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Author:Berrospide, Jose M. 

Working Paper
Corporate hedging, investment and value

We consider the effect of hedging with foreign currency derivatives on Brazilian firms in the period 1997 through 2004, a period that includes the Brazilian currency crisis of 1999. We find that, derivative users have valuations that are 6.7-7.8% higher than non-user firms. Hedging with currency derivatives allows firms to sustain larger capital investments, and also removes the sensitivity of investment to internally generated funds. Thus, it mitigates the underinvestment friction of Froot, Scharfstein, and Stein (1993), at a time when capital in the economy as a whole is scarce. We further ...
Finance and Economics Discussion Series , Paper 2008-16

Working Paper
The cross-market spillover of economic shocks through multi-market banks

This paper investigates the mortgage lending of banks operating in multiple U.S. metropolitan areas during the housing market collapse of 2007-2009. Some metro areas in the U.S. suffered much greater mortgage defaults than others. We use this regional variation to identify whether high mortgage delinquencies in some markets affected multi-market banks' mortgage lending in other markets. Our results show that multi-market banks reduced local mortgage lending in response to delinquencies in other markets, consistent with the view that local economic shocks can be transmitted to other regions ...
Finance and Economics Discussion Series , Paper 2013-52

Working Paper
Exchange rates, optimal debt composition, and hedging in small open economies

This paper develops a model of the firm's choice between debt denominated in local currency and that denominated in foreign currency in a small open economy characterized by exchange rate risk and hedging possibilities. The model shows that the currency composition of debt and the level of hedging are endogenously determined as optimal firms' responses to a tradeoff between the lower cost of borrowing in foreign debt and the higher risk of such borrowing due to exchange rate uncertainty. Both the composition of debt and the level of hedging depend on common factors such as foreign exchange ...
Finance and Economics Discussion Series , Paper 2008-18

Working Paper
Credit line use and availability in the financial crisis: the importance of hedging

What determined the corporate use of credit lines in the recent financial crisis? To address this question we hand-collect data on credit lines and interest rate hedging for a random sample of 600 COMPUSTAT firms. We document that drawdowns of credit lines had already increased in 2007, earlier than what previous work has found. The surge in drawdowns occurred precisely when disruptions in bank funding markets began. In addition, we distinguish unused and available portions of credit lines, which we then use to disentangle credit supply and credit demand effects. On the supply side, we find ...
Finance and Economics Discussion Series , Paper 2012-27

International banking and cross-border effects of regulation: lessons from the United States

Domestic prudential regulation can have unintended effects across borders and may be less effective in an environment where banks operate globally. Using U.S. micro-banking data for the first quarter of 2000 through the third quarter of 2013, this study shows that some regulatory changes indeed spill over. First, a foreign country?s tightening of limits on loan-to-value ratios and local currency reserve requirements increase lending growth in the United States through the U.S. branches and subsidiaries of foreign banks. Second, a foreign tightening of capital requirements shifts lending by ...
Staff Reports , Paper 793

Working Paper
The Effects of Bank Capital Buffers on Bank Lending and Firm Activity: What Can We Learn from Five Years of Stress-Test Results?

Finance and Economics Discussion Series , Paper 2019-050

Working Paper
The Real Effects of Credit Line Drawdowns

Do firms use credit line drawdowns to finance investment? Using a unique dataset of 467 COMPUSTAT firms with credit lines, we study the purpose of drawdowns during the 2007-2009 financial crisis. Our data show that credit line drawdowns had already increased in 2007, precisely when disruptions in bank funding markets began to squeeze aggregate liquidity. Consistent with theory, our results confirm that firms use drawdowns to sustain investment after an idiosyncratic liquidity shock. Using an instrumental variable approach based on institutional features of credit line contracts, we find that ...
Finance and Economics Discussion Series , Paper 2015-7

Working Paper
Un-used Bank Capital Buffers and Credit Supply Shocks at SMEs during the Pandemic

Did banks curb lending to creditworthy small and mid-sized enterprises (SME) during the COVID-19 pandemic? Sitting on top of minimum capital requirements, regulatory capital buffers introduced after the 2008 global financial crisis (GFC) are costly regions of "rainy day" equity capital designed to absorb losses and provide lending capacity in a downturn. Using a novel set of confidential loan level data that includes private SME firms, we show that "buffer-constrained" banks (those entering the pandemic with capital ratios close to this regulatory buffer region) reduced loan commitments to ...
Finance and Economics Discussion Series , Paper 2021-043

Working Paper
The effects of bank capital on lending: what do we know, and what does it mean?

The effect of bank capital on lending is a critical determinant of the linkage between financial conditions and real activity, and has received especial attention in the recent financial crisis. We use panel-regression techniques--following Bernanke and Lown (1991) and Hancock and Wilcox (1993, 1994)--to study the lending of large bank holding companies (BHCs) and find small effects of capital on lending. We then consider the effect of capital ratios on lending using a variant of Lown and Morgan's (2006) VAR model, and again find modest effects of bank capital ratio changes on lending. These ...
Finance and Economics Discussion Series , Paper 2010-44

Working Paper
Bank liquidity hoarding and the financial crisis: an empirical evaluation

I test and find supporting evidence for the precautionary motive hypothesis of liquidity hoarding for U.S. commercial banks during the recent financial crisis. I find that banks held more liquid assets in anticipation of future losses from securities write-downs. Exposure to securities losses in their investment portfolios and expected loan losses (measured by loan loss reserves) represent key measures of banks' on-balance sheet risks, in addition to off-balance sheet liquidity risk stemming from unused loan commitments. Furthermore, unrealized securities losses and loan loss reserves seem to ...
Finance and Economics Discussion Series , Paper 2013-03


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