QE, Bank Liquidity Risk Management, and Non-Bank Funding: Evidence from U.S. Administrative Data (with M. Darst, A. Kontonikas, JL. Peydro and A. Vardoulakis), (Link to FEDS).
We show that the effectiveness of unconventional monetary policy is limited by how banks adjust credit supply and manage liquidity risk in response to fragile non-bank funding. For identification, we use granular U.S. administrative data on deposit accounts and loan-level commitments, matched with bank-firm supervisory balance sheets. Quantitative easing increases bank fragility by triggering a large inflow of uninsured deposits from non-bank financial institutions. In response, banks that are more exposed to this fragility actively manage their liquidity risk by offering better rates to insured deposits, while cutting uninsured rates. Doing so, they shift away from uninsured to insured deposits. Importantly, on the asset side, these banks also reduce the supply of contingent credit lines to corporate clients. This tightening of liquidity provision has real effects, as firms reliant on more exposed banks experience a reduction in liquidity insurance stemming from credit lines, leading to lower investment. Our analysis reveals that the fragility of deposit funding can disrupt the complementarity between deposit-taking and the provision of credit lines.
Presented at: AFA 2026 (scheduled), BIS (scheduled), Bundesbank (scheduled), FDIC (scheduled), Oxford Macro-Finance, FRB, EFI, among others.
Profit Shifting and Firm Credit (with F. Delis, M. Delis, L. Laeven and S. Ongena), (Link to SSRN)(Link to Swiss Finance Institute).
Profit shifting by multinational enterprises (MNEs) generates earnings but also carries risks. We examine how banks perceive this tradeoff in their credit decisions, mainly credit costs. Using novel profit shifting estimates for each MNE-year, we show that banks, on average, give favorable credit spreads and larger loan amounts to profit-shifting MNEs. This is in stark contrast to other tax evasion practices that yield the opposite results. However, the introduction of OECD’s Base Erosion and Profit Shifting (BEPS) introduced significant risk to profit-shifting, yielding increasing credit spreads and lowering loan amounts, especially where banks are less able to collect information.
Presented at: Central Bank of Ireland, CEPR ES Conference, among others.
(In)dependent Central Banks (with V. Ioannidou, T. Lambert and A. Michaelides), (Link to CEPR) (Link to SSRN). To be submitted again
From the late 1980s, many countries have reformed the institutional framework governing their central banks to increase operational independence. Collecting systematic biographical information, international press coverage, and independent expert opinions, we find that over the same period appointments of central bank governors have become more politically motivated, especially after significant legislative reforms aiming to insulate central banks and their governors from political interference. We also show that politically motivated appointments reflect lower de facto independence, and are associated with worse inflation outcomes. Our findings inform the debate about political accountability and credibility in policy making at central banks.
Presented at: NBER SI 2024, EFA 2023, MoFiR 2023, CEPR ES Conference 2022, CEPR PolEconFin 2022, ESCB 2022, HEC Paris, NYU-SAFE 2022, among others.
It has also been featured in Financial Times, VoxEU, The Banker
Shock Absorbers and Transmitters: The Dual Facets of Bank Specialization (with R. Iyer, A. Michaelides and J.L. Peydro), (Link to SSRN).
This paper highlights the dual facets of bank specialization. After negative industry-specific shocks, banks specializing in an affected-sector act as shock absorbers, by increasing their lending to firms in that sector at lower interest rates than non-specialized banks. This lending is to firms with ex-post higher profitability, thus not consistent with zombie lending. However, when there are funding constraints, increased lending to the affected-sector by specialized banks is accompanied by a simultaneous cut in lending to unrelated-sectors, thereby transmitting the shock. These firms compensate by raising funds externally, however, in overall tight financing conditions, there are negative aggregate real effects.
Presented at: ASSA-IBEFA 2024, FIRS 2023, ASSA-AEA 2023, IWH-EBRD (FINPRO 2022), FDIC Bank Research Conference, FINEST 2021, SDU, among others.
FMARC 2022 Best Paper in Finance Award
Banking on Experience (with Q. Cao, H. Degryse and R. Minetti), (Link to CEPR)(Link to SSRN). To be submitted again
We study the impact of different dimensions of banks' experience on the extent of banks' moral hazard in loan markets. Using rich U.S. corporate loan-level data, we find that banks' prior experience with borrowers and co-lenders reinforces their monitoring incentives. Banks' sectoral experience, in contrast, appears to dilute monitoring incentives, calling for a larger lead share in the lending syndicate. In cross-sectional tests, we unpack experience into different dimensions and study to what extent the various components of lenders' experience improve credit market outcomes. The key to our identification strategy is that we exploit variation in experience for the same bank at a given point in time across firms, sectors and other banks. In addition, bank mergers are used as an instrument to identify exogenous shocks to the stock of bank's experience.
Presented at: Bristol Banking workshop, CEPR Swiss Winter Conference (Lenzerheide), 2020 Banca d'Italia, among others.
It has also been featured on VoxEU
Distortive Effects of Deposit Insurance: Administrative Evidence from Deposit and Loan Accounts (with D. Cucic, R. Iyer, J.L. Peydro, and S. Pica).
This paper investigates the distortive impact of deposit insurance on deposit and credit allocation. Utilizing administrative datasets covering all household deposit and corporate credit accounts in Danish banks, we exploit salient changes to the deposit insurance limit after the Global Financial Crisis (GFC). A reduction in the deposit insurance limit prompts retail depositors to withdraw uninsured deposits and reallocate them to other banks to maintain insurance coverage. This disproportionately benefits banks most affected by the GFC, as they differentially raise interest rates to attract funding inflows. The reallocation of deposits has real consequences as exposed banks lend disproportionally to less profitable and less productive firms, which exhibit higher default rates ex-post. We quantify the resulting decrease in aggregate productivity and output. The continued accumulation of elevated credit risk on exposed banks' portfolios may contribute to future financial fragility.
Presented at: NBER SI CF 2025, BIS-CEPR-SCG-SFI (Gerzensee) on FI, Board of Governors, Kentucky Finance Conference 24, 17th NY Fed / NYU Stern Conference on FI, Yale: Rethinking Optimal Deposit Insurance, EFA 2024, CEPR-BIS 24, ECB Research Conference 24 , MOFiR (scheduled), among others.
Real Effect of Imperfect Bank-Firm Matching (with M. Bruche, L. Farinha, E. Sette and S. Tsoukas), (Link to Banco de Portugal).
Using granular bank-firm level credit data, we show that the characteristics of bank-firm matches affect firms' access to credit and real outcomes during crises. We identify a set of potential matches in pre-crisis years, and we use them to predict match formation in crisis times. We generate a measure of ``imperfect matches" given by the difference between realized and predicted matches. In crisis times, imperfect matches deteriorate firm outcomes. The effects are economically important. A one standard deviation worsening in the index is associated with a drop in firms' employment, tangible assets, and survival by 0.9%, 2.7%, and 4.2%, respectively.
Presented at: IWH-WBED FINPRO 2022, IV Financial Stability, Pompeu Fabra, Finance Forum (Nova SBE), FMA2021, Banca d'Italia 2020, Banco de Portugal 2020, among others.
Banking Structures, Liquidity and Macroeconomic Stability (with D. Hong, L. Araujo, and R. Minetti), DRAFT coming soon.
Banking is increasingly a complex activity. We investigate the output and welfare consequences of banking structures in an economy where lenders use information to screen investment quality and to recover value from failed investments. Complex banking (lenders’ joint production of information) eases information production but also facilitates the detection and liquidation of fragile investments. We find that complex banking enhances the resilience to small investment shocks but can amplify the output and welfare responses to large negative shocks. A larger complexity of investments preserves the stabilizing properties of complex banking following small shocks, but increases the chances that complex banking harms welfare after large shocks. The predictions are broadly consistent with evidence from matched bank-firm US data.
Financial Consolidation, Corporate Finance and Firm Investment in the Business Cycle (with T. Moreland and R. Minetti), (Link to SSRN).
We study the impact of the concentration and complexity of the banking sector on firms' financing and investment behavior over the business cycle. We find that, after the late 1990s, while debt issuance remained procyclical for US firms of all sizes, equity issuance and liquidity accumulation switched from countercyclical to procyclical for small and medium-sized publicly-traded firms. Using matched firm-bank data, we uncover evidence that bank consolidation contributed to this change. We rationalize these findings through a general equilibrium business cycle model with financial frictions calibrated to US data. After bank consolidation, the weakening in firms' bargaining power and relational ties with banks enhances firms' precautionary demand for liquidity and equity issuance incentives following positive shocks. The change in financing behavior increases investment sensitivity to aggregate productivity shocks.
Presented at: Rotterdam Corporate Finance Day, CEPR Endless Summer Conference, Midwest Macro 2019, among others.