This paper provides a positive political economy analysis of the most important revision of the U.S. supervision and regulation system during the last two decades, the 1991 Federal Deposit Insurance Corporation Improvement Act (FDICIA). We analyze the impact of private interest groups as well as...

This paper investigates what factors determine whether a commercial banker is on the board of a non-financial firm. We consider the tradeoff between the benefits of direct bank monitoring to the firm and the costs of active bank involvement in firm management. Given the different payoff...

Relative performance evaluation (RPE) intensifies competitive pressure by tying executive compensation to the profits of rivals. We show that these contracts make loan syndication harder by reducing banks' willingness to participate in loans underwritten by banks named in their RPE contracts....

This paper shows that banks raising deposits in more concentrated markets have more funding stability, which enhances banks' ability to extend longer-maturity loans. We show that banks raising deposits in concentrated markets exhibit less pro-cyclical financing costs and profits, which in turn...

In March of 2020, banks faced the largest increase in liquidity demands ever observed. Firms drew funds on a massive scale from pre-existing credit lines and loan commitments in anticipation of cash flow disruptions from the economic shutdown designed to contain the COVID-19 crisis. The increase...

We test whether measures of potential influence on regulators affect stress test outcomes. The large trading banks - those most plausibly 'Too big to Fail' - face the toughest tests. In contrast, we find no evidence that either political or regulatory connections affect the tests. Stress tests...

Using the September 15, 2008 bankruptcy of Lehman Brothers as an exogenous shock to funding costs, we show that hedge funds act as liquidity providers. Hedge funds using Lehman as prime broker could not trade after the bankruptcy, and these funds failed twice as often as otherwise-similar funds...

In February 2003, the SEC officially certified a fourth credit rating agency, Dominion Bond Rating Service ("DBRS"), for use in bond investment regulations. After DBRS certification, bond yields change in the direction implied by the firm's DBRS rating relative to its ratings from other...

Liquidity risk in banking has been attributed to transactions deposits and their potential to spark runs or panics. We show instead that transactions deposits help banks hedge liquidity risk from unused loan commitments. Bank stock-return volatility increases with unused commitments, but the...

This paper shows that securitization reduces the influence of bank financial condition on loan supply. Low-cost funding and increased balance-sheet liquidity raise bank willingness to approve mortgages that are hard to sell (jumbo mortgages), while having no effect on their willingness to...