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Working Paper
Capital Taxation with Heterogeneous Discounting and Collateralized Borrowing
Biljanovska, Nina; Vardoulakis, Alexandros (2017-05-05)
We study optimal long-run capital taxation in a closed economy with heterogeneity in agents' time-discount factors where borrowing is allowed but restricted by a collateral constraint. Financial frictions distort intertemporal optimization margins and the tax system serves a dual role: first, it is used to finance government consumption; second, it serves to alleviate the distortions arising from the binding collateral constraint. The discrepancy between the private and the social discount factors pushes for a subsidy on capital, while the discrepancy introduced by the collateral constraint ...
Finance and Economics Discussion Series , Paper 2017-053

Working Paper
QE, Bank Liquidity Risk Management, and Non-Bank Funding: Evidence from U.S. Administrative Data
Darst, Matt; Kokas, Sotirios; Kontonikas, Alexandros; Peydró, José-Luis; Vardoulakis, Alexandros (2025-04-22)
We show that the effectiveness of unconventional monetary policy is limited by how banks adjust credit supply and manage liquidity risk in response to fragile non-bank funding. For identification, we use granular U.S. administrative data on deposit accounts and loan-level commitments, matched with bank-firm supervisory balance sheets. Quantitative easing increases bank fragility by triggering a large inflow of uninsured deposits from non-bank financial institutions. In response, banks that are more exposed to this fragility actively manage their liquidity risk by offering better rates to ...
Finance and Economics Discussion Series , Paper 2025-030

Working Paper
On Default and Uniqueness of Monetary Equilibria
Vardoulakis, Alexandros; Tsomocos, Dimitrios P.; Lin, Li (2015-05-08)
We examine the role that credit risk in the central bank's monetary operations plays in the determination of the equilibrium price level and allocations. Our model features trade in fiat money, real assets and a monetary authority which injects money into the economy through short-term and long-term loans to agents. Short-term loans are riskless, but long-term loans are collateralized by a portfolio of real assets and are subject to credit risk. The private monetary wealth of individuals is zero, i.e., there is no outside money. When there is no default in equilibrium, there is indeterminacy. ...
Finance and Economics Discussion Series , Paper 2015-34

Report
The Financial Stability Implications of Digital Assets
Azar, Pablo; Baughman, Garth; Carapella, Francesca; Gerszten, Jacob; Lubis, Arazi; Perez-Sangimino, JP; Rappoport, David E.; Scotti, Chiara; Swem, Nathan; Vardoulakis, Alexandros; Werman, Aurite (2022-09-01)
The value of assets in the digital ecosystem has grown rapidly amid periods of high volatility. Does the digital financial system create new potential challenges to financial stability? This paper explores this question using the Federal Reserve’s framework for analyzing vulnerabilities in the traditional financial system. The digital asset ecosystem has recently proven itself to be highly fragile. However, adverse digital asset market shocks have had limited spillovers to the traditional financial system. Currently, the digital asset ecosystem does not provide significant financial ...
Staff Reports , Paper 1034

Working Paper
The Non-Bank Credit Cycle
Wierts, Peter J.; Vardoulakis, Alexandros; Stralen, Rene van; Kemp, Esti (2018-11-14)
We investigate the cyclical properties of non-bank credit and its relevance for financial stability. We construct a measure of non-bank credit for a large sample of countries and find that its cyclical properties differ from those of bank credit. Non-bank credit cycles are highly correlated with bank credit cycles in some countries but not in others. Moreover, non-bank credit cycles are less synchronised than bank credit cycles across countries. Finally, non-bank credit cycles could act as a leading indicator for currency, but not for systemic banking, crises. The opposite is true for bank ...
Finance and Economics Discussion Series , Paper 2018-076

Working Paper
Secondary Market Liquidity and the Optimal Capital Structure
Arseneau, David M.; Vardoulakis, Alexandros; Rappoport, David E. (2015-05-12)
We present a model where endogenous liquidity generates a feedback loop between secondary market liquidity and firms' financing decisions in primary markets. The model features two key frictions: a costly state verification problem in primary markets, and search frictions in over-the-counter secondary markets. Our concept of liquidity depends endogenously on illiquid assets put up for sale relative to the resources available for buying those assets in the secondary market. Liquidity determines the liquidity premium, which affects issuance in the primary market, and this effect feeds back into ...
Finance and Economics Discussion Series , Paper 2015-31

Working Paper
Designing a Main Street Lending Facility
Vardoulakis, Alexandros (2020-06-26)
Banks add value by monitoring borrowers. High funding costs make banks reluctant to lend. A central bank can ease funding by purchasing loans, but cannot distinguish which loans require more or less monitoring, exposing it to adverse selection. A multi-tier loan pricing facility arises as the optimal institutional design setting both the purchase price and banks' risk retention for given loan characteristics. This design dominates uniform (flat) structure for loan purchases, provides the right incentives to banks and achieves maximum lending at lower rates to businesses. Both the multi-tier ...
Finance and Economics Discussion Series , Paper 2020-052

Discussion Paper
Monitoring Risk From Collateral Runs
Infante, Sebastian; Vardoulakis, Alexandros (2020-07-31)
We present an estimate of the total amount of funds primary dealers can access from the intermediation of cash and securities through secured funding transactions (SFTs). We highlight how this activity can introduce an additional source of risk: the abrupt withdrawal of cash borrowers, which we call collateral runs.
FEDS Notes , Paper 2020-07-31-2

Working Paper
Banks, Non Banks, and Lending Standards
Darst, Matt; Vardoulakis, Alexandros; Refayet, Ehraz (2020-10-09)
We study how competition between banks and non-banks affects lending standards. Banks have private information about some borrowers and are subject to capital requirements to mitigate risk-taking incentives from deposit insurance. Non-banks are uninformed and market forces determine their capital structure. We show that lending standards monotonically increase in bank capital requirements. Intuitively, higher capital requirements raise banks’ skin in the game and screening out bad projects assures positive expected lending returns. Non-banks enter the market when capital requirements are ...
Finance and Economics Discussion Series , Paper 2020-086

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