Working Papers
Bailouts, Bail-ins, and Banking Industry Dynamics (JMP)
Finalist for the ECB Young Economist Prize
This paper examines the impact of bail-in policies on the stability and efficiency of the banking sector compared to traditional bailouts. I construct a model of banks’ balance sheet optimization with endogenous exit and entry, estimated to U.S. banking data. Banks are heterogeneous in size and riskiness, key factors in the likelihood and attractiveness of bailouts and bail-ins for individual banks. In an equilibrium in which bail-ins replace bailouts, uninsured debt prices rise. This shift reduces the advantage of being a large bank, particularly for riskier banks, who now grow at a slower rate. The share of big banks drops 42%, and their failure rate decreases 65%. Despite this, the overall decrease in aggregate lending is limited to 3.3% due to increased entry to meet loan demand. The bail-in improves both financial stability and market discipline but decreases aggregate lending.
Unexpected Corporate Bond Demand and Firm Acquisition Activity
with Shannon Sledz
This paper analyzes the impact of unexpected demand for a firm’s corporate bond on their acquisition activities. The announcement of the Federal Reserve’s Primary and Secondary Market Corporate Credit Facilities in March 2020 led to a record-breaking number of bond issuance. An acquisition wave soon followed. We construct a novel dataset of firm-level financials, credit ratings, bond issuance and acquisition activity to study the connection between the two events. Using a difference-in-differences approach, we find no significant difference in the acquisition likelihood of firms whose bonds were eligible for purchase by the Federal Reserve. However, by analyzing stock returns around the announcement of acquisitions, we find suggestive evidence that acquisitions made by the eligible firms were perceived more favorably by the market than acquisitions by similar firms in the pre-period.
Works-In-Progress
Bank Management of Hedge Fund Credit Lines in the Post-Archegos Era
with Biqin Xie
Default Rate Allocative Efficiency in the Banking Sector
Stress Test Requirements and Interest Rate Risk
with Cody Kallen
Publications
Complexity in Large U.S. Banks with Linda S. Goldberg
Federal Reserve Bank of New York Economic Policy Review, Volume 26 Number 2, March 2020
Blog Posts
“Have the Biggest U.S. Banks Become Less Complex?” with Linda Goldberg. Federal Reserve Bank of New York Liberty Street Economics (blog), May 7, 2018.
“Just Released: Bank Loan Performance Under the Microscope.” with James Vickery. Federal Reserve Bank of New York Liberty Street Economics (blog), June 1, 2017.