researchers receive grant for project on the effects of geopolitical shocks on bank lending and non-bank financial intermediaries

Russia's 2022 invasion of Ukraine triggered the largest geopolitical shock to European banking in decades. Banks with significant exposure to affected countries faced heightened risks to their balance sheets, raising concerns about the supply of credit to the real economy. Yet, banks do not operate in isolation: they are increasingly connected to non-bank financial intermediaries (NBFIs) through funding relationships. How do geopolitical shocks propagate through bank-NBFI credit networks? A research project funded by the Frankfurter Institut für Risikomanagement und Regulierung (FIRM) aims to trace this. Daniel te Kaat and Francesco Febbraro, from the Faculty of Economics and Business (FEB), received a grant of € 71,108 for this project.

The project uses the German credit register, which covers lending by both banks and non-banks, to trace how geopolitical shocks propagate through bank-NBFI credit networks. It examines how geopolitically-exposed banks adjust their lending and funding relationships, how connected non-bank intermediaries respond, and how these responses propagate through the wider financial network and affect aggregate credit supply.

The findings will help clarify when non-bank intermediation provides resilience to the financial system and when interconnectedness creates additional vulnerabilities, with direct implications for financial stability and macroprudential policy.

The project is led by Daniel te Kaat, Associate Professor of Finance, and his PhD student Francesco Febbraro. In the project, Te Kaat and Febbraro will collaborate with Michaela Kesina (RWTH Aachen University, previously affiliated with FEB) and Natalja von Westernhagen (Deutsche Bundesbank). Te Kaat and Febbraro are delighted to receive funding for their project. Te Kaat: "We are very excited about this research as it bridges two research areas that have recently gained a lot of momentum: the transmission of geopolitical risks via the financial system and bank-nonbank complementarities."

FIRM grants

The Frankfurter Institut für Risikomanagement und Regulierung is a network in which almost all major German credit institutions are involved. FIRM works closely with universities and colleges on teaching and research in the field of finance and management. To stimulate international scientific discussion on research results in the field of risk management and regulation, FIRM aims to promote high-quality research. FIRM also aims to enable close collaboration between research and financial practice. To this end, FIRM encourages the formation of networks of scientists and invites outstanding researchers to submit project proposals each year. Since 2010, FIRM has funded well over 40 such project funding applications from 20 universities and colleges.

Questions? Please contact Daniel te Kaat.