Research in Progress

We document that in the US residential mortgage market, the share of integrated intermediaries acting as both originator and servicer has declined dramatically. Exploiting a regulatory change, we show that borrowers with integrated servicers are more likely to refinance, and conditional on refinance, are more likely to be recaptured by their own servicer. Recaptured borrowers pay lower fees relative to other refinancers. This trend is partially offset by a rise in integrated fintech originator-servicers, who recapture at higher frequency but at worse terms. We build and calibrate a dynamic structural model to interpret these facts and quantify their impact on equilibrium outcomes. Our model suggests that integreated intermediaries enjoy a marginal cost advantage when refinancing recaptured borrowers, and fully disintegrating them would reduce refinancing frequencies and increase fees. Fintechs use technology to reacquire customers and reduce borrower inertia against refinancing. This endogenously creates market power, which fintechs exploit through higher fees. Despite worse terms ex-post, fintechs increase consumer welfare ex-ante by increasing refinancing frequencies. Taken together, our results highlight the importance of intermediaries’ scope in consumer financial outcomes and highlight a novel, quantitatively important application of fintech: customer acquisition.

Open banking (OB) empowers bank customers to share transaction data with fintechs and other banks. 49 countries have adopted OB policies. Consumer trust in fintechs predicts OB policy adoption and adoption spurs investment in fintechs. UK microdata shows that OB enables: i) consumers to access both financial advice and credit; ii) SMEs to establish new fintech lending relationships. In a calibrated model, OB universally improves welfare through entry and product improvements when used for advice. When used for credit, OB promotes entry and competition by reducing adverse selection, but higher prices for costlier or privacy-conscious consumers partially offset these benefits.

We examine whether corporate money in politics benefits or hurts labor using the 2010 Supreme Court ruling Citizens United, which rendered bans on political election spending unconstitutional. In difference-in-difference analyses, affected states experience increases in both capital and labor income relative to unaffected states. We find evidence consistent with increased political spending spurring political competition and the adoption of pro-growth policies. These policies benefit a broader set of constituents as we find a broad-based increase in labor income. Affected states see increased political turnover and reduced regulatory burdens. The economic effects are stronger among ex-ante politically inactive and younger firms.

We study the frictions in dealer-intermediation in residential real estate through the lens of “iBuyers,” technology entrants, who purchase and sell residential real estate through online platforms. iBuyers supply liquidity to households by allowing them to avoid a lengthy sale process. They sell houses quickly and earn a 5% spread. Their prices are well explained by a simple hedonic model, consistent with their use of algorithmic pricing. iBuyers choose to intermediate in markets that are liquid and in which automated valuation models have low pricing error. These facts suggest that iBuyers’ speedy offers come at the cost of information loss concerning house attributes that are difficult to capture in an algorithm, resulting in adverse selection. We calibrate a dynamic structural search model with adverse selection to understand the economic forces underlying the tradeoffs of dealer intermediation in this market. The model reveals the central tradeoff to intermediating in residential real estate. To provide valuable liquidity service, transactions must be closed quickly. Yet, the intermediary must also be able to price houses precisely to avoid adverse selection, which is difficult to accomplish quickly. Low underlying liquidity exacerbates adverse selection. Our analysis suggests that iBuyers’ technology provides a middle ground: they can transact quickly limiting information loss. Even with this technology, intermediation is only profitable in the most liquid and easy to value houses. Therefore, iBuyers’ technology allows them to supply liquidity, but only in pockets where it is least valuable. We also find limited scope for dealer intermediation even with improved pricing technology, suggesting that underlying liquidity will be an impediment for intermediation in the future. 

We study the impact of lender concentration on mortgage pricing. An extensive literature has robustly found little to no relationship between local lender concentration and mortgage interest rates; consequently, federal regulators regard mortgage markets as national and view local concentration as irrelevant to financial regulation and monetary policy. We challenge this conclusion, showing, through a standard instrumental variables approach, that while local concentration has little influence on interest rates, it strongly affects upfront fees and lending standards. In particular, lenders charge much higher fees in more concentrated markets: non-interest fees are on average 35 basis points higher in the 10\% most concentrated markets than in the 10% least concentrated markets in our sample, corresponding to a difference of more than $1,200 for the average borrower. In addition, rejection rates are higher, and approved mortgages are less risky on average in more concentrated markets. Our findings suggest that contrary to current policy, regulators should regard mortgage markets as local when making policy decisions such as bank merger approvals. 

An artificially low interest rate on household savings is a common form of financial repression in developing economies and typically benefits incumbent banks. Using proprietary data from a leading Chinese FinTech company, we study Fintech's role in ending financial repression through the introduction of a money market fund with deposit-like features available through an already widely-adopted household payment platform.  Cities and banks whose depositor base is more exposed to FinTech see greater deposit outflows. Importantly, exposed banks respond to FinTech competition by offering competing products with market interest rates. FinTech thus facilitates a bottom-up interest rate liberalization.

We study the role of scope in financial intermediation. Using new credit registry data on US firms, we show that in the market for small business lending, multi-product banks benefit from economies of scope across products but exploit their market power to steer firms into more profitable, less regulated products. To quantify these forces and the welfare implications of scope, we develop and estimate an equilibrium model of firm credit provision where banks compete with more specialized non-bank financial intermediaries. In counterfactual simulations, we show that market power and bank steering increase prices and reduce welfare for small firms. These losses, however, are less than the gains from cost synergies. We also simulate equilibrium effects of alternative banking regulations. Our results highlight the need for regulation to recognize the multi-product nature of financial intermediaries.

Like their employees, corporations in the United States may face civil or even criminal liability when  breaking the law. These penalties, designed to discourage bad behavior, allocate damages, and effect retributive justice, typically take the form of fines, settlement agreements, and even prison for individuals. While a wide array of penalties are available to both private and government litigants, there is little empirical evidence on the form these penalties take---if penalties are imposed at all. In this paper, we assemble a detailed database of corporate wrongdoing and the associated legal consequences to explore who the justice system holds accountable in a corporate context. In particular, we examine how individual and corporate-level punishments depend on the particulars of the law in question, the character, severity, and victim of the harm, and the capacity of the legal system to pursue the claim. In preliminary results, we find that harms to shareholders and to the government---in contrast to employees, customers, or the broader public---are significantly more likely to result in fines and prison. Our ongoing research has important policy implications for regulatory design and the apportionment of legal resources.