Search Results
Discussion Paper
Cyclicality and the Severity of the U.S. Supervisory Stress Test: 2014 to 2018
In this study, we provide a measure of the severity of the 2014-2018 US supervisory stress tests, and examine how that severity measure has evolved.
Working Paper
The cross-market spillover of economic shocks through multi-market banks
This paper investigates the mortgage lending of banks operating in multiple U.S. metropolitan areas during the housing market collapse of 2007-2009. Some metro areas in the U.S. suffered much greater mortgage defaults than others. We use this regional variation to identify whether high mortgage delinquencies in some markets affected multi-market banks' mortgage lending in other markets. Our results show that multi-market banks reduced local mortgage lending in response to delinquencies in other markets, consistent with the view that local economic shocks can be transmitted to other regions ...
Discussion Paper
Bank Lending to Private Credit: Size, Characteristics, and Financial Stability Implications
Private credit (or private debt) has emerged as one of the fastest-growing segments of nonbank financial intermediaries (NBFIs) over the past 15 years or so. Although there is no universal definition, private credit generally refers to direct loans made to mid-market businesses typically by non-bank vehicles such as private debt (PD) funds and Business Development Companies (BDCs) (Cai and Haque, 2024; Haque, Mayer, and Stefanescu, 2025). The asset class totaled $1.34 trillion in the U.S. (Exhibit 1) and nearly $2 trillion globally by 2024-Q2, and has grown roughly five times since 2009.
Working Paper
Bank liquidity hoarding and the financial crisis: an empirical evaluation
I test and find supporting evidence for the precautionary motive hypothesis of liquidity hoarding for U.S. commercial banks during the recent financial crisis. I find that banks held more liquid assets in anticipation of future losses from securities write-downs. Exposure to securities losses in their investment portfolios and expected loan losses (measured by loan loss reserves) represent key measures of banks' on-balance sheet risks, in addition to off-balance sheet liquidity risk stemming from unused loan commitments. Furthermore, unrealized securities losses and loan loss reserves seem to ...
Working Paper
Exchange rates, optimal debt composition, and hedging in small open economies
This paper develops a model of the firm's choice between debt denominated in local currency and that denominated in foreign currency in a small open economy characterized by exchange rate risk and hedging possibilities. The model shows that the currency composition of debt and the level of hedging are endogenously determined as optimal firms' responses to a tradeoff between the lower cost of borrowing in foreign debt and the higher risk of such borrowing due to exchange rate uncertainty. Both the composition of debt and the level of hedging depend on common factors such as foreign exchange ...
Working Paper
The effects of bank capital on lending: what do we know, and what does it mean?
The effect of bank capital on lending is a critical determinant of the linkage between financial conditions and real activity, and has received especial attention in the recent financial crisis. We use panel-regression techniques--following Bernanke and Lown (1991) and Hancock and Wilcox (1993, 1994)--to study the lending of large bank holding companies (BHCs) and find small effects of capital on lending. We then consider the effect of capital ratios on lending using a variant of Lown and Morgan's (2006) VAR model, and again find modest effects of bank capital ratio changes on lending. These ...
Working Paper
Corporate hedging, investment and value
We consider the effect of hedging with foreign currency derivatives on Brazilian firms in the period 1997 through 2004, a period that includes the Brazilian currency crisis of 1999. We find that, derivative users have valuations that are 6.7-7.8% higher than non-user firms. Hedging with currency derivatives allows firms to sustain larger capital investments, and also removes the sensitivity of investment to internally generated funds. Thus, it mitigates the underinvestment friction of Froot, Scharfstein, and Stein (1993), at a time when capital in the economy as a whole is scarce. We further ...
Working Paper
Un-used Bank Capital Buffers and Credit Supply Shocks at SMEs during the Pandemic
Did banks curb lending to creditworthy small and mid-sized enterprises (SME) during the COVID-19 pandemic? Sitting on top of minimum capital requirements, regulatory capital buffers introduced after the 2008 global financial crisis (GFC) are costly regions of "rainy day" equity capital designed to absorb losses and provide lending capacity in a downturn. Using a novel set of confidential loan level data that includes private SME firms, we show that "buffer-constrained" banks (those entering the pandemic with capital ratios close to this regulatory buffer region) reduced loan commitments to ...
Working Paper
The Real Effects of Credit Line Drawdowns
Do firms use credit line drawdowns to finance investment? Using a unique dataset of 467 COMPUSTAT firms with credit lines, we study the purpose of drawdowns during the 2007-2009 financial crisis. Our data show that credit line drawdowns had already increased in 2007, precisely when disruptions in bank funding markets began to squeeze aggregate liquidity. Consistent with theory, our results confirm that firms use drawdowns to sustain investment after an idiosyncratic liquidity shock. Using an instrumental variable approach based on institutional features of credit line contracts, we find that ...