Search Results
Working Paper
The impact of unconventional monetary policy on firm financing constraints: evidence from the maturity extension program
This paper investigates the impact of unconventional monetary policy on firm financing constraints. It focuses on the Federal Reserve?s maturity extension program (MEP), which was intended to lower longer-term rates and flatten the yield curve by reducing the supply of long-term government debt. Consistent with those models that emphasize bond market segmentation and limits to arbitrage, around the MEP?s announcement, stock prices rose most sharply for those firms that are more dependent on longer-term debt. These firms also issued more long-term debt during the MEP and expanded employment ...
Working Paper
Funding Liquidity Creation by Banks
Relying on theories in which bank loans create deposits—a process we call “funding liquidity creation”—we measure how much funding liquidity the U.S. banking system creates. Private money creation by banks enables lending to not be constrained by the supply of cash deposits. During the 2001–2020 period, 92 percent of bank deposits were due to funding liquidity creation, and during 2011–2020 funding liquidity creation averaged $10.7 trillion per year, or 57 percent of GDP. Using natural disasters data, we provide causal evidence that better-capitalized banks create more funding ...
Working Paper
Measuring Climate Transition Risk at the Regional Level with an Application to Community Banks
We develop a measure of climate transition risk for regional economies in the U.S., based on the mix of firms that produce emissions in each region. To quantify transition risks, we consider the introduction of an emissions tax levied on companies emitting greenhouse gases and estimate changes in the market values of industries due to a carbon tax using Merton’s (1974) model. We find that transition risks are highly concentrated in a few sectors and counties with heavy exposures to transition-sensitive sectors. The size and geographic concentration of the tax effects depend significantly on ...
Journal Article
Banking Trends: Measuring Cov-Lite Right
More business loans today lack traditional covenants governing borrowers. Does that leave banks with fewer tools to ward off default?
Working Paper
Temporal Focal Points and Economic Outcomes Evidence from U.S. Mortgage Lending
Temporal focal points shape high-stakes economic outcomes. We investigate this proposition in the U.S. mortgage market by documenting novel within-month patterns in lending. Using confidential Home Mortgage Disclosure Act (HMDA) data, we show that applications arrive smoothly throughout the month, yet approximately half of all originations occur in the final week. The Black approval gap, 2.4 percentage points unexplained at the start of the month, narrows to zero by month’s end. Underperforming loan officers and high-turnover lending institutions amplify this convergence. Demand-side ...
Journal Article
Banking Trends: Discrimination in Mortgage Markets
Automated underwriting may reduce but likely does not end discrimination against racial minorities.
Working Paper
Real Estate Taxes and Home Value: Winners and Losers of TCJA
In this paper, we examine the impact of changes in the federal tax treatment of local property taxes stemming from the implementation of the Tax Cuts and Jobs Act (TCJA) in January 2018 on local housing markets. Using county-level house price information and IRS tax data, we find that capping the federal tax deduction of real estate taxes at $10,000 has caused the growth rate of home value to decline by an annualized 0.8 percentage point, or 15 percent, in areas where real estate taxes as shares of taxable income exceeded the national median. Additionally, these areas with a high real estate ...
Working Paper
Concentration of Control Rights in Leveraged Loan Syndicates
We ?nd that corporate loan contracts frequently concentrate control rights with a subset of lenders. Despite the rise in term loans without ?nancial covenants?so-called covenant-lite loans?borrowing ?rms? revolving lines of credit almost always retain traditional ?nancial covenants. This split structure gives revolving lenders the exclusive right and ability to monitor and to renegotiate the ?nancial covenants, and we con?rm that loans with split control rights are still subject to the discipline of ?nancial covenants. We provide evidence that split control rights are designed to mitigate ...
Journal Article
Banking Trends: Where Depositors Fear to Tread
What should policymakers do when depositors flee banks? Edison Yu shows that much depends on how banks create liquidity.
Journal Article
Banking Trends: Do Stress Tests Reduce Credit Growth?
Stress tests are supposed to ensure your access to credit during the next downturn, but some critics claim that they also limit your access to credit today. We test that theory.