Using exogenous liquidity windfalls from oil and natural gas shale discoveries, we demonstrate that bank branch networks help integrate U.S. lending markets. Banks exposed to shale booms enjoy ...liquidity inflows, which increase their capacity to originate and hold new loans. Exposed banks increase mortgage lending in nonboom counties, but only where they have branches and only for hard-to-securitize mortgages. Our findings suggest that contracting frictions limit the ability of arm's length finance to integrate credit markets fully. Branch networks continue to play an important role in financial integration, despite the development of securitization markets.
Low-cost deposits and increased balance sheet liquidity raise banks' supply of illiquid loans more than loans easily sold or securitized. We exploit the inability of Fannie Mae and Freddie Mac to ...purchase jumbo mortgages to identify an exogenous change in liquidity. The volume of jumbo mortgage originations relative to nonjumbo originations increases with bank holdings of liquid assets and decreases with bank deposit costs. This result suggests that the increasing depth of the mortgage secondary market fostered by securitization has reduced the effect of lender's financial condition on credit supply.
This paper studies the role of securitization in bank management. I propose a new index of “bank loan portfolio liquidity” which can be thought of as a weighted average of the potential to securitize ...loans of a given type, where the weights reflect the composition of a bank loan portfolio. I use this new index to show that by allowing banks to convert illiquid loans into liquid funds, securitization reduces banks' holdings of liquid securities and increases their lending ability. Furthermore, securitization provides banks with an additional source of funding and makes bank lending less sensitive to cost of funds shocks. By extension, the securitization weakens the ability of the monetary authority to affect banks' lending activity but makes banks more susceptible to liquidity and funding crisis when the securitization market is shut down.
Mortgage companies (MCs) do not fall under the strict regulatory regime of depository institutions. We empirically show that this gap resulted in regulatory arbitrage and allowed bank holding ...companies (BHCs) to circumvent consumer compliance regulations, mitigate capital requirements, and reduce exposure to loan-related losses. Compared to bank subsidiaries, MC subsidiaries of BHCs originated riskier mortgages to borrowers with lower credit scores, lower incomes, higher loan-to-income ratios, and higher default rates. Our results imply that precrisis regulations had the capacity to mitigate the deterioration of lending standards if consistently applied and enforced for all types of intermediaries.
We analyze how corporate venture capital (CVC) differs from independent venture capital (IVC) in nurturing innovation in entrepreneurial firms. We find that CVC-backed firms are more innovative, as ...measured by their patenting outcome, although they are younger, riskier, and less profitable than IVC-backed firms. Our baseline results continue to hold in a propensity score matching analysis of IPO firms and a difference-in-differences analysis of the universe of VC-backed entrepreneurial firms. We present evidence consistent with two possible underlying mechanisms: CVC's greater industry knowledge due to the technological fit between their parent firms and entrepreneurial firms and CVC's greater tolerance for failure.
Fiscal Stimulus and Consumer Debt Demyanyk, Yuliya; Loutskina, Elena; Murphy, Daniel
The review of economics and statistics,
10/2019, Letnik:
101, Številka:
4
Journal Article
Recenzirano
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In the aftermath of the consumer debt–induced recession, policymakers have questioned whether fiscal stimulus is effective during periods of high consumer indebtedness. This study empirically ...investigates this question. Using detailed data on Department of Defense spending for the 2007–2009 period, we document that the open-economy relative fiscal multiplier is higher in geographies with higher consumer debt. The results suggest that in the short term (2007–2009), fiscal policy can mitigate the adverse effect of consumer (over)leverage on real economic output during a recession. We then exploit detailed microdata to show that both heterogeneous marginal propensities to consume and slack-driven economic mechanisms contribute to the debt-dependent multiplier.
The Great Recession illustrates the sensitivity of the economy to housing. This paper shows that financial integration, fostered by securitization and nationwide branching, amplified the positive ...effect of housing price shocks on the economy during the 1994–2006 period. We exploit variation in credit supply subsidies across local markets from government-sponsored enterprises to measure housing price changes unrelated to fundamentals. Using this instrument, we find that house price shocks spur economic growth. The effect is larger in localities more financially integrated, through both secondary loan market and bank branch networks. Financial integration thus raised the effect of collateral shocks on local economies, increasing economic volatility.
Erratum: Fiscal Stimulus and Consumer Debt Demyanyk, Yuliya; Loutskina, Elena; Murphy, Daniel
The review of economics and statistics,
03/2021, Letnik:
103, Številka:
1
Journal Article
•Deposit market power contributes to banks’ ability to supply longer maturity loans.•Banks with more deposit market power charge lower maturity premiums.•These banks experience less pro-cyclical loan ...losses and more stable equity capital.•Higher long-term credit supply contributes to real growth.•Deposit market power helps alleviate credit cycles.
By increasing funding stability, deposit market power reduces banks’ funding risk over the cycle and provides the flexibility to originate long-term loans. Banks with deposit HHI one standard deviation above average extend loans with about 20% longer maturity than those one standard deviation below average. Deposit market power also allows banks to charge lower maturity premiums. The effects persist in the sample of zero-duration, floating rate loans. This has real effects: access to banks raising funds in less competitive markets improves growth in bank-dependent borrowers needing long-term finance. Deposit market power, by stabilizing bank funding costs, helps alleviate credit cycles.
Stress tests and small business lending Cortés, Kristle R.; Demyanyk, Yuliya; Li, Lei ...
Journal of financial economics,
04/2020, Letnik:
136, Številka:
1
Journal Article
Recenzirano
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Post-crisis stress tests have altered banks’ credit supply to small business. Banks most affected by stress tests reallocate credit away from riskier markets and toward safer ones. They also raise ...interest rates on small loans. Quantities fall most in high-risk markets where stress-tested banks own no branches, and prices rise mainly where they do. The results suggest that banks price the stress-test induced increase in capital requirements where they have local knowledge, and exit where they do not. Stress tests do not, however, reduce aggregate credit. Small banks seem to increase their share in geographies formerly reliant on stress-tested lenders.
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