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Working Paper
A Tale of Two Bailouts: Effects of TARP and PPP on Subprime Consumer Debt
High levels of subprime consumer debt can create social problems. We test the effects of the Troubled Asset Relief Program (TARP) and Paycheck Protection Program (PPP) bailouts during the Global Financial Crisis and COVID-19 crisis, respectively, on this debt. We use over 11 million credit bureau observations of individual consumer debt combined with banking, bailout, and local market data. We find that subprime consumers with more TARP institutions in their markets had significantly increased debt burdens following these bailouts. In contrast, PPP bailouts were associated with reduced ...
Working Paper
Social Capital and Mortgages
Using comprehensive mortgage-level data, we discover that the social capital of the community in which households live positively influences the likelihood of the approval of their mortgage applications, the terms of approved mortgages, and the subsequent performance of those mortgages. The results hold when conditioning on extensive household and community characteristics and a battery of fixed effects, including individual effects, data permitting, and when employing instrumental variables and propensity score matching to address identification and selection concerns. Concerning causal ...
Working Paper
Did saving Wall Street really save Main Street : the real effects of TARP on local economic conditions
We investigate whether saving Wall Street through the Troubled Assets Relief Program (TARP) really saved Main Street during the recent financial crisis. Our difference-in-difference analysis suggests that TARP statistically and economically significantly increased net job creation and net hiring establishments and decreased business and personal bankruptcies. The results are robust, including accounting for endogeneity. The main mechanisms driving the results appear to be increases in commercial real estate lending and off-balance sheet real estate guarantees. These results suggest that ...
Working Paper
Lending by Servicing: Monetary Policy Transmission Through Shadow Banks
We propose a new conceptual framework for monetary policy transmission through shadow banks in the mortgage market that highlights the role of mortgage servicing in generating non-deposit funds for lending. We document that mortgage servicing acts as a natural hedge against interest rate shocks and dampens the effect of monetary policy on shadow bank mortgage lending. Higher interest rates reduce prepayment risk, increasing the collateral value of mortgage servicing assets and cashflow from servicing income. This enables shadow banks with greater exposure to mortgage servicing to obtain more ...
Working Paper
Internationalization and bank risk
This paper documents a positive relation between internationalization and bank risk. This is consistent with the empirical dominance of the market risk hypothesis ? whereby internationalization increases banks' risk due to market-specific factors in foreign markets ? over the diversification hypothesis ? whereby internationalization allows banks to reduce risk through diversification of their operations. The results continue to hold following a variety of robustness tests, including endogeneity and sample selection bias. We also find that the magnitude of this effect is more pronounced during ...
Working Paper
Did bank borrowers benefit from the TARP program : the effects of TARP on loan contract terms
We study the effects of the Troubled Asset Relief Program (TARP) on loan contract terms to businesses borrowing from recipient banks. Using a difference-in-difference analysis, we find that TARP led to more favorable terms to these borrowers in all five contract terms studied ? loan amounts, spreads, maturities, collateral, and covenants. This suggests recipient banks' borrowers benefited from TARP. These findings are statistically and economically significant, and are robust to dealing with potential endogeneity issues and other checks. {{p}} The contract term improvements are concentrated ...
Working Paper
Bank Size and Household Financial Sentiment: Surprising Evidence from the University of Michigan Surveys of Consumers
We analyze comparative advantages/disadvantages of small and large banks in improving household sentiment regarding financial conditions. We match sentiment data from the University Of Michigan Surveys Of Consumers with local banking market data from 2000 to 2014. Surprisingly, the evidence suggests that large rather than small banks have significant comparative advantages in boosting household sentiment. Findings are robust to instrumental variables and other econometric methods. Additional analyses are consistent with both scale economies and the superior safety of large banks as channels ...
Working Paper
The Opioid Epidemic and Consumer Credit Supply: Evidence from Credit Cards
Using a unique data set of unsolicited credit card offer mailings by banks to consumers, we investigate how opioid abuse affects consumer credit supply in the U.S. To identify causal effects, we employ instrumental variables, propensity score matching, and contiguous counties techniques and control for varying local economic conditions and demographics. We find that banks contract credit supply to consumers in counties highly exposed to opioid abuse by offering higher interest rates, lower credit card limits, and fewer rewards and reducing credit offers overall. Further analyses using the ...
Working Paper
Is a Friend in Need a Friend Indeed? How Relationship Borrowers Fare during the COVID-19 Crisis
We analyze loan contract terms, investigating whether relationship borrowers fare better or worse than others in times of need, using the COVID-19 crisis as a quasi-natural experiment. COVID-19 is superior to prior crises for such analysis because its public health and government restrictions shocks directly harm borrowers, rather than banks. Our dataset includes Y-14Q, covering syndicated and non syndicated loans and small and large firms, unlike some other datasets. We find the dark side of relationships dominates across four relationship measures, 14 COVID-19 shocks, and PPP participation. ...
Discussion Paper
Climate Change and Consumer Finance: A Very Brief Literature Review
Extant research shows that climate change can impose significant costs on consumers’ wealth and finances. Both sea-level rise and flooding from hurricane events led to high price declines and thus wealth loss for homes in coastal areas or in disaster-struck areas, with effects lingering for a number of years in some cases. In terms of consumer finance, while the average consumer is not always significantly negatively affected by a disaster, the vulnerable groups (those with low credit scores and who are low income) can be severely affected, experiencing higher rates of delinquencies and ...