This study investigates how retail payment methods affect aggregate macroeconomic activity. By tracing the relative norms and practices of paper-based payment instruments (checks) and electronic payment methods (payment cards, credit transfers and direct debits) in 27 European Union member countries, the paper reports that a higher penetration ratio of electronic payment methods is generally associated with greater GDP, trade, consumption and tax revenue. The 2008 financial crisis and a country’s shadow economy level have an incremental impact on the relationship between payment methods and economy. The study also finds substitution effects between paper-based and electronic payment methods and complementary effects across electronic payment methods. The findings are robust after controlling for endogeneity. Our study supports policies promoting further repositioning and transfer to efficient electronic payment instruments.

We empirically investigate whether taking senior bank loans would enhance market discipline and control risk-taking among borrowing banks. Controlling for endogeneity concern arising from borrowing bank self-select into taking senior bank debt, we document that both the spreads and covenants in loan contracts are sensitive to bank risk variables. Our analysis also reveals that borrowing banks reduce their risk exposure after their first issuance of senior bank debt. We also find that lending banks significantly increase their collaboration with borrowing banks and increase their presence in the home markets of borrowing banks.

We show that borrowing firms benefit substantially from important enforcement actions issued on U.S. banks for safety and soundness reasons. Using hand-collected data on such actions from the main three U.S. regulators and syndicated loan deals over the years 1997–2014, we find that enforcement actions decrease the total cost of borrowing by approximately 22 basis points (or $4.6 million interest for the average loan). We attribute our finding to a competition-reputation effect that works over and above the lower risk of punished banks post-enforcement and survives in a number of sensitivity tests. We also find that this effect persists for approximately four years post-enforcement.