Research

Selected Working Papers


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. 


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.


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.


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.



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.


A large theoretical literature emphasizes financial networks, but empirical studies remain scarce. We exploit the overlapping bank portfolio structure of US syndicated loans to construct a financial network and characterize its evolution over time. Using techniques from spatial econometrics, we find large spillovers in lending conditions from peers' decisions during normal times: a standard deviation increase in peer lending rates can increase a bank's lending rate by 17 basis points. However, these spillovers vanish in a large recession. We rationalize these findings through the lens of a model of syndicate lending, where banks' reliance on private signals rises during recessions. 


We use U.S. syndicated loan market data to examine how banks responded to the unprecedented injection of reserves by the Fed over several rounds of quantitative easing (QE). We show that higher reserves boost bank lending. To establish a causal interpretation for this finding, we construct a novel instrument for the bank-level exposure to QE by using confidential data on daily bank reserves. Next, we identify a mechanism that can explain this link. We show that the connection between banks' reserves and lending volume depends upon the net return that banks enjoy on reserve balances. Our findings demonstrate that the search for yield component of the risk taking channel---wherein banks increase risk-taking to achieve nominal profitability targets during periods of low interest rates---is also a relevant consideration for policymakers during massive reserve injections. 


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. 


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.



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.