I am a second-year PhD student in Economics at the University of Cambridge. My research interests include macroeconomic and financial risk, with a special focus on geopolitical risk.
I am supervised by Chryssi Giannitsarou and Meredith Crowley.
Contact Information:
Faculty of Economics, Austin Robinson Building, Sidgwick Avenue, Cambridge, CB3 9DD
bmck3@cam.ac.uk
Geopolitics and corporate credit risk: Evidence from EU-Russia conflict shocks
Abstract: This paper studies the impact of conflict shocks, identified by event-day heteroskedasticity using EU-Russia sanction and countersanction announcements since 2014, on corporate credit spreads. Exploiting changes in the variance-covariance structure of financial and news variables with gas prices around (counter)sanction announcement days, the paper presents a new approach to the identification of geopolitical risk shocks. Conflict shocks raise credit spreads as both firm default risk and risk premia rise. The effect of conflict on credit risk is strongly heterogeneous across industries and countries, reflecting economic vulnerabilities. The borrowing cost of firms with high leverage levels and low earnings are more sensitive to conflict shocks, however, only for the former also risk premia rise, suggesting a collateral-based borrowing constraint. Heightened credit risk is also reflected in declining investment levels, rising bankruptcy rates, and elevated import prices due to conflict.
Unrealized losses for banks but realized losses for the economy? Amortized cost security holdings and lending activity in a high-interest rate environment (joint with Antonio De Vito, Alessio Reghezza, and Cosimo Pancaro)
Abstract: This paper investigates how unrealized losses on banks’ amortized cost securities portfolios affect lending activity in a rising interest rate environment. Leveraging the sharpest increase in interest rates in the euro area between 2021 and 2023, along with detailed pan-European security holdings and credit register data, we find that a one percentage point increase in the share of unrealized losses on banks’ amortized cost securities portfolios leads to a one percentage point reduction in lending supply. By exploiting cross-sectional analyses, we identify three channels through which unrealized losses affect credit provision: the capital, the liquidity and the funding channel. Banks with greater unrealized losses, lower capital headroom, weaker liquidity buffers, or higher reliance on unstable funding sources reduce lending more than their peers following monetary policy tightening. Overall, the findings suggest that, although unrealized, potential losses on securities classified at amortized cost can significantly impact lending decisions in a rapidly rising interest rate environment, particularly for less capitalized and liquid banks, or those with unstable funding sources.
Recent evidence on the sovereign-bank nexus in the euro area (joint with Paul Bochmann and Cosimo Pancaro)
Abstract: This paper estimates sovereign-bank default risk spillovers in the euro area. Spillovers spiked at the start of the COVID-19 pandemic and of the Russian invasion of Ukraine but remained contained during the March 2023 banking sector turmoil. Panel regressions find that higher banks’ sovereign exposures increase spillovers between the creditor bank and the borrowing sovereign. Countries with lower GDP growth, higher default probabilities, and a higher debt burden transmit more risk to banks. Larger, less capitalized and more funding-risk-exposed banks convey more default risk to sovereigns. Public aid to the financial sector reduces spillovers.
Published version (Finance Research Letters) here