1. Strategic Liquidity Mismatch and Financial Sector Stability

R&R (2nd round) at the Review of Financial Studies

This paper examines the impact of banks' collective liquidity mismatch policies on the stability of the financial sector. Using a novel identification strategy exploiting partially overlapping peer groups, I show that the liquidity created by individual banks is in large part driven by the liquidity transformation activity of their respective peers. Such correlated liquidity mismatch decisions are asymmetric and concentrated on the asset-side component of liquidity creation. Importantly, this strategic behavior increases both the default risk of individual institutions and overall systemic risk. From a macroprudential perspective, the results highlight the importance of explicitly regulating systemic liquidity risk.

  • Conference and Seminar Presentations: Federal Reserve Board (US), Universitat Pompeu Fabra (Spain), Saïd Business School, 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), NYU/UoF 8th International Risk Management Conference (Luxembourg), European Central Bank (Germany), 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 Mexico/CEMLA/University of Zurich Conference (Mexico), 4th EBA Policy Research Workshop (UK), 2015 Federal Reserve Bank of Cleveland/OFR Financial Stability Conference (US), 2017 AEA Annual Meeting (US), 5th MoFiR Workshop on Banking (US)

2. Sharing the Pain? Credit Supply and the Real Effects of Bank Bail-ins

with Thorsten Beck (Cass Business School) and Samuel Da-Rocha-Lopes (EBA and Nova SBE)

We analyze the credit supply and real effects of bank bail-ins by exploiting the unexpected failure of a major bank in Portugal and its subsequent resolution. Using a unique dataset of matched firm-bank data on loan amounts and interest rates from the Portuguese Credit Register, we show that the bailed-in bank significantly decreased credit supply after the shock but that exposed firms were able to compensate this credit contraction with other sources of funding, including new lending relationships. These effects were strongest for mid-sized and larger firms. Though there was on average no loss of external funding, we observe a moderate increase in interest rates as well as lower investment and job losses at firms with higher exposure to the affected bank before its failure. We explain the latter real effects with higher precautionary cash holdings due to increased uncertainty.

  • Conference and Seminar Presentations: 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 European Economic Association 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), 2018 Sapienza/BAFFI CAREFIN/Review of Financial Studies Conference (Italy)
      • By co-author: Research Task Force of the Basel Committee on Banking Supervision/CEPR Joint Workshop (Switzerland), BI Norwegian Business School (Norway), Bank of Italy (Italy), 4th Workshop of the Empirical Financial Intermediation Research Network (Belgium), Sydney Banking and Financial Stability Conference 2017 (Australia)
      • Scheduled: 11th Swiss Winter Conference on Financial Intermediation - Poster Session (Switzerland), 2018 Fixed Income and Financial Institutions Conference (US), 2018 Financial Intermediation Research Society Conference (Spain)
  • Coverage: Wall Street Journal, VoxEU, Eurointelligence, ECO (Portuguese), Jornal de Negócios (Portuguese - online, paper and front page)

3. Financial Access Under the Microscope

with Sumit Agarwal (Georgetown), Thomas Kigabo (NBR), Camelia Minoiu (Wharton and IMF) and Andrea Presbitero (IMF)

We examine the effects of a large banking expansion program targeting first-time borrowers as well as their later transition to the formal banking sector using a supervisory dataset from a developing Sub-Saharan African country covering loans to more than one million individuals from 2008 to 2016. Our results indicate that loans extended under this program were smaller, cheaper, and more likely to become non-performing than loans extended by other banks. Exploiting geographical variation in ex-ante bank presence at the district level, we also show that the program led to an increase in the likelihood that previously unbanked individuals obtain a loan, particularly women and borrowers from rural areas. Finally, we show that borrowers who switch from microfinance institutions (MFIs) to banks have larger, longer maturity and cheaper loans in the new banks when compared to new loans of similar borrowers that stay with MFIs. However, the loans granted by the switchers’ new banks are still smaller and have shorter maturities when compared to new loans of similar borrowers that were already in the formal banking sector.

(part of a project on Macroeconomic Research in Low-Income Countries supported by the UK DFID)