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Working Paper
The option value of consumer bankruptcy
Cohen-Cole, Ethan (2009)
This paper aims to contribute to the growing literature on the causes of consumer bankruptcy. It presents the consumer bankruptcy decision as an irreversible choice that has an embedded real option value. This allows the use of well known framework for the study of decision making under uncertainty. The principal empirical finding is that cross-sectional variances of economic factors, such as unemployment, are strong predictors of bankruptcy rates and are consistent with the implications of the real options model. This supports anecdotal evidence that individuals are facing increased economic ...
Supervisory Research and Analysis Working Papers , Paper QAU09-1

Working Paper
Credit card redlining
Cohen-Cole, Ethan (2008)
This paper evaluates the presence of racial disparities in the issuance of consumer credit. Using a unique and proprietary database of credit histories from a major credit bureau, this paper links location-based information on race with individual credit files. After controlling for the influence of such other place-specific factors as crime, housing vacancy rates, and general population demographics, the paper finds qualitatively large differences in the amount of credit offered to similarly qualified applicants living in Black versus White areas. An instrumental variables approach allows ...
Supervisory Research and Analysis Working Papers , Paper QAU08-1

Working Paper
Risk, returns, and multinational production
Garetto, Stefania; Fillat, Jose (2010)
This paper starts by unveiling a new empirical regularity: multinational corporations systematically tend to exhibit higher stock market returns and earnings yields than non-multinational firms. Within non-multinationals, exporters tend to exhibit higher earnings yields and returns than firms selling only in their domestic market. To explain this pattern, we develop a real option value model where firms are heterogeneous in productivity, and have to decide whether and how to sell in a foreign market where demand is risky. Firms can serve the foreign market through trade or foreign direct ...
Supervisory Research and Analysis Working Papers , Paper QAU10-5

Working Paper
Loss distribution estimation, external data and model averaging
Cohen-Cole, Ethan; Prono, Todd (2007)
This paper will discuss a proposed method for the estimation of loss distribution using information from a combination of internally derived data and data from external sources. The relevant context for this analysis is the estimation of operational loss distributions used in the calculation of capital adequacy. We present a robust, easy-to-implement approach that draws on Bayesian inferential methods. The principal intuition behind the method is to let the data itself determine how they should be incorporated into the loss distribution. This approach avoids the pitfalls of managerial choice ...
Supervisory Research and Analysis Working Papers , Paper QAU07-8

Working Paper
Bad Sovereign or Bad Balance Sheets? Euro Interbank Market Fragmentation and Monetary Policy, 2011-2015
Gabrieli, Silvia; Labonne, Claire (2018-07-12)
We measure the relative role of sovereign-dependence risk and balance sheet (credit) risk in euro area interbank market fragmentation from 2011 to 2015. We combine bank-to-bank loan data with detailed supervisory information on banks? cross-border and cross-sector exposures. We study the impact of the credit risk on banks? balance sheets on their access to, and the price paid for, interbank liquidity, controlling for sovereign-dependence risk and lenders? liquidity shocks. We find that (i) high non-performing loan ratios on the GIIPS portfolio hinder banks? access to the interbank market ...
Supervisory Research and Analysis Working Papers , Paper RPA 18-3

Working Paper
Runs and Flights to Safety: Are Stablecoins the New Money Market Funds?
Macchiavelli, Marco; Eisenbach, Thomas M.; Anadu, Kenechukwu E.; Cipriani, Marco; La Spada, Gabriele; Wang, J. Christina; Huang, Catherine; Malfroy-Camine, Antoine; Azar, Pablo D.; Landoni, Mattia (2024-03-26)
Similar to the more traditional money market funds (MMFs), stablecoins aim to provide investors with safe, money-like assets. We investigate similarities and differences between these two investment products. Like MMFs, stablecoins suffer from “flight-to-safety” dynamics: we document net flows from riskier to safer stablecoins on days of crypto-market stress and estimate a discrete “break-the-buck” threshold of $1, below which stablecoin redemptions accelerate. We then focus on two specific stablecoin runs, in 2022 and 2023, showing that the same flight-to-safety dynamics also ...
Supervisory Research and Analysis Working Papers , Paper SRA 23-02

Working Paper
Unpacking social interactions
Cohen-Cole, Ethan; Zanella, Giulio (2007)
As empirical work in identifying social effects becomes more prevalent, researchers are beginning to struggle with identifying the composition of social interactions within any given reference group. In this paper, we present a simple econometric methodology for the separate identification of multiple social interactions. The setting under which we achieve separation is special, but is likely to be appropriate in many applications.
Supervisory Research and Analysis Working Papers , Paper QAU07-4

Working Paper
Optimal portfolio choice with predictability in house prices and transaction costs
Fillat, Jose; Corradin, Stefano; Vergara-Alert, Carles (2010)
We study a model of portfolio choice, in which housing prices are predictable and adjustment costs must be paid when there is a housing transaction. We show that two state variables affect the agent's decisions: (i) his wealth-house ratio; and (ii) the time-varying expected growth rate of housing prices. The agent buys (sells) his housing assets only when the wealth-house ratio reaches an optimal upper (lower) boundary. These boundaries are time-varying and depend on the expected growth rate of housing prices. Finally, we use household level data from the PSID and SIPP surveys to test and ...
Supervisory Research and Analysis Working Papers , Paper QAU10-2

Working Paper
Optimal Delegation Under Unknown Bias: The Role of Concavity
Tanner, Noam (2018-03-30)
A principal is uncertain of an agent's preferences and cannot provide monetary transfers. The principal, however, does control the discretion granted to the agent. In this paper, we provide a simple characterization of when it is optimal for the principal to screen by offering different terms of discretion to the agent. When the principal's utility is sufficiently concave, it is optimal for the principal to pool and to offer all agents the same discretion. Thus, for any number of agents and any distribution over agent preferences, the optimal contract is simple: the principal sets a cap and ...
Supervisory Research and Analysis Working Papers , Paper RPA 18-1

Working Paper
Managing Risk in Cards Portfolios: Risk Appetite and Limits
Eder, Tiffany; Labonne, Claire; O'Loughlin, Caitlin; Sharma, Krish (2024-02-15)
We describe an important risk management tool at financial institutions, risk appetite frameworks. We observe those frameworks for credit cards portfolios at four large banks and analyze when and why banks adjust them. The risk appetite frameworks for these banks monitor 40 to 150 metrics. We focus on metrics related to outstanding balances of which we identified 79. Overall, we find that these frameworks are sticky. Most adjustments occur during scheduled annual reviews and are relatively limited. Limit breaches are rare. Thresholds are often changed the month after a breach or after the ...
Supervisory Research and Analysis Working Papers , Paper 24-01

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