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Author:Huang, Rocco 

Working Paper
The dark side of bank wholesale funding

Commercial banks increasingly use short-term wholesale funds to supplement traditional retail deposits. Existing literature mainly points to the "bright side" of wholesale funding: sophisticated financiers can monitor banks, disciplining bad ones but refinancing solvent ones. This paper models a "dark side" of wholesale funding. In an environment with a costless but imperfect signal on bank project quality (e.g., credit ratings, performance of peers), short-term wholesale financiers have lower incentives to conduct costly information acquisition, and instead may withdraw based on ...
Working Papers , Paper 09-3

Working Paper
Creditor control of free cash flow

With free cash flows, borrowers can accumulate cash or voluntarily pay down debts. However, sometimes creditors impose a mandatory repayment covenant called "excess cash flow sweep" in loan contracts to force borrowers to repay debts ahead of schedule. About 17 percent of borrowers in the authors' sample (1995-2006) have this covenant attached to at least one of their loans. The author finds that the sweep covenant is more likely to be imposed on borrowers with higher leverage (i.e., where risk shifting by equity holders is more likely). The results are robust to including borrower fixed ...
Working Papers , Paper 09-30

Working Paper
Internal capital markets and corporate politics in a banking group

This study looks inside a large retail-banking group to understand how influence within the group affects internal capital allocations and lending behavior at the member bank level. The group consists of 181 member banks that jointly own a headquarters. Influence is measured by the divergence from one-share-one-vote. The authors find that more influential member banks are allocated more capital from headquarters. They are less likely to decrease lending after negative deposit growth or to increase lending following positive deposit growth. These effects are stronger in situations in which ...
Working Papers , Paper 09-31

Working Paper
How committed are bank lines of credit? Experiences in the subprime mortgage crisis

Using the subprime mortgage crisis as a shock, this paper shows that commercial borrowers served by more distressed banks (as measured by recent bank stock returns or the nonperforming loan ratio) took down fewer funds from precommitted, formal lines of credit. The credit constraints affected mainly smaller, riskier (by internal loan ratings), and shorter-relationship borrowers, and depended also on the lenders' size, liquidity condition, capitalization position, and core deposit funding. The evidence suggests that credit lines provided only contingent and partial insurance during the crisis ...
Working Papers , Paper 10-25

Working Paper
The effect of monetary tightening on local banks

This study shows that during Paul Volcker?s drastic monetary tightening in the early 1980s, local banks operating in only one county reduced loan supply much more sharply than local subsidiaries of multi-county bank holding companies in similar markets, after controlling for bank (and holding company) size, liquidity, capital conditions, and, most important, local credit demand. The study allows cleaner identification by examining 18 U.S. ?county-banking states? where a bank?s local lending volume at the county level was observable because no one was allowed to branch across county borders. ...
Working Papers , Paper 08-20

Journal Article
Because I'm worth it? CEO pay and corporate governance

Recently, there has been strong public outrage against current pay practices for corporate CEOs. To deal with this issue, the Dodd-Frank Wall Street Reform and Consumer Protection Act signed into law by President Obama on July 21, 2010 will allow shareholders to vote on executive pay packages and federal regulators to oversee executive compensation at financial firms. Are there problems with CEO pay? According to a recent survey, 98 percent of respondents from major financial institutions ?believe that compensation structures were a factor underlying the crisis.? In ?Because I?m Worth It? CEO ...
Business Review , Issue Q3 , Pages 12-19

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