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Working Paper
Insurance, Weather, and Financial Stability
In this paper, we introduce a model to study the interaction between insurance and banking. We build on the Federal Crop Insurance Act of 1980, which significantly expanded and restructured the decades-old federal crop insurance program and adverse weather shocks—over-exposure of crops to heat and acute weather events—to investigate some insights from our model. Banks increased lending to the agricultural sector in counties with higher insurance coverage after 1980, even when affected by adverse weather shocks. Further, while they increased risky lending, they were sufficiently ...
Working Paper
Domestic Lending and the Pandemic: How Does Banks' Exposure to Covid-19 Abroad Affect Their Lending in the United States?
Shortly after the onset of the pandemic, U.S. banks cut their term lending to businesses–but little is known about how much, and why, banks' choice to ration credit contributed to this contraction. Afforded by a unique combination of several highly granular bank regulatory datasets, we identify the role of banks' exposure to Covid-related restrictions abroad – a balance sheet "shock" that affects only banks' credit supply, but not their US borrowers' demand for loans. We find that US banks with higher foreign Covid exposure cut their lending to US firms, and tightened terms on such loans, ...
Working Paper
Competition and Bank Fragility
Working Paper
Insider bank runs: community bank fragility and the financial crisis of 2007
From 2007 to 2010, more than 200 community banks in the United States failed. Many of these failed community banking organizations (CBOs) held less than $1 billion in total assets. As economic conditions worsen, banking organizations are expected to preserve capital to withstand unexpected losses. This study examines CBOs prior to failure or becoming problem institutions to understand if, on average, a run on capital by insiders via dividend payouts led to greater financial fragility at the onset of the crisis. We use a control group of similar-sized banks that did not fail or become problem ...
Working Paper
Housing Bust, Bank Lending & Employment : Evidence from Multimarket Banks
I use geographic variation in bank lending to study how bank real estate losses impacted the supply of credit and employment during the Great Recession. Banks exposed to distressed housing markets cut mortgage and small business lending relative to other banks in the same county. This lending contraction had real e?ects, as counties whose banks were exposed to adverse shocks in other markets su?ered employment declines, especially in young ?rms. This ?nding is robust to instrumenting for bank exposure to housing shocks using shocks in distant markets, exposure based on historical lending, or ...
Working Paper
The COVID-19 Shock and Consumer Credit: Evidence from Credit Card Data
We use credit card data from the Federal Reserve Board's FR Y-14M reports to study the impact of the COVID-19 shock on the use and availability of consumer credit across borrower types from March through August 2020. We document an initial sharp decrease in credit card transactions and outstanding balances in March and April. While spending starts to recover by May, especially for risky borrowers, balances remain depressed overall. We find a strong negative impact of local pandemic severity on credit use, which becomes smaller over time, consistent with pandemic fatigue. Restrictive public ...
Working Paper
"Revitalize or Stabilize": Does Community Development Financing Work?
Banks in the United States originate $100 billion in community development loans every year and hold a similar amount of community development investments on their balance sheets. A number of federal place-based policies encourage the provision of these loans and investments to promote growth, employment and the availability of affordable housing to disadvantaged communities. Research into the effectiveness of privately supplied community development financing has been hampered, however, by the lack of comprehensive data on banks' community development activities at a local level. Hand ...
Working Paper
Unintended Consequences of Unemployment Insurance Benefits: The Role of Banks
We use disaggregated U.S. data and a border discontinuity design to show that more generous unemployment insurance (UI) policies lower bank deposits. We test several channels that could explain this decline and find evidence consistent with households lowering their precautionary savings. Since deposits are the largest and most stable source of funding for banks, the decrease in deposits affects bank lending. Banks that raise deposits in states with generous UI policies squeeze their small business lending. Furthermore, counties that are served by these banks experience a higher unemployment ...
Working Paper
Related Exposures to Distressed Borrowers and Bank Lending
We study how banks’ exposure to a large set of related and suddenly-distressed borrowers impacts their commercial lending and risk taking. Using Mexican credit registry data, we examine the effect of the 2014 collapse in energy prices. After this shock, energy-exposed banks—regardless of their ex-ante financial health—raise further their exposure to the energy sector by expanding lending at looser credit terms to borrowers with higher expected losses, while recapitalizing through retained earnings. The shock is transmitted to non-energy firms—despite price controls on retail-energy ...
Working Paper
The Impact of Post Stress Tests Capital on Bank Lending
We investigate one channel through which the annual bank stress tests, as part of the Federal Reserve?s Comprehensive Capital Analysis and Review (CCAR) review, could unexpectedly affect the provision of bank credit. To quantify the impact of the stress tests on lending, we compare the capital implied by the supervisory stress tests with the level of capital implied by the banks? own models, a measure we call the capital gap. We then study the impact of the capital gap on the loan growth of BHCs subject to supervisory or bank-run stress tests. Consistent with previous results in the bank ...