Abstract:
We study branch openings and closures in U.S. banking. Both are concentrated where depositors are rate-sensitive and place less value on physical access, patterns driven by financially sophisticated households with greater digital adoption. The effects are strongest for large banks, with lending playing a lesser role. Incumbents retain branches where depositors are less sensitive and more reliant on proximity; entrants avoid such markets because sticky customers are difficult to attract. The Pandemic accelerated closures while allowing banks to retain deposits through online channels. Overall, depositor sophistication—through rate sensitivity and reduced branch reliance—drives modern branch restructuring.
Abstract:
Older home sellers receive lower returns than younger home sellers. Homes sold by older people have fewer major renovations but higher rates of poor upkeep. Older sellers are also more likely to sell off-MLS (“pocket listings”) and to sell to investors, leading to lower prices. These patterns suggest that older sellers may be disproportionately disadvantaged by agents’ incentive to maximize fees through generating high sales volume instead of maximizing sale prices. Age-related cognitive decline makes the elderly more vulnerable. For causal evidence, we show that reforms making pocket listings more transparent reduced both the prevalence of pocket listings and the magnitude of the age gap in returns.
GSE Restrictions, Credit Supply and Rental Market Spillovers
Abstract:
In 2021, the U.S. Treasury capped the amount of second-home and investment-property mortgages that Fannie Mae and Freddie Mac can buy. The policy lowered credit supply of affected mortgages. Bank and non-bank lenders display a similar supply response, suggesting that deposits offer no advantage in mortgage lending. Lenders adjust credit supply at both the portfolio and market levels, suggesting that lenders manage credit provision market-by-market. Rental housing supply declines while rents increase, consistent with higher financing costs in supplying rental units.
Abstract:
This article describes the evolution of the U.S. banking system, with an emphasis on the rise of shadow banking in the modern era. Shadow banking describes the movement of liquidity transformation from banks to a set of institutions and financial arrangements in the securities markets and outside the traditional regulatory framework. This movement occurred in part from value-enhancing innovation, and in part from less valuable efforts to avoid bank regulations. Both the Global Financial Crisis and the financial disruptions around the 2020 COVID-19 Crisis centered on shadow banks. As we show, “regulatory arbitrage” and shadow bank growth continue apace, suggesting future financial instability.
Bank Stress Testing, Human Capital Investment and Risk Management
Abstract:
This paper studies banks’ investment in risk management practices following the Global Financial Crisis and the advent of stress testing. Banks that experienced greater losses during the Crisis exhibit stronger demand for risk management talents. Banks increase their demand for highly skilled stress test labor in anticipation of a test and following poor performance on a test. Following this higher demand, banks exhibit lower systematic risk and lower profitability. While stress testing has modernized banks’ internal risk management by spurring the acquisition of highly skilled risk management talent, recent changes to the tests could erode its efficacy.
How Perception affects Housing Prices: Evidence from Failed Auctions
Abstract:
In Australian real estate markets, about a third of properties are sold at auction. We show that properties that fail auctions sell later for a 2.6% discount. This effect increases for properties failing multiple auctions and when no bids are made. Consistent with a causal channel, the effect holds when auction failure is instrumented by the tendency of owners to anchor on nearby better properties (and thus set reserve prices too high). Prices cluster just below salient round numbers, and the discount fades over time, inconsistent with our effects reflecting unobserved property characteristics. We test for several mechanisms and conclude that most of the pricing discounts reflect stigma, which reduces potential buyers’ willingness to pay.