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Insurance, Weather, and Financial Stability
Kahn, Charles M.; Panjwani, Ahyan; Santos, João A. C. (2024-05-01)
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 ...
Staff Reports , Paper 1107

Working Paper
Evergreening
Sanchez, Juan M.; Paul, Pascal; Faria-e-Castro, Miguel (2022-07)
We develop a simple model of relationship lending where lenders have incentives for evergreening loans by offering better terms to less productive and more indebted firms. We detect such lending behavior using loan-level supervisory data for the United States. Low-capitalized banks systematically distort firms’ risk assessments to window-dress their balance sheets. To avoid further reductions in their capital ratios, such banks extend relatively more credit to underreported borrowers. We incorporate the theoretical mechanism into a dynamic heterogeneous-firm model to show that evergreening ...
Working Papers , Paper 2021-012

Report
Income Inequality and Job Creation
Doerr, Sebastian; Lee, Donggyu; Drechsel, Thomas (2022-06-01)
We propose a novel channel through which rising income inequality affects job creation and macroeconomic outcomes. High-income households save relatively more in stocks and bonds but less in bank deposits. A rising top income share thereby increases the relative financing cost for bank-dependent firms, which in turn create fewer jobs. Exploiting variation in top income shares across US states and an instrumental variable strategy, we provide evidence for this channel. We then build a general equilibrium macro model with heterogeneous households and heterogeneous firms and calibrate it to our ...
Staff Reports , Paper 1021

Working Paper
Competition and Bank Fragility
Sengupta, Rajdeep; Marsh, W. Blake (2017-06-01)
Research Working Paper , Paper RWP 17-6

Working Paper
Persistent Effects of the Paycheck Protection Program and the PPPLF on Small Business Lending
Dufresne, Lora; Spiegel, Mark M. (2024-08-07)
Using bank-level U.S. Call Report data, we examine the longer-term effects of the Paycheck Protection Program (PPP) and the PPP Liquidity Facility on small business (SME) lending. Our sample runs through the end of 2023H1, by which time almost all PPP loans were forgiven or repaid. To identify a causal impact of program participation, we instrument based on historical bank relationships with the Small Business Administration and the Federal Reserve discount window prior to the onset of the pandemic. Elevated bank participation in both programs was positively associated with a substantial ...
Working Paper Series , Paper 2024-26

Working Paper
Motivating Banks to Lend? Credit Spillover Effects of the Main Street Lending Program
Zarutskie, Rebecca; Zlate, Andrei; Minoiu, Camelia (2021-12-17)
We study the effects of the Main Street Lending Program (MSLP)—an emergency lending program aimed at supporting the flow of credit to small and mid-sized firms during the COVID-19 crisis on bank lending to businesses. Using instrumental variables for identification and multiple loan-level and survey data sources, we document that the MSLP increased banks' willingness to lend more generally outside the program to both large and small firms. Following the introduction of the program, participating banks were more likely to renew maturing loans and to originate new loans, as well as less ...
Finance and Economics Discussion Series , Paper 2021-078

Working Paper
Claim Dilution in the Municipal Debt Market
Zimmermann, Thomas; Ivanov, Ivan T. (2018-02-05)
Using loan-level municipal bank lending data, we examine the debt structure of municipalities and its response to exogenous income shocks. We show that small, more indebted, low-income, and medium credit quality counties are particularly reliant on private bank financing. Low income counties are more likely to increase bank debt share after an adverse permanent income shock while high income counties do not shift their debt structure in response. In contrast, only high income counties draw on their credit lines after adverse transitory income shocks. Overall, our paper raises concerns about ...
Finance and Economics Discussion Series , Paper 2018-011

Working Paper
Owe a Bank Millions, the Bank Has a Problem: Credit Concentration in Bad Times
Agarwal, Sumit; Correa, Ricardo; Morais, Bernardo; Roldán, Jessica; Ruiz-Ortega, Claudia (2020-07-07)
How does a bank react when a substantial share of its borrowers suffer a large negative shock? To answer this question we exploit the 2014 collapse of energy prices using the universe of Mexican commercial bank loans. We show that, after the drop in energy prices, banks exposed to the energy sector increased their exposure to these borrowers even more, relaxing credit margins to their larger debtors in the sector. An increase of one standard deviation in a bank's ex-ante exposure to the energy sector increased the loan volume to borrowers in the sector by 18 percent and reduced interest rates ...
International Finance Discussion Papers , Paper 1288

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