Publication
Fintech and the future of financial service : a literature review and research agenda. (with Haitian Lu, Bingzhong Wang, and Qing Wu). China Accounting and Finance Review, 22.3 (2020) :107-136.
Job Market Paper
Parent-Level Debt and Subsidiary-Level Risk-Taking Evidence from Large Bank Holding Companies (with Kebin Ma, David R. Skeie, and Jianlin Wang)
We investigate the influence of the parent company's capital structure of a bank holding company (BHC) on the risk-taking behavior of its subsidiary banks, taking into account the BHC's organizational structure. Our analysis shows that increased parent debt is associated with reduced risk-taking by subsidiary banks. This effect is particularly prominent in BHCs with significant non-bank business, which would give the parent company greater incentives to constrain risk-taking in the subsidiary bank to prevent any spillover of loss. These findings highlight the need to consider the capital structures of the subsidiary, the parent, and the overall BHC—as well as the organizational structure—when assessing a subsidiary bank’s risk profile.
Working Papers
Monetary Policy and Deposit Beta: The Role of Internal Capital Market (Draft available upon request)
This paper introduces a novel Internal Capital Market (ICM) channel—proxied by the parent debt ratio—to explain how Bank Holding Companies (BHCs) shape the transmission of monetary policy to their subsidiary banks. Using deposit beta as the primary measure of rate-setting behavior, I find that a higher parent debt ratio is significantly associated with lower deposit betas, indicating that ICMs function as a stabilizing force against policy rate fluctuations. Two distinct mechanisms underpin this relationship. First, a funding substitution effect, where internal capital transfers from the parent to its subsidiary banks reduce subsidiary banks' dependence on traditional deposits, thereby granting them greater flexibility in setting deposit rates. Second, a risk-mitigation effect, in which higher parent debt and cross-guarantee provisions incentivize the parent company to limit subsidiary banks' risk-taking, reducing the risk premiums demanded by depositors. Taken together, these findings suggest that parent company debt meaningfully weakens the sensitivity of deposit rates to monetary policy. Furthermore, parent debt can serve as an effective instrument for managing the capital adequacy of subsidiary banks.
Bank ESG Performance and Lending Behavior in the Mortgage Markets (Draft available upon request)
This paper investigates whether banks' environmental, social, and governance (ESG) ratings influence their mortgage lending decisions toward minority groups. Initial OLS estimates suggest that banks with higher ESG ratings issue fewer mortgage loans—in both volume and number—to minority applicants. The distribution across racial groups is heterogeneous: high-ESG banks lend more to Asian applicants but significantly less to American Indian, Black, and Native Hawaiian borrowers. However, these patterns may be driven by omitted variables related to borrower creditworthiness or reverse causality. To address endogeneity, I employ an instrumental variable analysis using the political leanings of the counties where bank branches are located. The IV results confirm that banks’ ESG practices have no causal impact on mortgage lending decisions. I propose an "irrelevance mechanism" to explain these findings, noting that mortgage decisions are largely automated through Government-Sponsored Enterprises (GSEs) and that ESG metrics often prioritize internal staff diversity over customer-facing lending practices.