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Report
Rising Bank Concentration
Concentration of insured deposit funding among the top four commercial banks in the U.S. has risen from 15% in 1984 to 44% in 2018, a roughly three-fold increase. Regulation has often been attributed as a factor in that increase. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 removed many of the restrictions on opening bank branches across state lines. We interpret the Riegle-Neal act as lowering the cost of expanding a bank's funding base. In this paper, we build an industry equilibrium model in which banks endogenously climb a funding base ladder. Rising ...
Working Paper
Reorganization or Liquidation: Bankruptcy Choice and Firm Dynamics
In this paper, we ask how bankruptcy law affects the financial decisions of corporations and its implications for firm dynamics. According to current U.S. law, firms have two bankruptcy options: Chapter 7 liquidation and Chapter 11 reorganization. Using Compustat data, we first document capital structure and investment decisions of non-bankrupt, Chapter 11, and Chapter 7 firms. Using those data moments, we then estimate parameters of a general equilibrium firm dynamics model with endogenous entry and exit to include both bankruptcy options. Finally, we evaluate a bankruptcy policy change ...
Working Paper
Capital Buffers in a Quantitative Model of Banking Industry Dynamics
We develop a model of banking industry dynamics to study the quantitative impact of regulatory policies on bank risk taking and market structure. Since our model is matched to U.S. data, we propose a market structure where big banks with market power interact with small, competitive fringe banks as well as non-bank lenders. Banks face idiosyncratic funding shocks in addition to aggregate shocks which affect the fraction of performing loans in their portfolio. A nontrivial bank size distribution arises out of endogenous entry and exit, as well as banks' buffer stock of capital. We show the ...
Journal Article
Banking Trends: Estimating Today's Commercial Real Estate Risk
To survive a decline in commercial real estate prices such as occurred during the financial crisis, how much more capital do banks today need?
Journal Article
Bank Loans to NBFIs: Evidence of Specialization, Part I
Should we be worried about bank lending to nonbanks? That depends on the degree of specialization.
Journal Article
Bank Loans to NBFIs: Evidence of Specialization, Part II
Is lending to nonbanks posing a systemic risk? We take a closer look at which bank characteristics correlate with NBFI specialization.
Journal Article
Are Higher Capital Requirements Worth It?
Curbs on bank leverage are intended to prevent bailouts but can slow economic growth. The challenge is to obtain precise estimates of the impact so policymakers can weigh the tradeoff.
Journal Article
Banking Trends: Estimating Today's Commercial Real Estate Risk
To survive a decline in commercial real estate prices such as occurred during the financial crisis, how much more capital do banks today need?
Journal Article
Measuring the Effects of a Carbon Tax
Climate change poses risks to our economy, but so does the government’s response to climate change.
Working Paper
Unintended Consequences of Regulating Central Clearing
Recent U.S. and European regulations promote centrally clearing derivatives to reduce complexity and systemic risk in the financial system. We argue that more clearing does not guarantee less systemic risk. We identify conditions under which the core clears less intensively than the periphery, which increases systemic risk by substituting multilateral netting for bilateral netting and making contagion less likely to start in the core but more likely to spread from the core. We study confidential derivatives regulatory data and find evidence of such clearing patterns. We further explore the ...