Working Papers
We document significant deposit interest rate differentials along the income distribution - moving from the bottom to the top income decile increases deposit rates by 55% of the sample median rate. These spreads persist independent of banking competition, and instead appear to arise from banks internalizing households' participation in nondeposit markets. Consistent with this hypothesis, only income components related to participation can explain our baseline findings, and quasi-exogenous reductions in participation incentives through increases in capital gains taxes are associated with lower spreads along the participation distribution. Our findings highlight lack of participation as a source of deposit market power.
Smokestacks and the Swamp, with Stefan Lewellen, Arkodipta Sarkar, and Xiao Zhao, Conditionally Accepted at Review of Financial Studies
We examine whether politicians affect local firms' industrial pollution, and whether such effects are transmitted through plant-level networks to affect pollution in other regions. We first document that close Democrat wins in U.S. congressional races are associated with lower emissions and higher abatement at the plant-level, especially when politicians have strong pro-environmental preferences. We also find evidence of reallocation: firms shift emissions away from areas represented by Democrats. However, reallocation is imperfect: firm-level costs are higher and market-to-book ratios lower if firms' representation is more Democratic. Lower pollution-related illnesses around plants in Democratic districts suggest pass-through effects on local communities.
We argue that the deregulation of the U.S. banking sector in the late 1980s played an important role in facilitating risk build-up and cross-sectional differences in bank performance prior to the Global Financial Crisis. Deregulation increased deposit competition, squeezing banks’ net interest margins. Banks responded by increasing risk-taking, engaging in M&A activity, and developing new sources of income. Banks in early-deregulating states were compelled to make risk-taking and business model changes that provided long-term advantages over banks in late-deregulating states. Using network-based measures of bank deregulation intensity, we verify these patterns in the data.
We examine monetary policy transmission when deposit market structure is endogenous. Expansionary monetary policy stimulates bank entry, especially when entry barriers are low. Banks' deposit quantity sensitivities are increasing in entry barriers, but the number of local banks is decreasing in entry barriers, and this channel dominates. Hence, higher entry barriers are associated with reduced monetary policy transmission. We test this prediction using novel, network-based measures of entry barrier shocks stemming from U.S. bank deregulation. Consistent with the model, local establishment and employment growth increase more in response to expansionary monetary policy when entry barriers are lower.