This article examines the impact of regulation on lending standards during the mortgage boom. We exploit the overall regulatory wedge between banks and independent mortgage companies (IMCs) and a variation in this regulatory wedge across states induced by a cross-sectional variation in state...

An originate-to-distribute (OTD) model of lending, where the originator of a loan sells it to various third parties, was a popular method of mortgage lending before the onset of the subprime mortgage crisis. We show that banks with high involvement in the OTD market during the pre-crisis period...

Many commentators have argued that if the Federal Reserve had followed a stricter monetary policy earlier this decade when the housing bubble was forming, and if Congress had not deregulated banking but had imposed tighter financial standards, the housing boom and bust - and the subsequent...

We examine the relation between bank risk management procedures and sales of mortgages during the financial crisis of 2007-2009. Research suggests that banks employing an originate-to-distribute strategy devoted little effort to screening, thereby diminishing their ability to sell loans during...

Australian Steve Keen was, in fact, one of just 13 registered economists , out of a global total of around 36,000 (yes that really comes out as 0.04%), who actually anticipated the global financial crisis.Knowing this, I think it’s almost impossible not to want to read his latest book,...

In his Berkshire Hathaway annual newsletter to investors c.20 years ago, Warren Buffett while discussing the Long Term Capital Management LTCM and Enron collapses, famously called derivatives: "financial weapons of mass destruction, carrying dangers that, while now latent, are potentially...

Using a vector error correction model I test whether shocks in the funding liquidity conditions in the U.S. and Europe separately explain deviations from the covered interest parity (CIP) between the U.S. Dollar and the Mexican Peso. I find that: (1) Apparent deviations from the CIP seem to be...

We study the relative and absolute pricing of CMBX contracts (commercial real estate derivatives) during the recent financial crisis. Using a structural CMBX pricing model we find little systematic mispricing relative to REIT equity and options. We do find short-term deviations from this...

The deepening of the recent crisis was driven by the simultaneous devaluation of stock wealth, housing wealth and commodity wealth. The potential for this devaluation process had been “built up” during the boom of stock prices, house prices and commodity prices between 2003 and 2007. Hence,...

Financial contagion occurs when return and volatility transmit between fundamentally unrelated sectors. Our equilibrium model shows that contagion arises because investors pay fluctuating attention to news. As a negative shock hits one sector, investors pay more attention to it. This raises the...