Itamar Drechsler
Ervin Miller and Arthur M. Freedman Professor of Finance
Wharton, University of Pennsylvania
Co-Director Rodney L. White Center
NBER, Research Associate
Areas of Research:
Asset Pricing, Financial Intermediation, Macro-finance, Monetary Policy
Current Events:
with Alexi Savov and Philipp Schnabl
How the Deposit Franchise Offsets Losses on Long-term Bonds when Interest Rates Increase: A Simple Numerical Illustration
with Alexi Savov and Philipp Schnabl
with Alexi Savov and Philipp Schnabl
Silicon Valley Bank (SVB) was taken over by regulators on March 10, 2023. This is the second-largest bank failure in U.S. history, and the largest bank failure since the 2008 financial crisis. The proximate reason for the intervention was that SVB suffered a bank run after announcing a large loss on selling some of its mortgage-backed securities (MBS). The loss on MBS was caused by an increase in interest rates due to the Federal Reserve's monetary tightening. As of writing, there are increasing concerns about similar problems at other banks. This raises an important question: Why did SVB invest in MBS? We answer this question by explaining the business model of banking. We discuss why banks invest in MBS, why it exposes them to interest rate risk, and how they hedge this interest rate risk. We then offer some observations of why SVB in particular suffered a bank run.
Working Papers:
Banking on Uninsured Deposits (with Alexi Savov, Philipp Schnabl, and Olivier Wang)
June 2023
Revise and Resubmit at the Journal of Finance
Credit Crunches and the Great Stagflation (with Alexi Savov and Philipp Schnabl) [slides]
March 2023
Revise and Resubmit at Quarterly Journal of Economics
The Financial Origins of the Rise and Fall of American Inflation (with Alexi Savov and Philipp Schnabl) [slides]
April 2021
- Marshall Blume Prize in Finance Research (First Prize), 2020-21
- Yuki Arai Faculty Award for best paper in finance at NYU Stern, 2020-21
Liquidity and Volatility (with Alan Moreira and Alexi Savov) [slides]
October 2021
Revise and Resubmit (2nd round) at Journal of Financial Economics
- Best Paper Award, FMA CBOE conference on derivatives and volatility
The Shorting Premium and Asset Pricing Anomalies (with Qingyi Freda Drechsler)
- Internet Appendix containing additional tables and a formal model of the theory
- Winner of the 2014 Q Group Jack Treynor Prize
Notes:
- The multiple logical errors in their argument
Works in Progress:
How the short rate determines the supply of ARMs (with Dominik Supera)
Banks' Impact on Long-term Rates: Evidence from the COVID-era (with Dominik Supera)
Mispricing and the Arbitrage Premium (with Qingyi Freda Drechsler)
Publications:
How Monetary Policy Shaped the Housing Boom (with Alexi Savov and Philipp Schnabl)
Journal of Financial Economics, 144(3), June 2022, 992-1021
Banking on Deposits: Maturity Transformation Without Interest Rate Risk (with Alexi Savov and Philipp Schnabl) [slides]
Journal of Finance, 76(3), June 2021, 1091-1143.
- Winner of the 2021 Brattle Group Prize (Distinguished Paper)
- Yuki Arai Faculty Award for best paper in finance at NYU Stern, 2017-2018
- WFA 2018 Award for Best Paper on Financial Institutions
Liquidity, Risk Premia, and the Financial Transmission of Monetary Policy (with Alexi Savov and Philipp Schnabl)
Annual Review of Financial Economics 10, November 2018, 309-328
The Deposits Channel of Monetary Policy (with Alexi Savov and Philipp Schnabl)
Quarterly Journal of Economics, 132(4), November 2017, 1819-1876. [Internet Appendix] [Data].
- Winner of the Best Paper Prize in Corporate Finance at the 2015 SFS Cavalcade
- Glucksman Institute Research Prize for best paper in finance at NYU Stern, 2015-2016
- Note on Begenau and Stafford (2022)
A Model of Monetary Policy and Risk Premia (with Alexi Savov and Philipp Schnabl) [slides] Journal of Finance, 73(1), February 2018, 317-373.
- Winner of the 2018 Amundi Pioneer Prize (Distinguished Paper)
Who Borrows from the Lender of Last Resort? (with Thomas Drechsel, David Marques-Ibanez, and Philipp Schnabl)
Journal of Finance, 71(5), October 2016, 1933-1974. Lead article.
A Pyrrhic Victory? Bank Bailouts and Sovereign Credit Risk (with Viral Acharya and Philipp Schnabl)
Journal of Finance, 69(6), December 2014, 2689-2739 [Internet Appendix]
- Glucksman Institute Research Prize for best paper in finance at NYU Stern, 2011-2012
Review of Financial Studies, 27(7), July 2014, 2052-2096, [Internet Appendix]
Journal of Finance, 68(5), October 2013, 1843-1889, [Internet Appendix]
- Winner of the 2013 Amundi Smith Breeden Prize (Distinguished Paper)
Carnegie-Rochester Series on Public Policy, Journal of Monetary Economics, 59(5), July 2012, 508-511
What's Vol Got To Do With It (with Amir Yaron)
Review of Financial Studies, 24(1), January 2011, 1-45. Lead Article
- Winner of Best Paper Award at 2009 Utah Winter Finance Conference
Other Publications:
A Tale of Two Overhangs: The Nexus of Financial Sector and Sovereign Credit Risks (with Viral Acharya and Philipp Schnabl)
Banque de France Financial Stability Review, 16, April 2012.