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Working Paper
Consumer risk appetite, the credit cycle, and the housing bubble
Breeden, Joseph L.; Canals-Cerda, Jose J. (2016-02-18)
We explore the role of consumer risk appetite in the initiation of credit cycles and as an early trigger of the U.S. mortgage crisis. We analyze a panel data set of mortgages originated between the years 2000 and 2009 and follow their performance up to 2014. After controlling for all the usual observable effects, we show that a strong residual vintage effect remains. This vintage effect correlates well with consumer mortgage demand, as measured by the Federal Reserve Board?s Senior Loan Officer Opinion Survey, and correlates well to changes in mortgage pricing at the time the loan was ...
Working Papers , Paper 16-5

Report
The Real Consequences of Macroprudential FX Regulations
Jung, Hyeyoon (2021-10-01)
I exploit a natural experiment in South Korea to examine the real effects of macroprudential foreign exchange (FX) regulations designed to reduce risk-taking by financial intermediaries. By using crossbank variation in the regulation's tightness, I show that it causes a reduction in the supply of FX derivatives (FXD) and results in a substantial decline in exports for the firms that were heavily relying on FXD hedging. I offer a mechanism in which imbalances in hedging demand, banks' costly equity financing, and firms' costly switching of banking relationships play a central role in ...
Staff Reports , Paper 989

Working Paper
The Transmission of Monetary Policy through Bank Lending : The Floating Rate Channel
Ippolito, Filippo; Ozdagli, Ali K.; Perez, Ander (2017-03)
We describe and test a mechanism through which outstanding bank loans affect the firm balance sheet channel of monetary policy transmission. Unlike other debt, most bank loans have floating rates mechanically tied to monetary policy rates. Hence, monetary policy-induced changes to floating rates affect the liquidity, balance sheet strength, and investment of financially constrained firms that use bank debt. We show that firms---especially financially constrained firms---with more unhedged bank debt display stronger sensitivity of their stock price, cash holdings, sales, inventory, and fixed ...
Finance and Economics Discussion Series , Paper 2017-026

Working Paper
Extended Loan Terms and Auto Loan Default Risk
Cordell, Lawrence R.; An, Xudong; Tang, Sharon (2020-05-20)
A salient feature of the $1.2 trillion auto-loan market is the extension of loan maturity terms in recentyears. Using a large, national sample of auto loans from the entire auto market, we find that the default rates on six- and seven-year loans are multiple times that of shorter five-year term loans. Most of the default risk difference is due to borrower risks associated with longer-term loans, as those longer-term auto borrowers are more credit and liquidity constrained. We also find borrowers’ loan-term choice to be endogenous and that the endogeneity bias is substantial in conventional ...
Working Papers , Paper 20-18

Working Paper
Small Business Lending Under the PPP and PPPLF Programs
Lopez, Jose A.; Spiegel, Mark M. (2021-04-08)
We examine the effects of the Paycheck Protection Program (PPP) and the PPP Liquidity Facility (PPPLF) on small business lending. The PPP was launched under the CARES Act of March 2020 to provide support for small businesses under the COVID-19 pandemic, while the PPPLF was an affiliated program administered by the Federal Reserve to facilitate the maintenance of liquidity among banks participating in the PPP. We use Call Report data to examine the contributions of these two programs on small business and farm lending by individual commercial banks in the United States. As participation in the ...
Working Paper Series , Paper 2021-10

Working Paper
Vertical integration and supplier finance
Kersting, Erasmus K.; Gorg, Holger (2014-01-31)
We investigate the financial implications of a multinational firm's choice between outsourcing and integration from the perspective of the supplier. Using a simple model, we explore the extent to which an integrated supplier's access to finance, as well as its sources of funding, change relative to a firm supplying a multinational at arm's-length. The model predicts that integrated firms have better access to finance and cover a larger share of their costs using internal funds. Furthermore, improvements in a host country's level of financial development have less of an impact on the financial ...
Globalization Institute Working Papers , Paper 168

Working Paper
Options, Equity Risks, and the Value of Capital Structure Adjustments
Yang, Jie; Borochin, Paul (2016-10)
We use exchange-traded options to identify risks relevant to capital structure adjustments in firms. These forward-looking market-based risk measures provide significant explanatory power in predicting net leverage changes in excess of accounting data. They matter most during contractionary periods and for growth firms. We form market-based indices that capture firms' magnitudes of, and propensity for, net leverage increases. Firms with larger predicted leverage increases outperform firms with lower predicted increases by 3.1% to 3.9% per year in buy-and-hold abnormal returns. Finally, ...
Finance and Economics Discussion Series , Paper 2016-097

Working Paper
Embedded Supervision: How to Build Regulation into Blockchain Finance
Auer, Raphael (2019-10-01)
The spread of distributed ledger technology (DLT) in finance could help to improve the efficiency and quality of supervision. This paper makes the case for embedded supervision, i.e., a regulatory framework that provides for compliance in tokenized markets to be automatically monitored by reading the market?s ledger, thus reducing the need for firms to actively collect, verify and deliver data. After sketching out a design for such schemes, the paper explores the conditions under which distributed ledger data might be used to monitor compliance. To this end, a decentralized market is modelled ...
Globalization Institute Working Papers , Paper 371

Working Paper
The Impact of Financial Sanctions: The Case of Iran 2011-2016
Jahan-Parvar, Mohammad R.; http://fedora:8080/fcrepo/rest/objects/authors/ (2020-05-26)
This study provides a detailed analysis of the impact of financial sanctions on publicly traded companies. We consider the effect of imposing and lifting sanctions on the target country's traded equities and examine the differences in the reaction of politically connected firms and those without such connections. The paper focuses on Iran due to (1) its sizable financial markets, (2) imposition of sanctions of varying severity and duration on private and state-owned companies, (3) the significant presence of politically connected firms in the stock market, and (4) the unique event of the 2015 ...
International Finance Discussion Papers , Paper 1281

Working Paper
Anatomy of Corporate Credit Spreads: The Great Recession vs. COVID-19
Ebsim, Mahdi; Kozlowski, Julian; Faria-e-Castro, Miguel (2020-10-09)
We compare the evolution of corporate credit spreads during the Great Recession and the COVID-19 pandemic. The two crises featured increases of similar magnitudes in the median and cross-sectional dispersion of credit spreads, but the pandemic was short-lived and different sectors were affected. The micro-data reveal larger differences between the two episodes: the Great Recession featured an increase in the across-firm dispersion, and leverage was an important predictor of credit spreads. Differently, the COVID-19 crisis displayed a larger increase in within-firm dispersion, and funding ...
Working Papers , Paper 2020-035

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