Search Results
Working Paper
Over-the-Counter Market Liquidity and Securities Lending
This paper studies how over-the-counter market liquidity is affected by securities lending. We combine micro-data on corporate bond market trades with securities lending transactions and individual corporate bond holdings by U.S. insurance companies. Applying a difference-in-differences empirical strategy, we show that the shutdown of AIG's securities lending program in 2008 caused a statistically and economically significant reduction in the market liquidity of corporate bonds predominantly held by AIG. We also show that an important mechanism behind the decrease in corporate bond liquidity ...
Working Paper
From Wall Street to main street: the impact of the financial crisis on consumer credit supply
This paper studies how the collapse of the asset backed securities (ABS) market during the financial crisis of 2007-2009 affected the supply of credit to the broader economy using a new dataset that describes unique interbank relationships within the credit union industry. This industry is important for consumer finance, and we find that ABS related losses at correspondent credit unions are associated with a large contraction in the supply of consumer credit and a hoarding of cash among downstream credit unions. We also find that this contraction in credit supply was concentrated among ...
Working Paper
Self-fulfilling Runs: Evidence from the U.S. Life Insurance Industry
Is liquidity creation in shadow banking vulnerable to self-fulfilling runs? Investors typically decide to withdraw simultaneously, making it challenging to identify self-fulfilling runs. In this paper, we exploit the contractual structure of funding agreement-backed securities offered by U.S. life insurers to institutional investors. The contracts allow us to obtain variation in investors' expectations about other investors' actions that is plausibly orthogonal to changes in fundamentals. We find that a run on U.S. life insurers during the summer of 2007 was partly due to self-fulfilling ...
Discussion Paper
Life Insurers’ Role in the Intermediation Chain of Public and Private Credit to Risky Firms
This note quantifies life insurers' role in the intermediation of public and private credit to risky firms. Since the 2007-09 financial crisis, the share of life insurers' general account assets exposed to below-investment-grade ('risky') corporate debt has roughly doubled.
Working Paper
What's Wrong with Annuity Markets?
We show that the supply of life annuities in the U.S. is constrained by interest rate risk. We identify this effect using annuity prices offered by U.S. life insurers from 1989 to 2019 and exogenous variations in contract-level regulatory capital requirements. The cost of interest rate risk management accounts for at least half of the average life annuity markups or eight percentage points. The contribution of interest rate risk to annuity markups sharply increased after the great financial crisis, suggesting new retirees' opportunities to transfer their longevity risk are unlikely to improve ...
Discussion Paper
Funding Agreement-Backed Securities in the Enhanced Financial Accounts
This note describes new data on funding agreement-backed securities (FABS) that is being provided as part of the Enhanced Financial Accounts (EFA) initiative.
Working Paper
Financing Constraints, Firm Dynamics, and International Trade
There is growing empirical support for the conjecture that access to credit is an important determinant of firms' export decisions. We study a multi-country general equilibrium economy in which entrepreneurs and lenders engage in long-term credit relationships. Financial constraints arise in consequence of financials contracts that are optimal given information asymmetry. Consistent with empirical regularities, as firm age and size increase, the model implies decreasing mean and variance of fi rm growth and increasing fi rm survival. Exporters are larger, their survival in international ...
Working Paper
Adverse Selection Dynamics in Privately-Produced Safe Debt Markets
Privately-produced safe debt is designed so that there is no adverse selection in trade. This is because no agent finds it profitable to produce private information about the debt’s backing and all agents know this (i.e., it is information-insensitive). But in some macro states, it becomes profitable for some agents to produce private information, and then the debt faces adverse selection when traded (i.e., it becomes information-sensitive). We empirically study these adverse selection dynamics in a very important asset class, collateralized loan obligations, a large symbiotic appendage of ...