We find that banks charge more for overdraft credit when depositors have access to a potential substitute: deferred deposit ("payday") credit. We attribute this rise in prices partly to adverse selection created by banks' practice of charging a flat fee regardless of the overdraft...

We investigate how bank migration across state lines over the last quarter century has affected the size and covariance of business fluctuations within states. Starting with a two-state version of the unit banking model in Holmstrom and Tirole (1997), we conclude that the theoretical effect of...

Savers with uncertain life spans cannot stick to long-term investment plans when they invest directly in liquid assets. Before horizons are known, all savers will plan to roll over their short-term assets if returns turn out high. Ex post, the short-term investors will consume their liquid...

We investigate whether the “stress test,” the extraordinary examination of the nineteen largest U.S. bank holding companies conducted by federal bank supervisors in 2009, produced the information demanded by the market. Using standard event study techniques, we find that the market had...

Thousands of U.S. households filed for bankruptcy just before the bankruptcy law changed in 2005. That rush-to-file was more pronounced, we find, in states with more generous bankruptcy exemptions and lower credit scores. We take that finding as evidence that the new law effectively reduces...

Evidence in this paper suggests that a close banking relationship--a loan commitment in particular--relaxes cash flow and cash management constraints on firms. Given firms' prospects (Q), the investment and cash flow correlation is substantially lower when firms have a bank loan commitment. The...

The naming of eleven banks as "too big to fail (TBTF)" in 1984 led bond raters to raise their ratings on new bond issues of TBTF banks about a notch relative to those of other, unnamed banks. The relationship between bond spreads and ratings for the TBTF banks tended to flatten after that event,...

As the banking business grows more complex, government supervisors of banks seem increasingly willing to share the role of policing bank risk with private investors, especially bondholders. This paper investigates the disciplinary role of markets using bond spreads, ratings, and bank portfolio...

We argue that the 2005 bankruptcy abuse reform (BAR) contributed to the surge in subprime foreclosures that followed its passage. Before BAR, distressed mortgagors could free up income by filing bankruptcy and having their unsecured debts discharged. BAR blocks that maneuver for better-off...

The pattern of disagreement between bond raters suggests that bank and insurance firms are inherently more opaque than other firms. Moody's and Standard and Poor's split more frequently over these financial intermediaries, and the splits are more lopsided, as theory here predicts. Uncertainty...