The Human Costs of Bank Speculation

Publication Date


Grant Type

Early Career Research Award


Using a comprehensive employer-employee dataset from German social security records, we examine the impact of an exogenous shock to bank capital on firms' employment decisions and on individual workers' careers. We first document that German regional banks' trading losses from U.S. mortgage-backed securities cause a deep economic contraction in the affected banks' exclusive geographic domains. Loan growth and output growth decline by 20 and 0.6 percentage points, compared to unaffected states. The effect is stronger from privately held, bank-dependent fims than for publicly listed firms. We then study the impact on individuals. Workers in affected states experience persistent earnings losses of approximately EUR 1,000 per year, 9 weeks longer unemployment spells, and a lower probability of climbing the job ladder than workers in unaffected firms. Present work examines the movement of workers across state boundaries, firm types, and occupations, as well as the effectiveness of retraining programs.