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Working Paper
Tracing Out Capital Flows: How Financially Integrated Banks Respond to Natural Disasters
Multi-market banks reallocate capital when local credit demand increases after natural disasters. Following such events, credit in unaffected but connected markets declines by about 50 cents per dollar of additional lending in shocked areas, but most of the decline comes from loans in areas where banks do not own branches. Moreover, banks increase sales of more-liquid loans in order to lessen the impact of the demand shock on credit supply. Larger, multi-market banks appear better able than smaller ones to shield credit supplied to their core markets (those with branches) by aggressively ...
Working Paper
Aging and Housing Returns
Older home sellers receive lower returns than younger home sellers. Homes sold by older people have fewer major renovations but higher rates of poor upkeep. Older sellers are also more likely to sell off-MLS (“pocket listings”) and to sell to investors, leading to lower prices. These patterns suggest that older sellers may be disproportionately disadvantaged by agents’ incentive to maximize fees through generating high sales volume instead of maximizing sale prices. Age-related cognitive decline makes the elderly more vulnerable. For causal evidence, we show that reforms making private ...
Working Paper
Finance as a barrier to entry: bank competition and industry structure in local U.S. markets
This paper tests how competition in local U.S. banking markets affects the market structure of non- financial sectors. Theory offers competing hypotheses about how competition ought to influence firm entry and access to bank credit by mature firms. Using data on U.S. local markets for banking and non-financial sectors, we find that more vigorous banking competition ? that is, lower concentration and looser restrictions on geographical expansion -- is associated with more firms in operation and with a smaller average firm size. In fact, the whole firm-size distribution shifts toward the origin ...
Journal Article
Small business lending and bank consolidation: is there cause for concern?
Small banks are a major source of credit for small businesses. As banking consolidation continues, will a resulting decline in the presence of small banks adversely affect the availability of that credit?
Report
Bank integration and business volatility
We investigate how bank migration across state lines over the last quarter century has affected the size and covariance of business fluctuations within states. Starting with a two-state version of the unit banking model in Holmstrom and Tirole (1997), we conclude that the theoretical effect of integration on business cycle size is ambiguous, because some shocks are dampened by integration while others are amplified. Empirically, we find that integration diminishes employment growth fluctuations within states and decreases the deviations in employment growth across states. In other words, ...
Working Paper
HOUSING SPECULATION, GSES, AND CREDIT MARKET SPILLOVERS
In 2021, the U.S. Treasury reduced the exposure of government-sponsored enterprises (GSEs) to speculative mortgages. As a result, GSE purchases of these loans fell by about 20 percentage points. The consequent decline in credit to speculators, however, was mitigated both by entry of corporate investors and because banks began holding more of these loans. By increasing bank exposure to local risk, this move reduced banks’ willingness to supply both jumbo mortgages and small business loans. Our empirical design fully accounts for risks at the balance sheet level. Banks thus manage credit not ...
Working Paper
Does credit supply affect small-firm finance?
States were granted authority to limit interstate branching following passage of Federal legislation in 1994, relaxing restrictions on geographical expansion by banks. We show that differences in state?s branching restrictions affect credit supply. In states more open to branching, small firms borrow at interest rates 25 to 45 basis points lower than firms operating in less open states. Firms in open states also are more likely to borrow from banks. Despite this evidence that interstate branch openness expands credit supply, we find no effect of variation in state restrictions on branching on ...