Taking it to the Bank
Unintended Consequences of Unemployment Insurance Benefits: The Role of Banks
Yavuz Arslan, Ahmet Degerli & Gazi Kabas
Management Science, forthcoming
Abstract:
We use disaggregated U.S. data and a border discontinuity design to show that more generous unemployment insurance (UI) policies lower bank deposits. We test several channels that could explain this decline and find evidence consistent with households lowering their deposit holdings due to reduced precautionary savings. Because deposits are the largest and most stable source of funding for banks, the decrease in deposits affects bank lending. Banks that raise deposits in states with generous UI policies reduce their loan supply to small businesses. Furthermore, counties that are served by these banks experience a higher unemployment rate and lower wage growth.
The Unprecedented Fall in U.S. Revolving Credit
Gajendran Raveendranathan & Georgios Stefanidis
International Economic Review, forthcoming
Abstract:
After decades of consistent growth, U.S. revolving credit declined drastically post 2009. We study the Ability to Pay provision of the Credit CARD Act of 2009, a policy that restricts credit card limits, as a contributing factor. Extending a model of revolving credit lines, we find that the policy accounts for 54–60% of the decline in revolving credit. Furthermore, the policy accounts for lower utilization rates despite tighter credit limits and higher spreads despite lower default risk. The policy's goal of consumer protection is achieved for a few consumers with time-inconsistent preferences; most individuals are hurt.
Bank Payout Policy, Regulation, and Politics
Rüdiger Fahlenbrach, Minsu Ko & René Stulz
NBER Working Paper, August 2024
Abstract:
Bank payout policy is strongly affected by regulation and politics, especially for the largest banks. Banks, but not industrial firms, have consistently lower payouts in times of high regulation uncertainty and under Democratic presidents. After the Global Financial Crisis, bank regulators’ influence on payout policies of the largest banks increases sharply and repurchases become more important than dividends for these banks. Repurchases respond more to regulatory climate changes than dividends. The stock-price reaction of the largest banks to the election of Donald Trump is larger than for small banks or industrial firms, and their repurchases increase sharply afterwards.
Bridging the Gender Gap: Social Norms, Math Scores and Mortgage Outcomes
Athena Tsouderou & Selale Tuzel
University of Miami Working Paper, June 2024
Abstract:
Analyzing a near-universe sample of conventional, conforming mortgages in the United States originated and securitized between 2018 and 2019, we find that single women pay higher mortgage rates and up-front fees, and they are less likely to refinance when interest rates decrease compared to single men. This gender gap in mortgage costs and refinancing behavior is especially notable in affluent neighborhoods with high incomes, levels of education, and socioeconomic status. Part of this gap can be attributed to differences in math scores between genders during elementary and middle school, and gender gaps in financial literacy skills, which increase with income and education. These findings align with prevailing gender stereotypes and societal norms, contributing to disparities in financial sophistication that result in comparatively less favorable financial outcomes for women.
Is bank misconduct related to social capital? Evidence from U.S. banks
Jose Martin-Flores
Journal of Banking & Finance, October 2024
Abstract:
This paper investigates whether social capital plays a role in bank misconduct. I find that U.S. banks headquartered in high social capital areas, as indicated by the strength of civic norms and the density of social networks, are less likely to face enforcement actions. This relationship is mainly significant for banks with a lower geographical dispersion, and it holds in a range of robustness and endogeneity tests. I run additional tests based on classes of enforcement actions, components of social capital, risk-taking, opacity, and bank actions associated with negative externalities. These tests deliver results supporting the idea that the main findings of the paper are largely attributed to social capital's role in exerting external discipline, which prevents misconduct-related behaviors in banks.
The Speed of Firm Response to Inflation
Ivan Yotzov et al.
NBER Working Paper, July 2024
Abstract:
This paper analyses the response of firms to monthly CPI inflation releases using high-frequency data from a large economy-wide business survey. CPI inflation perceptions respond very quickly, in a matter of hours after the release. We also find that firms’ expected own-price growth has a strong positive correlation with changes in CPI inflation, particularly for increases in inflation. This sensitivity is stronger when inflation is high. Firms are also more responsive when inflation coverage in the media is elevated and appear to have had a supply-side view of the economy since 2022: higher aggregate inflation leads to lower expected sales volume growth and higher expected cost growth. Firms also seem to anticipate the monetary policy response, as positive inflation changes are associated with higher expected borrowing rates.
The Carrot and the Stick: Bank Bailouts and the Disciplining Role of Board Appointments
Christian Mücke et al.
American Economic Journal: Economic Policy, forthcoming
Abstract:
We empirically examine the Capital Purchase Program (CPP) used by the U.S. government to bail out distressed banks and its implications for regulatory policy. We find strong evidence that a feature of the CPP -- the government's ability to appoint independent directors on the board of an assisted bank that missed six dividend payments to Treasury -- had a significant effect on bank behavior. Banks were averse to these appointments -- the empirical distribution of missed payments exhibits a sharp discontinuity at five. Director appointments by Treasury were associated with improved bank performance and lower CEO pay.
Financial statements not required
Michael Minnis, Andrew Sutherland & Felix Vetter
Journal of Accounting and Economics, forthcoming
Abstract:
Using a dataset covering 3 million commercial borrower financial statements, we document a substantial, nearly monotonic decline in banks’ use of attested financial statements (AFS) in lending over the past two decades. Two market forces help explain this trend. First, technological advances provide lenders with access to a growing array of borrower information sources that can substitute for AFS. Second, banks are increasingly competing with nonbank lenders that rely less on AFS in screening and monitoring. Our results illustrate how technology adoption and changes in credit market structure can render AFS less efficient than alternative information sources for screening and monitoring.