This paper documents the long-run effects of an important reform of capital regulation for U.S. insurance companies in 2009. We show that its design effectively eliminates capital requirements for (non-agency) MBS, implying an aggregate capital relief of over $18bn at the time of the reform. By...

Many US corporate bonds are callable at a predetermined, fixed price. Callability gives firms the ability to re-price their bonds ex-post. It is less clear how it resolves ex-ante contracting frictions. We show empirically that longer maturity and lower credit quality bonds are frequently issued...

Banks' limited knowledge about borrowers' creditworthiness constitutes an important friction in credit markets. Is this friction deeper in recessions, thereby contributing to cyclical swings in credit, or is the depth of the friction reduced, as bad times reveal information about firm quality?...

Rating agencies produce ratings used by investors, but obtain most of their revenue from issuers, leading to a conflict of interest. We employ a unique data set on the use of non-rating services, and the associated payments, in India, to test if this conflict affects ratings quality. Agencies...

In many countries, bankruptcy is associated with low recovery by creditors. We develop a model of corporate credit markets in such an environment. Corporate credit is provided by either a bond market or risk-averse banks. Restructuring of insolvent firms happens out of court if in-court...

Fixed income markets rely on delegated asset management, where fund managers' portfolio decisions are directed and restricted by investment mandates. We use textual analysis to classify U.S. fixed income funds' mandate contents. Credit ratings can be used in mandates to define investable assets....

How do changes in a rating agency's reputation affect the ratings market? We study the dynamics of credit ratings after Standard & Poor's (S&P) was shut out of a large segment of the commercialmortgage-backed securities (CMBS) ratings market following a procedural mistake. Exploiting the fact...

We analyze a reform of insurance companies' capital requirements for mortgage-backed securities. First, credit ratings were replaced as inputs to capital regulation. Second, the redesigned system ensures capital buffers sufficient to withstand expected losses, but insufficient to protect against...

In 2015, 70% of newly-issued leveraged loans had weaker enforcement features, called covenant-light or “cov-lite;” this is nearly a three-time increase in cov-lite issuance compared to a previous peak in 2007. We evaluate whether this development can be attributed to market overheating,...