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Working Paper
Mixed Signals: Investment Distortions with Adverse Selection
Darst, Matt; Refayet, Ehraz (2019-06-21)
We study how adverse selection distorts equilibrium investment allocations in a Walrasian credit market with two-sided heterogeneity. Representative investor and partial equilibrium economies are special cases where investment allocations are distorted above perfect information allocations. By contrast, the general setting features a pecuniary externality that leads to trade and investment allocations below perfect information levels. The degree of heterogeneity between informed agents' type governs the direction of the distortion. Moreover, contracts that complete markets dampen the impact ...
Finance and Economics Discussion Series , Paper 2019-044

Discussion Paper
Crisis Chronicles: The Panic of 1825 and the Most Fantastic Financial Swindle of All Time
Narron, James; Morgan, Donald P. (2015-04-10)
Centered in London, the banking panic of 1825 has been called the first modern financial crisis, the first Latin American crisis, and the first emerging market crisis. And while the panic displayed many of the key elements of past crises we have covered?fluctuations in money growth, an investment bubble, a stock market crash, and bank runs?this crisis had its own twists, including a Bank of England that hesitated before stepping in as lender of last resort. But it is perhaps best known for an infamous bond market swindle surrounding an entirely made-up Central American principality. In this ...
Liberty Street Economics , Paper 20150410

Working Paper
Credit access and relational contracts: An experiment testing informational and contractual frictions for Pakistani farmers
Choudhary, M. Ali; Jain, Anil K. (2022-12)
https://www.federalreserve.gov/econres/ifdp/credit-access-and-relational-contracts.htm
International Finance Discussion Papers

Working Paper
Access to Capital and the IPO Decision: An Analysis of US Private Firms
Almazan, Andres; Swem, Nathan; Titman, Sheridan; Weitzner, Gregory (2025-11-25)
We analyze firms' IPO decisions using detailed financial data on US private firms. We find that firms with higher external capital needs are more likely to go public. Following the IPO, firms increase their investment and debt issuance, resulting in leverage ratios close to their pre-IPO levels. Finally, newly public firms borrow from an expanded pool of lenders at improved terms, with a decrease in the within-firm dispersion in banks' private risk assessments. Our evidence is consistent with firms going public to improve their access to capital, which is facilitated by a reduction in ...
Finance and Economics Discussion Series , Paper 2025-102

Report
Specialization in Banking
Saunders, Anthony; Blickle, Kristian S.; Parlatore, Cecilia (2021-05-01)
Using highly detailed data on the loan portfolios of large U.S. banks, we document that these banks "specialize" by concentrating their lending disproportionately into one industry. This specialization improves a bank’s industry-specific knowledge and allows it to offer generous loan terms to borrowers, especially to firms with access to alternate sources of funding and during periods of greater nonbank lending. Superior industry-specific knowledge is further reflected in better loan and, ultimately, bank performance. Banks concentrate more on their primary industry in times of instability ...
Staff Reports , Paper 967

Working Paper
Employment Dynamics in a Signaling Model with Workers' Incentives
Weingarden, Alison E. (2017-04)
Many firms adjust employment in a "lumpy" manner -- infrequently and in large bursts. In this paper, I show that lumpy adjustments can arise from concerns about the incentives of remaining workers. Specifically, I develop a model in which a firm's productivity depends on its workers' effort and workers' income prospects depend on the firm's profitability. I use this model to analyze the consequences of demand shocks that are observed by the firm but not by its workers, who can only try to infer the firm's profitability from its employment decisions. I show that the resulting signaling model ...
Finance and Economics Discussion Series , Paper 2017-040

Report
Consumer Credit Reporting Data
Gibbs, Christa N.; Guttman-Kenney, Benedict; Lee, Donghoon; Nelson, Scott; Van der Klaauw, Wilbert; Wang, Jialan (2024-08-01)
Since the 2000s, economists across fields have increasingly used consumer credit reporting data for research. We introduce readers to the economics of and the institutional details of these data. Using examples from the literature, we provide practical guidance on how to use these data to construct economic measures of borrowing, consumption, credit access, financial distress, and geographic mobility. We explain what credit scores measure, and why. We highlight how researchers can access credit reporting data via existing datasets or by creating new datasets, including by linking credit ...
Staff Reports , Paper 1114

Report
Optimal Design of Tokenized Markets
Lee, Michael Junho; Martin, Antoine; Townsend, Robert M. (2024-09-01)
Trades in today’s financial system are inherently subject to settlement uncertainty. This paper explores tokenization as a potential technological solution. A token system, by enabling programmability of assets, can be designed to eradicate settlement uncertainty. We study the allocations achieved in a decentralized market with either the legacy settlement system or a token system. Tokenization can improve efficiency in markets subject to a limited commitment problem. However, it also materially alters the information environment, which in turn aggravates a hold-up problem. This limits ...
Staff Reports , Paper 1121

Working Paper
Banks, Non Banks, and Lending Standards
Darst, Matt; Vardoulakis, Alexandros; Refayet, Ehraz (2020-10-09)
We study how competition between banks and non-banks affects lending standards. Banks have private information about some borrowers and are subject to capital requirements to mitigate risk-taking incentives from deposit insurance. Non-banks are uninformed and market forces determine their capital structure. We show that lending standards monotonically increase in bank capital requirements. Intuitively, higher capital requirements raise banks’ skin in the game and screening out bad projects assures positive expected lending returns. Non-banks enter the market when capital requirements are ...
Finance and Economics Discussion Series , Paper 2020-086

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