Aside from research my policy work has me deeply involved in short-term funding markets, banks and nonbank financial institutions, credit markets, liquidity regulations, and analyzing risks to financial stability arising from buildups of risks in particular sectors. Below is some of my work.
Publications
Do Higher Capital Standards Always Reduce Bank Risk? The Impact of the Basel Leverage Ratio on the U.S. Triparty Repo Market (with Jill Cetina and Ben Munyan - forthcoming at the Journal of Financial Intermediation)
This paper examines how risk-taking in the repurchase agreement, or repo, market changed after regulators introduced the supplementary leverage ratio for banks. The paper finds that broker-dealers owned by U.S. bank holding companies now borrow less in the repo market overall after the change, but a larger percentage of the borrowing is backed by more risky collateral.
This paper examines how risk-taking in the repurchase agreement, or repo, market changed after regulators introduced the supplementary leverage ratio for banks. The paper finds that broker-dealers owned by U.S. bank holding companies now borrow less in the repo market overall after the change, but a larger percentage of the borrowing is backed by more risky collateral.
Systemic Risk Indicators for Large U.S. Bank Holding Companies: An Overview of Recent Data (with Paul Glasserman and H. Peyton Young). Office of Financial Research. OFR Briefs. February 2015.
Systemic Importance Data Shed Light On Global Banking Risks (with Bert Loudis). Office of Financial Research. OFR Briefs. April 2016.
Systemic Importance Data Shed Light On Global Banking Risks (with Bert Loudis). Office of Financial Research. OFR Briefs. April 2016.
Working Papers
The Effects of the Volcker Rule on Corporate Bond Trading: Evidence from the Underwriting Exemption
Using a novel within-dealer, within-security identification strategy, we examine intended and unintended effects of the Volcker rule on covered firms' corporate bond trading using dealer-identified regulatory data. We use the underwriting exemption to isolate the Volcker rule's effects separate from other post-crisis changes in bank regulation and broader trends in market liquidity. We find no evidence of the rule's intended reduction in the riskiness of covered firms' trading in corporate bonds. We find significant adverse liquidity effects on covered firms' corporate bond trading with 20-45 basis points higher costs for customers even for roundtrip trades of shorter duration. These effects do not appear to be transitional. The Volcker rule appears to have increased the cost of the liquidity provided by covered firms and has not decreased the liquidity risk exposure of covered firms. Finally, the Volcker rule has decreased the market share of covered firms. Customers appear to be trading more with non-bank dealers, who are exempt from the Volcker rule but also lack access to emergency liquidity support at the Fed's discount window.
Using a novel within-dealer, within-security identification strategy, we examine intended and unintended effects of the Volcker rule on covered firms' corporate bond trading using dealer-identified regulatory data. We use the underwriting exemption to isolate the Volcker rule's effects separate from other post-crisis changes in bank regulation and broader trends in market liquidity. We find no evidence of the rule's intended reduction in the riskiness of covered firms' trading in corporate bonds. We find significant adverse liquidity effects on covered firms' corporate bond trading with 20-45 basis points higher costs for customers even for roundtrip trades of shorter duration. These effects do not appear to be transitional. The Volcker rule appears to have increased the cost of the liquidity provided by covered firms and has not decreased the liquidity risk exposure of covered firms. Finally, the Volcker rule has decreased the market share of covered firms. Customers appear to be trading more with non-bank dealers, who are exempt from the Volcker rule but also lack access to emergency liquidity support at the Fed's discount window.
Works in Progress
Identifying the Macroeconomic Effect of Loan Supply Shocks,
Revisited
I review the literature on shocks to bank lending, building
upon the work of Peek, Rosengren, and Tootell (2003) which uses a static model
of confidential bank supervisory data as a measure of bank industry health and
its predictive power in forecasting real economic activity. In this work I use
a publicly observable measure from the FDIC to proxy for loan supply and extend
the scope of the research to include the most recent financial crisis. I find
that although the public data contains information about future real economic
activity, the confidential supervisory data is more informative. The model is
extended to include the loan supply shock into a dynamic system to estimate the
effect banking industry health on real activity.
A Macroeconomic Model with Heterogeneous Firms, Banks, and
Credit
We study a heterogeneous agent macro model with financial frictions similar to
the Bernanke, Gertler, and Gilchrist (1999) financial accelerator model but
with financial shocks originating in the banking sector. Firms with
idiosyncratic productivity finance capital expenditures using wealth and bank
financing. Banks fund loans using household deposits and a loan production
function subject to exogenous variation, thus loan supply shocks have effects
on the real economy. Macroprudential policy tools are studied as a possible way
to attenuate the effects of the banking sector shock.