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Report
Specialization in Banking
Using highly detailed data on the loan portfolios of large U.S. banks, we document that these banks "specialize" by concentrating their lending disproportionately into one industry. This specialization improves a bank’s industry-specific knowledge and allows it to offer generous loan terms to borrowers, especially to firms with access to alternate sources of funding and during periods of greater nonbank lending. Superior industry-specific knowledge is further reflected in better loan and, ultimately, bank performance. Banks concentrate more on their primary industry in times of instability ...
Discussion Paper
Letters of Recommendation in the PhD Job Market: Lessons from Specialized Banks
Banks must extract useful signals of a potential borrower’s quality from a large set of possibly informative characteristics when making lending decisions. A model that speaks to how banks specialize in lending to an industry in order to better extract signals from data, can potentially be applied to a number of real-world scenarios. In this post, we apply lessons from such a model to a topic of timely relevance in economics: job market recommendation letters. Institutions looking to hire new economists must evaluate PhD applicants based on limited and often noisy signals of future ...
Report
Deposit Specialization and Lending Behavior
Using granular supervisory data on deposits, loans, and securities for the largest U.S. banks, we document persistent differences in depositor structures that directly shape asset structures. Retail-depositor oriented banks, for instance, enjoy cheap and stable funding. They thus hold lower-rate, longer-maturity loans and conduct more real estate lending than NBFI-depositor oriented banks. This has aggregate implications. Using exogenous deposit growth around COVID, we show bank depositor orientation shapes their response to deposit growth as well as to interest rate changes. Finally, we ...