Current Research

Publications 

State-ownership and bank presence in deforesting regions: Evidence from the Amazon Rainforest. (2024). (With Matias Ossandon Busch). Published at Applied Economics Letters. 

• https://doi.org/10.1080/13504851.2024.2337327

Working Papers

Effects of U.S. TARP and PPP Bailouts on Banks' Cost of Equity. (2024). (With Allen N. Berger and Raluca A. Roman). 

This study explores the impact of government bailouts on the cost of capital for banks. The effects of bailouts on capital costs are ambiguous. While bailouts might enhance banks' safety, leading to potentially lower costs due to perceived government support, they can also stigmatize banks and reveal adverse information, possibly increasing costs. This study assesses how two different U.S. bailouts, the TARP and PPP, influenced bank funding costs and whether there were any market discipline effects. We find that, after TARP, investors disciplined bailed-out banks by demanding higher rates for equity capital, consistent with the hypothesis of a negative market reaction from bailouts. However, in PPP, investors demanded lower returns to banks that received PPP funds. Our findings are robust to various sensitivity tests, including different model specifications, additional controls for noise in analyst forecasts and corporate governance, and multiple strategies to address endogeneity.

Environmental law enforcement and brown credit: evidence from the Brazilian Amazon. (2024) (With Allen N. Berger, Matias Ossandon Busch, and Raluca A. Roman). 

This study investigates the effects of a weakened environmental law enforcement on the allocation of bank credit to agro-industrial activities in the Brazilian Amazon. Using granular data on bank branches and deforestation at the municipal level, we employ a difference-in-difference model to analyze the impact of a sudden reduction in staff from the Environmental Government Agency (IBAMA) on credit allocation, following Jair Bolsonaro’s election in 2019. Our findings indicate that a relaxed environmental law enforcement leads to an increase in bank credit for agro-industrial activities, particularly in regions with a higher proportion of land available for deforestation. Moreover, banks with a stronger ex-ante risk appetite are more inclined to provide credit to deforesting industries. These findings may signal a tendency among financial institutions to overlook climate-related financial risks when the environmental law enforcement is weakened.

Piercing through the Efficiency Haze:  Was the Paycheck Protection Program Efficiency-Enhancing for Banks or Not? (2023) (With Allen N. Berger and Raluca A. Roman).

We examine the impact of the US Paycheck Protection Program (PPP) on the efficiency of community banks. Our main findings suggest that more intense PPP lending boosted profit efficiency, but also increased cost inefficiencies. This result is more pronounced for banks operating in states with more severe COVID-19 exposure and with poorer economic conditions. We uncover a potential channel for banks’ profit efficiency improvements through core deposits growth, which increased fee earnings. Moreover, we obtain that PPP lenders hired more employees relative to non-PPP lenders and they significantly increased compensation expenses.

Market power convergence in the European banking: A picture of European financial integration advances (2023).

This paper analyses the impact of the European financial market integration advances from 2008 to 2019 on the evolution and convergence path of EU commercial banks’ market power. I employ the convergence methodology for panel data of Phillips and Sul (2007) to investigate the convergence process in EU banks’ market power. This methodology allows to obtain the speed of convergence in market power and detect possible “convergence clubs” and diverging countries within the sample. Then, I assess which factors such as bank size, profitability, credit risk, or foreign bank presence may explain the likelihood of a country to belong to each convergence club.