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Working Paper
Deposits and relationship lending
The authors empirically examine the hypothesis that access to deposits with inelastic rates (core deposits) permits a bank to make contractual agreements with borrowers that are infeasible if the bank must pay market rates for its funds. Access to core deposits insulates a bank's costs of funds from exogenous shocks, allowing the bank to insulate its borrowers against exogenous credit shocks. Using a large sample of loans from the Survey of the Terms of Bank Lending, the authors find that when they control for competitive conditions in loan markets, banks funded more heavily with core ...
Journal Article
True confessions: should banks be required to disclose more?
Mitchell Berlin examines disclosure requirements for banks. Can market participants play a significant role in ensuring that banks limit their risk-taking? Although regulators find this idea increasingly attractive, economists generally have two schools of thought: Such monitoring could substitute for regulatory discipline to a significant extent or the roles of regulators and market participants could be complementary. But to evaluate banks' risk-taking, investors would want good information about a bank's activities and balance sheet. In light of this, would more disclosure by banks be a ...
Working Paper
Financial intermediation as vertical integration
Working Paper
Collateral and competition
The authors examine the effects of changes in competitive conditions on the structure of loan contracts. In particular, they present conditions in which greater loan market competition reduces the stringency of contractual collateral requirements, a prediction that is consistent with anecdotal evidence from loan markets. The authors also analyze the interaction between the degree of competition and the efficiency of contractual renegotiation. Insufficiently competitive markets may lead to bargaining difficulties that reduce the efficiency of renegotiable contracts. At low levels of ...
Working Paper
Measuring Climate Transition Risk at the Regional Level with an Application to Community Banks
We develop a measure of climate transition risk for regional economies in the U.S., based on the mix of firms that produce emissions in each region. To quantify transition risks, we consider the introduction of an emissions tax levied on companies emitting greenhouse gases and estimate changes in the market values of industries due to a carbon tax using Merton’s (1974) model. We find that transition risks are highly concentrated in a few sectors and counties with heavy exposures to transition-sensitive sectors. The size and geographic concentration of the tax effects depend significantly on ...
Journal Article
Why don't banks take stock?
Banks in the United States are forbidden to hold stock in nonfinancial firms under most circumstances. The same is not true of banks in other countries. But are U.S. banks really shackled compared with their foreign counterparts? Do such restrictions make a difference in banks' behavior? Mitchell Berlin discusses these and other questions about banks' financial claims in nonfinancial firms and offers some possible answers.
Journal Article
Summary of workshop on recent developments in consumer credit and payments
On September 24-25, 2009, the Research Department and the Payment Cards Center of the Federal Reserve Bank of Philadelphia held their fifth joint conference to present and discuss the latest research on consumer credit and payments. Sixty participants attended the conference, which included seven research papers on topics such as securitization and distressed loan renegotiation, consumer disclosure, data breaches and identity theft, and the effects of the U.S. financial crisis on global retail lending. In this article, Mitchell Berlin summarizes the papers presented at the conference.
Working Paper
Courts and contractual innovation: a preliminary analysis
The authors explore a model in which agents enter into a contract but are uncertain about how a judge will enforce it. The judge can consider a wide range of evidence, or instead, use a rule-based method of judgment that relies on limited information. The authors focus on the following tradeoff: Considering a wide range of evidence increases the likelihood of a correct ruling in the case at hand but undermines the formation of precedents that resolve legal uncertainty for subsequent agents. ; In a model of contractual innovation, they show that the use of evidence increases the likelihood of ...
Working Paper
Debt covenants and renegotiation