Abstract: We study credit card rewards as an ideal laboratory to quantify redistribution between consumers in retail financial markets. Comparing cards with and without rewards, we find that, regardless of income, sophisticated individuals profit from reward credit cards at the expense of naive consumers. To probe the underlying mechanisms, we exploit bank-initiated account limit increases at the card level and show that reward cards induce more spending, leaving naive consumers with higher unpaid balances. Naive consumers also follow a sub-optimal balance-matching heuristic when repaying their credit cards, incurring higher costs. Banks incentivize the use of reward cards by offering lower interest rates than on comparable cards without rewards. We estimate an aggregate annual redistribution of $15 billion from less to more educated, poorer to richer, and high to low minority areas, widening existing disparities.

(Working Paper - January 2023)

Coverage: Financial Times, Bloomberg, Vox, Forbes, Quartz, Motley Fool, View from the Wing, Marginal Revolution

Conference and Seminar Presentations: FIRS Conference 2022 (Hungary), 2022 University of British Columbia Winter Finance Conference (Canada), IMF (US), Federal Reserve Board (US), 15th Queen Mary Behavioral Finance Working Group Conference (UK), 5th Bristol Banking Workshop (UK), European University Institute (Italy), 37th European Economic Association Meeting (Italy), 4rd VU Amsterdam Conference on Research in Behavioral Finance (Netherlands), 2022 IWFSAS (UK), Nova SBE (Portugal), George Washington University (US), World Bank (US), 4th Philadelphia Fed CFI Workshop on Payments, Lending, and Innovations in Consumer Finance (US), Bank of Portugal (Portugal), University of Luxembourg (Luxembourg), 3rd Georgia State CEAR/HEC Montreal RSI Household Finance Workshop (Canada)

Forthcoming: 16th Swiss Winter Conference on Financial Intermediation (Switzerland)

Abstract: This paper examines whether targeted credit rationing by banks can disrupt the operations of firms likely to generate negative externalities. We exploit a major regulatory initiative in the United States–Operation Choke Point–which targeted bank relationships with firms in industries with a high risk for fraud and money laundering. Using supervisory loan-level data, we find that targeted banks reduce lending and terminate relationships with affected firms. However, these firms fully compensate by substituting lending from non-targeted banks at similar terms, resulting in no changes in total debt, investment, or profitability. Our results suggest that targeted credit rationing fails to promote change.

(Working Paper - November 2022)

Conference and Seminar Presentations: 4th International Research Conference on Empirical Approaches to Anti-Money Laundering and Financial Crime (Bahamas)

Abstract: This paper provides an overview of the literature examining how the introduction of a CBDC would affect the banking sector, financial stability, and the implementation and transmission of monetary policy in a developed economy such as the United States. A CBDC has the potential to improve welfare by reducing financial frictions in deposit markets, by boosting financial inclusion, and by improving the transmission of monetary policy. However, a CBDC also entails considerable risks, including the possibility of bank disintermediation and associated contraction in bank credit, as well as potential adverse effects on financial stability. A CBDC also raise important questions regarding monetary policy implementation and the footprint of central banks in the financial system. Ultimately, the effects of a CBDC depend critically on its design features, particularly remuneration.

(Working Paper - November 2022)

Conference and Seminar Presentations: Federal Reserve Board (US)

Abstract: A large-scale microcredit expansion program—together with a credit bureau accessible to all lenders—can enable unbanked borrowers to build a credit history, facilitating their transition to commercial banks. Loan-level data from Rwanda show the program improved access to credit and reduced poverty. A sizable share of first-time borrowers switched to commercial banks, which cream-skim less risky borrowers and grant them larger, cheaper, and longer-maturity loans. Switchers have lower default risk than non-switchers and are not riskier than other bank borrowers. Switchers also obtain better loan terms from banks compared with first-time bank borrowers without a credit history.

(Published Paper | Working Paper | BibTeX)

Coverage: VoxDev, VoxEU

Conference and Seminar Presentations: University of Chicago Consumer Finance Conference (US), 2019 FIRS Conference (US), 46th EFA Annual Meeting (Portugal), IMF-DFID Conference on Financial Inclusion (US), CSAE Oxford Conference 2018 (UK), 2018 Development Economics and Policy Conference (Switzerland), 7th Navarra Center For International Development Research Workshop (Spain), Villanova University (US), International Monetary Fund (US), National Bank of Rwanda (Rwanda), 2018 Africa Meeting of the Econometric Society (Benin), 1st Endless Summer Conference on Financial Intermediation and Corporate Finance (Cyprus), 33rd European Economic Association Conference (Germany), 8th International Research Workshop in Microfinance (Norway), 6th Emerging Scholars in Banking and Finance Conference (UK), IBEFA-ASSA Meeting 2019 (US), MFA 2019 Annual Meeting (US), Trinity College Dublin (Ireland), Reserve Bank of India/Imperial College London Conference on Financial Intermediation in Emerging Markets (India), 12th Swiss Winter Conference on Financial Intermediation (Switzerland), 2019 NOVAFRICA Conference on Economic Development (Portugal), 13th Luso-Brazilian Finance Meeting (Portugal), CUHK-RCFS Conference on Corporate Finance and Financial Intermediation (Hong Kong), 2019 Congress of the SSES (Switzerland), EFiC 2019 Conference (UK), Chicago Financial Institutions Conference 2019 (US), NEUDC 2019 (US), Economic Research Southern Africa (South Africa), 3rd IMF Annual Macro-Financial Research Conference (US)

Abstract: This paper examines the supply chain effects of the most damaging cyberattack in history so far. The attack propagated from the directly hit firms to their customers, causing a four-fold amplification of the initial drop in profits. These losses were larger for affected customers with fewer alternative suppliers. Internal liquidity buffers and increased borrowing, mainly through bank credit lines, helped firms navigate the shock. Nonetheless, the cyberattack led to persistent adjustments to the supply chain network, with affected customers terminating trading relations with directly hit firms and forming new ones with alternative suppliers with a stronger cybersecurity posture.

(Published Paper | Working Paper | BibTeX)

Coverage: NY Fed Liberty Street Economics

Conference and Seminar Presentations: 2021 NBER Corporate Finance Spring Meeting (online), London School of Economics (online), 2020 Federal Reserve System Conference on Financial Institutions, Regulation, and Markets (online), 2020 OFR/Cleveland Fed Financial Stability Conference (online), EBRD (online), Federal Reserve Board (online), NY Fed (online), University of Sussex (online), 2020 Bank of Italy/FRB Conference on Nontraditional Data & Statistical Learning (online), 2020 EBA Policy Research Workshop (online), 2021 SGF Conference (online), Bank of Italy (online), ifo Institute - University of Munich (online), Humboldt University of Berlin (online), Bentley University (online), Brattle Group (online), University of Virginia Darden School of Business (online), Babson College (online), 2021 Federal Reserve Stress Testing Conference (online), IV Conference on Financial Stability (online), 3rd Endless Summer Conference of Financial Intermediation and Corporate Finance (online), 2021 IBEFA Summer Meeting (online).

Abstract: We analyze the credit supply and real effects of bank bail-ins by exploiting the unexpected failure and subsequent resolution of a major Portuguese bank. Using loan-level data, we show that while firms more exposed to the bail-in suffered a significant contraction of credit at the intensive margin, they were on average able to compensate for the supply-driven shock. However, affected SMEs experienced a binding reduction of funds available through credit lines, and those with lower internal liquidity increased precautionary cash holdings and reduced investment and employment. Our results highlight the trade-off policymakers face when using this new bank resolution mechanism.

(Published Paper | Working Paper | BibTeX)

Coverage: Wall Street Journal, VoxEU, Moody’s Analytics, Eurointelligence, Mondovisione, Tribuna Economica, ECO (PT), Jornal de Negócios (PT - online, paper and front page), Bank of Portugal - Economics Synopsis

Conference and Seminar Presentations: 2018 Sapienza/BAFFI CAREFIN/RFS Conference (Italy), 45th EFA Annual Meeting (Poland), 2018 FIRS Conference (Spain), 2019 Federal Reserve Day-Ahead Conference (US), Columbia University/BPI 2019 Bank Research Conference (US), Basel Committee on Banking Supervision/CEPR Workshop (Switzerland), 2018 AFA PhD Poster Session (US), 11th Swiss Winter Conference on Financial Intermediation (Switzerland), ABFER/CEPR/CUHK First Annual Symposium in Financial Economics (Hong Kong), 2nd CEPR Annual Spring Symposium in Financial Economics (UK), De Nederlandsche Bank/EBC/CEPR Conference (Netherlands), 5th Emerging Scholars in Banking and Finance Conference (UK), Columbia Business School (US), International Monetary Fund (US), 32nd EEA Conference (Portugal), 4th Bank of Canada/Bank of Spain Workshop (Canada), Single Resolution Board (Belgium), 9th European Banking Center Network Conference (UK), Deutsche Bundesbank/IWH/CEPR Conference (Germany), BI Norwegian (Norway), Bank of Italy (Italy), 4th EFI Research Network Workshop (Belgium), Sydney Banking and Financial Stability Conference 2017 (Australia), Universidad Carlos III de Madrid (Spain), Bank of England (UK), University of Bonn (Germany), 2018 Luso-Brazilian Finance Meeting (Brazil), 17th CREDIT Conference (Italy), 2018 Fixed Income and Financial Institutions Conference (US)

Abstract: This paper investigates the impact and appropriateness of establishing a fully mutualised European Deposit Insurance Scheme (EDIS) using a unique supervisory micro-level dataset on euro area banks’ covered deposits and their other liabilities. We find that an ex-ante funded Deposit Insurance Fund (DIF) with a target size of 0.8% of euro area covered deposits would be sufficient to cover losses even in a severe banking crisis. We then derive risk-based contributions to the DIF based on different bank- and country-specific factors, showing that they can take into account the relative riskiness of banks and banking systems to tackle moral hazard. We also find that smaller and larger banks would not excessively contribute to EDIS relative to the amount of covered deposits in their balance sheet. Finally, we show that there would be no unwarranted systematic cross-subsidisation within EDIS in the sense of some banking systems systematically contributing less than they would benefit from the DIF.

(Published Paper | Working Paper | BibTeX)

Coverage - Media: VoxEU, ActionForex, Moody’s Analytics

Coverage - Speeches: President of the ECB (Mario Draghi), Vice-President of the ECB (Luis de Guindos), Vice-President of the ECB (Vítor Constâncio), Governor of the Bank of Portugal (Carlos Costa), Vice-Governor of the Bank of Portugal (Elisa Ferreira), Governor of the Bank of Finland (Olli Rehn), Governor of the National Bank of Denmark (Per Callesen), ECB Chief Economist and Former Governor of the Central Bank of Ireland (Philip Lane)

Conference Presentations: 69th Economic Policy Panel Meeting (Estonia), 2019 Biennial IADI Research Conference (Switzerland)

Abstract: This paper examines whether banks strategically incorporate their competitors’ liquidity mismatch policies when determining their own and how these collective decisions impact financial sector stability. Using a novel identification strategy exploiting the presence of partially overlapping peer groups, I show that banks’ liquidity transformation activity is driven by that of their peers. These correlated decisions are concentrated on the asset side of riskier banks and are asymmetric, with mimicking occurring only when competitors are taking more risk. Accordingly, this strategic behavior increases banks’ default risk and overall systemic risk, highlighting the importance of regulating liquidity risk from a macroprudential perspective.

(Published Paper | Working Paper | BibTeX)

Award: 2019 ESRB Ieke van den Burg Prize for Research on Systemic Risk

Coverage: ECB Task Force on Systemic Liquidity, Deputy Governor of Central Bank of Ireland (Sharon Donnery)

Conference and Seminar Presentations: Federal Reserve Board (US), Universitat Pompeu Fabra (Spain), University of Oxford (UK), Nova SBE (Portugal), INSEAD (France), Rotterdam School of Management (Netherlands), Warwick Business School (UK), Queen Mary University of London (UK), KU Leuven (Belgium), Bank of England (UK), European Central Bank (Germany), NYU/UoF 8th International Risk Management Conference (Luxembourg), 1st IWH/FIN/FIRE Workshop on Challenges to Financial Stability (Germany), University of Cambridge/FNA Financial Risk and Networks Conference (UK), Bank of Finland/ESRB/RiskLab Conference (Finland), Banco de México/CEMLA/University of Zurich Conference (Mexico), 4th EBA Policy Research Workshop (UK), Federal Reserve Bank of Cleveland/OFR 2015 Financial Stability Conference (US), 2017 AEA Annual Meeting (US), 5th MoFiR Workshop on Banking (US), CEPR/Bank of Israel Conference on Systemic Risk and Macroprudential Policy (Israel), 4th ESRB Annual Conference (Germany)