Naz Koont

Working Papers

1. The Digital Banking Revolution: Effects on Competition and Stability [Job Market Paper] (November 2023) SSRN Link

   • How does the digital revolution affect bank competition and financial stability? I use hand-collected data and a novel identification strategy to show that after adopting digital platforms, banks branchlessly operate in more markets, and mid-size banks — those with relatively high quality digital platforms but without extensive branch networks — grow faster. Further, bank balance sheet composition tilts to uninsured deposits on the funding side, and to high income borrowers on the loan side. To disentangle the underlying mechanisms and quantify aggregate effects, I build a structural model of the U.S. banking system and compare the observed digital equilibrium to a counterfactual without digital platforms. The model allows for endogenous adoption of digital platforms, branch networks, market entry, and accounts for digitalization among non-banks. Digitalization decreases local and national market concentration, and average markups fall in deposit and loan markets, holding fixed the size of the banking sector. Consumers capture most of the surplus created by digitalization, however it accrues mostly to wealthier segments of the economy. As for stability, it increases the average market share of lightly-regulated mid-sized banks by 30%, increases the uninsured deposits ratio of the banking sector by 9% while re-sorting uninsured deposits towards larger digital banks, and doubles credit risks associated with lending in market segments that are less-well served by digital technologies. In sum, digital banking increases competition and poses risks to financial stability.

   • Winner: 

     1. HEC Paris Top Finance Graduate Award 2024

     2. Bernstein Center Doctoral Grant 2021 (video)

     3. Columbia Finance Department Best 4th Year Paper 2021

   • Presented at: 20th Macrofinance Society Workshop (poster), Federal Reserve Board, Columbia, Colorado Finance Summit 2023, Hoover Institution Working Group on Financial Regulation, Maryland, Cornell, Duke, UT Austin, Ohio State, Yale, NYU, Chicago, Northwestern, Toronto (Economics), UCLA, UW, UCL (Economics), LSE, LBS, Stanford, UCSD, UPF (scheduled), FIRS 2024 (scheduled), Banque de France Academic Conference on Digital Currency and the Financial System (scheduled), SED 2024 (scheduled).
     
     

2. A New Theory of Credit Lines (With Evidence) (November 2023)
   joint with Jason R Donaldson, Giorgia Piacentino, and Victoria Vanasco

   • We develop a model that suggests a heretofore unexplored role of credit lines: To mitigate debt dilution. The results give a new perspective on the literature on leverage ratchet effects, suggesting they can be curbed by (latent) credit lines, and on latent contracts, suggesting collusive outcomes are unlikely to arise in dynamic environments. The model explains numerous facts, including why credit lines are pervasive but rarely drawn down and why they are bundled with loans, especially for riskier borrowers. We find that the risk of credit line revocation increases borrower leverage and riskiness, suggesting that limited bank commitment can contribute to corporate distress. We find empirical support for this prediction.

   • Presented at: 2023 Fixed Income and Financial Institutions Conference, Bonn, Manheim, UCLA, USC, 2024 Jackson Hole Finance Group Conference (scheduled), University of Kentucky Finance Conference (scheduled), BIS-CEPR-SCG-SFI Conference on Financial Intermediation (scheduled), FIRS 2024 (scheduled), WFA 2024 (scheduled).
     
     

3. Destabilizing Digital "Bank Walks" (May 2023)
   joint with Tano Santos and Luigi Zingales

   • We study the impact of digital banking on the value of the deposit franchise and the stability of the banking sector. Using the classification of digital banking in Koont (2023), we find that when the Fed funds rate increases deposits flow out faster and the cost of deposits increases more in banks with a digital platform. The results are similar for insured and non-insured deposits. Using the model of Drechsler et al. (2023), we find that correcting for digital betas and deposit outflows results in a deposit franchise value that is 40% lower for digital-broker banks relative to a traditional bank without digital platform. We apply this analysis to Silicon Valley Bank (SVB) and find that the reduced value of the deposit franchise explains why SVB was insolvent in early March 2023, even before the bank run occurred.

   • Mentioned by: ProMarket, The Economist, Forbes.

   • Presented at: NBER SI 2023 Risks of Financial Institutions, OCC, Maryland, NYU Five Star Conference, IESE Barcelona Workshop on Banking Turmoil and Regulatory Reform (scheduled)
     
     
     

4. Steering a Ship in Illiquid Waters: Active Management of Passive Funds (February 2023)
   joint with Yiming Ma, Lubos Pastor, and Yao Zeng
   Review of Financial Studies, R&R

   • Exchange-traded funds (ETFs) are typically viewed as passive index trackers. In contrast, we show that corporate bond ETFs actively manage their portfolios, trading off index tracking against liquidity transformation. In our model, ETFs optimally choose creation and redemption baskets that include cash and only a subset of index assets, especially if those assets are illiquid. Our evidence supports the model. We find that ETFs dynamically adjust their baskets to correct portfolio imbalances while facilitating ETF arbitrage. Basket inclusion improves bond liquidity in general, but worsens it in periods of large imbalance between creations and redemptions, such as the COVID-19 crisis.

   • Mentioned by: Becker Friedman Institute , Chicago Booth Review , Knowledge@Wharton , Financial Times, ETF Stream.

   • Presented at: 2023 FIRS, 2023 AFA, 2022 Conference on Financial Economics and Accounting, 2022 Fixed Income and Financial Institutions Conference, 2022 Four Corners Index Investing Jamboree, 2022 Minnesota Corporate Finance Conference, 2022 Toronto Junior Finance/Macro Conference, 2022 MIT Sloan Junior Finance Conference, Chicago, Columbia, Florida, HKUST, Indiana, LSU, New York Fed, Notre Dame, SAIF, TMX Market Forum, UNC, USC, UT Dallas, Wharton, NBER New Developments in Long-Term Asset Management Spring 2024 (scheduled).
     
     
     

5. Bank Credit Provision and Leverage Constraints: Evidence from the Supplementary Leverage Ratio (October 2021)
   joint with Stefan Walz

   • We identify the implications of relaxing the Supplementary Leverage Ratio in April 2020 for bank balance sheet composition and credit provision. Our findings suggest that this risk-invariant leverage ratio was binding for banks, weakly affected bank liquidity provision in Treasury markets, and strongly affected banks' portfolio composition across asset classes, amounting to a shift of banks' loan supply schedules. The increase in lending is driven primarily by real estate and personal loans, and to a lesser extent by commercial and industrial loans. We additionally provide evidence that the relaxation allowed banks to increase their repo borrowing from cash providers. Our evidence highlights that countercyclical relaxation of uniform leverage constraints can increase bank credit provision during economic downturns, in line with a precautionary cash holdings mechanism. Given the binding nature of the SLR, the relaxation of this constraint may be more effective than other countercyclical measures in allowing banks to extend credit.

   • Presented at: Federal Reserve Bank of Boston, Columbia, AFA 2022 (poster)

   • Appears in Covid Economics 72, 2021, Centre for Economic Policy Research
     
     
     

6. Peer Effects in Deposit Markets (September 2021) 
   joint with Kim Fe Cramer

   • We provide first empirical evidence that consumer peer effects matter for banks' deposit demand. Using a novel measure that depicts for each county how exposed peers are to a specific bank in a given year, we tightly identify the causal effect of peer exposure on deposit demand through a fixed effects identification strategy. We address key empirical challenges such as time-invariant homophily. We find that a one percent increase in a bank's peer exposure leads to a 0.05 percent increase in deposit market share. This effect has become stronger over time with the rise of the internet and social media, which facilitate cross-county communication. Peer exposure is especially relevant for smaller banks and customers that have access to the internet.

Education

Columbia Business School

• • PhD in Finance, 2024 

  • MPhil in Finance, 2021

University of Toronto 

• Honors BSc with High Distinction, Economics and Mathematics Specialist , 2018

Teaching

1. Instructor, Math Boot Camp  (2021; 2022)

   • • For MSFE and MSAFA. Course material is available here.

2. Instructor, Professional Education (2022)

   • • Edgewood Management LLC, Finance Training for Interns

3. TA, Managerial Economics (2020)

   • • MBA Core, for Professors Jonas Hjort, Amit Khandelwal, Nachum Sicherman

4. TA, Capital Markets (2021)

   • • MBA Core, for Professor Suresh Sundaresan

5. TA, Shareholder Activism as Value Investing (2022)

   • • MBA Elective, for Professor Wei Jiang