Abstract: This paper examines the effects of targeted credit rationing by banks on firms likely to generate negative externalities. We exploit an initiative of the U.S. Department of Justice, labeled Operation Choke Point, which compelled banks to limit relationships with firms in industries prone to fraud and money laundering. Using supervisory loan-level data, we find that, as intended, targeted banks reduce lending and terminate relationships with affected firms. However, most firms fully substitute credit through non-targeted banks under similar terms. Overall, the performance and investment of these firms remain unchanged, suggesting that targeted credit rationing is widely ineffective in promoting change. 

(Working Paper - August 2023) 

Conference and Seminar Presentations: 2023 SFS Cavalcade North America (US), 50th EFA Annual Meeting (Netherlands), 2023 FIRS Conference (Canada), 12th MoFiR Workshop on Banking (Italy), 2023 University of Kentucky Finance Conference (US), 2023 OCC Symposium on Emerging Risks in the Banking System (US), 4th International Research Conference on Empirical Approaches to Anti-Money Laundering and Financial Crime (Bahamas), IBEFA Summer Meeting 2023 (US), European University Institute (Italy), Federal Reserve Board (US), University of Maryland (US), and Rice University (US)

Abstract: We quantify redistribution between consumers in financial markets comparing cards with and without rewards. Regardless of income, sophisticated individuals profit from reward cards at the expense of naive consumers. We exploit bank-initiated account limit increases to show that reward cards induce more spending, leaving naive consumers with higher unpaid balances. Naive consumers repay credit cards following a sub-optimal balance-matching heuristic and incur higher costs. Banks incentivize the use of reward cards offering lower rates. We estimate an aggregate annual redistribution of $15 billion from less to more educated, poorer to richer, and high to low minority areas, widening existing disparities.

(Working Paper - January 2024) 

Coverage: New York Times, Washington Post, Financial Times, Bloomberg (Wealth Economics), Bloomberg (Opinion), Vox, Forbes, CEPR VoxTalks (podcast), CNBC (video), Marginal Revolution, Quartz, Motley Fool, View from the Wing, Houston Chronicle, Retail Industry Leaders Association

Conference and Seminar Presentations: WFA Meeting 2023 (US), SFS Cavalcade 2023 (US), FIRS Conference 2022 (Hungary), 16th Swiss Winter Conference on Financial Intermediation (Switzerland), 2022 University of British Columbia Winter Finance Conference (Canada), IMF (US), Federal Reserve Board (US), 15th Queen Mary Behavioral Finance Working Group Conference (UK), 5th Bristol Banking Workshop (UK), European University Institute (Italy), 37th European Economic Association Meeting (Italy), 4rd VU Amsterdam Conference on Research in Behavioral Finance (Netherlands), 2022 IWFSAS (UK), Nova SBE (Portugal), George Washington University (US), World Bank (US), 4th Philadelphia Fed CFI Workshop on Payments, Lending, and Innovations in Consumer Finance (US), Bank of Portugal (Portugal), University of Luxembourg (Luxembourg), 3rd Georgia State CEAR/HEC Montreal RSI Household Finance Workshop (Canada), Federal Reserve/George Washington University Financial Literacy Seminar (US)

Abstract: Amid the current U.S.-China technological race, the U.S. has imposed export controls to deny China access to strategic technologies. We document that these measures prompted a broad-based decoupling of U.S. and Chinese supply chains. Once their Chinese customers are subject to export controls, U.S. suppliers are more likely to terminate relations with Chinese customers, including those not targeted by export controls. However, we find no evidence of reshoring or friend-shoring. As a result of these disruptions, affected suppliers have negative abnormal stock returns, wiping out $130 billion in market capitalization, and experience a drop in bank lending, profitability and employment. 

(Working Paper - April 2024)

Coverage:  NY Fed Liberty Street Economics, Bloomberg, Marginal Revolution

Conference and Seminar Presentations: Joint CEPR & Kiel Institute for the World Economy Conference on Geoeconomics (Germany), European Central Bank (Germany), and University of Connecticut (US)

Abstract: This paper provides an overview of the literature examining how the introduction of a CBDC would affect the banking sector, financial stability, and the implementation and transmission of monetary policy in a developed economy such as the United States. A CBDC has the potential to improve welfare by reducing financial frictions in deposit markets, by boosting financial inclusion, and by improving the transmission of monetary policy. However, a CBDC also entails considerable risks, including the possibility of bank disintermediation and associated contraction in bank credit, as well as potential adverse effects on financial stability. A CBDC also raise important questions regarding monetary policy implementation and the footprint of central banks in the financial system. Ultimately, the effects of a CBDC depend critically on its design features, particularly remuneration.

(Working Paper - November 2022) 

Conference and Seminar Presentations: Federal Reserve Board (US); Judge Business School, University of Cambridge (UK)

Abstract: Financial education is a key priority of the policy agenda aimed at fostering financial inclusion and enhancing economic and development outcomes. While academic research on the impact of financial education on financial knowledge and decisions have been rapidly expanding, most of the evidence focuses on low-income individuals and developing economies (Kaiser, Lusardi, Menkhoff, and Urban, 2022). However, having the necessary knowledge, skills, and attitudes to make good financial decisions is not just relevant for this group of people or countries. For instance, a recent survey conducted by the European Commission highlighted the urgent need to improve financial literacy in the European Union (EU), with only 18 percent of citizens demonstrating a high level of financial literacy (European Commission, 2023). In this project, we have the ideal setting to conduct a randomized controlled trial (RCT) on financial education in a developed OECD country (Portugal), targeting mainly middle-income individuals, with the adults spread throughout the country. Indeed, Portugal ranked last among EU members in the latest European Commission’s financial literacy ranking, and national authorities such as the country’s central bank (Banco de Portugal) and other government agencies have put forward different strategies to increase financial and digital literacy levels. We plan to conduct an RCT using a financial literacy program named “Finanças para Todos” (i.e., Finance for All) to be implemented by the Finance Knowledge Center of the Nova School of Business and Economics. A pilot of the program took place during the 2022/2023 academic year, which had around 700 participants attending in person or online and was highly successful in terms of demand for the program and feedback received. Our experimental design consists of randomly allocating participants to a treatment group that is assigned to attend the financial literacy program (in-person or online format) or a control group that is not assigned to attend the training. All individuals in the sample had previously self-enrolled into the program following an outreach campaign using different news outlets in the country. Our sample consists of over 5200 participants of which 66% are women, 74% have attained some higher education level, 76% have some type of credit product, and 44% have a household income higher than 2000EUR. The average age is 40 years. 

(RCT in Progress - AEA RCT Registry)