Working Papers
Bailouts, Bail-ins, and Banking Industry Dynamics (JMP) (Appendix)
Finalist for the ECB Young Economist Prize
This paper analyzes the effects of bail-in policies on banks of different sizes and risk profiles, comparing them to traditional bailouts. I develop a structural model of banks’ balance sheet decisions with endogenous exit and entry, estimated to U.S. banking data. Banks differ in loan risk and can influence their own size, two key factors shaping the likelihood and desirability of bailouts and bail-ins. When bail-ins replace bailouts, large banks face higher funding costs, eroding the benefits of being big. Riskier banks respond by slowing their growth, leading to a 42% reduction in the share of large banks and a 65% decline in their failure rate. Despite this shift, aggregate lending falls by only 3.3%, as entry increases to meet demand for loans. Welfare rises as the benefits from improved bank stability outweigh the costs associated with a decline in lending.
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Unexpected Corporate Bond Demand and the Impact on Firm Acquisition Activity
with Shannon Sledz
We analyze firms’ financing decisions of mergers and acquisitions (M&A). We develop a quantitative model of the M&A market that features acquirers and targets, who have access to costly external financing to fund M&A and investment. Due to the tax advantage of debt, acquirers prefer to finance M&A using debt over equity. We then use the model to understand the transmission of the Corporate Credit Facilities (CCFs), the first ever Federal Reserve bond stimulus program, to firm level decisions around M&A. We find that CCFs relax the borrowing constraints of acquirers, making acquisitions cheaper. In particular, CCFs increase the likelihood of cash acquisitions only if the acquirer starts with low levels of cash. Building a novel dataset, we then test our model prediction. Using a difference-in-differences approach on firm-level credit ratings, we find support of our model prediction in the data — the CCFs did not impact firm acquisition behavior as many firms had elevated levels of cash.
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.