Transactions
When Bankers Go to Hail: Insights into Fed-Bank Interactions from Taxi Data
Daniel Bradley et al.
Management Science, forthcoming
Abstract:
We introduce taxi ridership between the Federal Reserve (Fed) Bank of New York and large financial institutions headquartered in New York City as a novel proxy for Fed-bank face-to-face interactions. We document a negative relation between past Fed-bank interactions and future stock market returns, particularly on days around the Fed's public announcements. We also find significantly elevated Fed-bank interactions immediately following the lifting of the Federal Open Market Committee blackout. Our findings suggest that the Fed increases its information gathering via face-to-face interactions when it possesses negative private information about the condition of the economy.
Impact of Risk Oversight Functions on Bank Risk: Evidence from the Dodd-Frank Act
Lakshmi Balasubramanyan et al.
Journal of Banking & Finance, January 2024
Abstract:
We document the impact of having a risk committee (RC) and a chief risk officer (CRO) on bank risk using the passage of the Dodd Frank Act as a natural experiment. The Act requires bank holding companies with over $10B of assets to have an RC to oversee risk management, while those with over $50B of assets are additionally required to have a CRO. We use difference-in-difference and regression discontinuity approaches to estimate the change in risk following RC and CRO adoption. Overall, we find no evidence that the RC or CRO have a causal impact on bank risk.
Did the 2010 Dodd-Frank Banking Act deflate property values in low-income neighborhoods?
Craig Richardson & Zachary Blizard
Public Choice, December 2023, Pages 433-454
Abstract:
In the wake of the 2008 Great Recession, a section of the Dodd-Frank Act (DFA) ostensibly provided greater protection to low-income borrowers by capping bank charges on small dollar mortgages (defined here as less than $100,000) and requiring more bank oversight by outside auditors. Previous research has shown that both actions had the perverse consequence of reducing the availability of mortgage credit to low-income borrowers. Building on these findings, we investigate the following question: Did the decline in access to credit lead to a decrease in demand for homes in high poverty census tracts, and a corresponding decline in property values in these areas? Using an OLS regression model of home values and census tract data in Forsyth County, North Carolina from 2007 to 2020, we calculate that nominal home values dropped by over 40% in the county's lowest income census tracts after the institution of the DFA, relative to the rest of the county. Our paper offers evidence that DFA has harmed those that the Act was intended to help.
Do payday lending bans protect or constrain regional economies? Evidence from the Military Lending Act's final rule
Craig Wesley Carpenter et al.
Contemporary Economic Policy, forthcoming
Abstract:
The 2007 Military Lending Act attempted to ban high-interest loans to U.S. military members and the 2017 "Final Rule" further restricted access, causing regional shocks in payday lending exposure in counties with a military base. Difference-in-differences and dynamic estimators provide mixed evidence on the effect of this payday lending access shock on regional economic outcomes and local business outcomes. However, we consistently find statistically significant reduced entry and exit of firms. Given payday lenders congregate around low-income and minoritized populations analogously to how they congregated around military bases, these results provide policy implications for more general usury bans.
Refinancing Frictions, Mortgage Pricing and Redistribution
David Berger et al.
NBER Working Paper, January 2024
Abstract:
There are large cross-sectional differences in how often US borrowers refinance mortgages. In this paper, we develop an equilibrium mortgage pricing model with heterogeneous borrowers and use it to show that equilibrium forces imply important cross-subsidies from borrowers who rarely refinance to those who refinance often. Mortgage reforms can potentially reduce these regressive cross-subsidies, but the equilibrium effects of these reforms can also have important distributional consequences. For example, many policies that lead to more frequent refinancing also increase equilibrium mortgage rates and thus reduce residential mortgage credit access for a large number of borrowers.
Monetary policy and the persistent aggregate effects of wealth redistribution
Martin Kuncl & Alexander Ueberfeldt
Journal of Monetary Economics, forthcoming
Abstract:
Monetary easing redistributes from savers, some of whom are retired and not adjusting labor supply, to borrowers who reduce their labor supply. This results in persistently lower aggregate labor and output. Hence the interaction of labor supply heterogeneity with heterogeneity in net nominal positions of households creates a monetary policy trade-off whereby short-term economic stimulus is followed by lower output over the medium term. The policy trade-off is stronger in economies with more nominal household debt and a larger wealth share of retired households but weakened by a more aggressive monetary policy stance and under price-level targeting.
The Deposit Business at Large vs. Small Banks
Adrien d'Avernas et al.
NBER Working Paper, November 2023
Abstract:
The deposit business differs at large versus small banks. We provide a parsimonious model and extensive empirical evidence supporting the idea that much of the variation in deposit-pricing behavior between large and small banks reflects differences in "preferences and technologies." Large banks offer superior liquidity services but lower deposit rates, and locate where customers value their services. In addition to receiving a lower level of deposit rates on average, customers of large banks exhibit lower demand elasticities with respect to deposit rate spreads. As a result, despite the fact that the locations of large-bank branches have demographics typically associated with greater financial sophistication, large-bank customers earn lower average deposit rates. Our explanation for deposit pricing behavior challenges the idea that deposit pricing is mainly driven by pricing power derived from the large observed degree of concentration in the banking industry.
The Demise of Branch Banking -- Technology, Consolidation, Bank Fragility
Jan Keil & Steven Ongena
Journal of Banking & Finance, January 2024
Abstract:
We study bank branching dynamics across 3,143 US counties and 26 years. During the last decade, banks closed their branches at an unprecedented rate. At its peak in 2009, there were 90,783 branches. By 2020, this number has fallen by 12 percent. While technological factors correlate with these branching dynamics, bank fragility and consolidation are also strongly associated with changes in the number of branches (and their openings and closures). Interestingly, technological capabilities to service customers, such as online banking, seem less tightly linked to de-branching than technological capabilities to process internal information. Our analysis shows that large banks rely on internal technology to shed branches, while small banks close branches when they are vulnerable or consolidate.
Policymakers' Uncertainty
Anna Cieslak et al.
NBER Working Paper, November 2023
Abstract:
Uncertainty is a ubiquitous concern emphasized by policymakers. We study how uncertainty affects decision-making by the Federal Open Market Committee (FOMC). We distinguish between the notion of Fed-managed uncertainty vis-a-vis uncertainty that emanates from within the economy and which the Fed takes as given. A simple theoretical framework illustrates how Fed-managed uncertainty introduces a wedge between the standard Taylor-type policy rule and the optimal decision. Using private Fed deliberations, we quantify the types of uncertainty the FOMC perceives and their effects on its policy stance. The FOMC's expressed inflation uncertainty strongly predicts a more hawkish policy stance that is not explained either by the Fed's macroeconomic forecasts or by public uncertainty proxies. We rationalize these results with a model of inflation tail risks and argue that the effect of uncertainty on the FOMC's decisions reflects policymakers' concern with maintaining credibility for the inflation anchor.