“The difficulty lies not so much in developing new ideas as in escaping from old ones”
- John Maynard Keynes -
My current research interests include financial intermediation, credit markets, monetary policy, financial crises, institutions, and corporate finance. I am particularly interested in projects with real implications for policy-making, corporate decisions, and the broad economy.
I have presented my work at academic events such as the Financial Intermediation Research Society Conference, the FDIC/JFSR Annual Bank Research Conference, and the Financial Management Association Annual Conference. And I have held research seminars at many renowned venues that include the Federal Reserve System, the Central Bank of Argentina, and a number of universities around the globe. My latest work has been recently published by the Journal of Financial and Quantitative Analysis.
“Business Loans and the Transmission of Monetary Policy”
With Andrea Civelli and Nicola Zaniboni
Journal of Financial and Quantitative Analysis, 2019
We study the transmission mechanism of monetary policy through business loans and illustrate subtle aspects of its functioning that relate to loans' contractual characteristics and borrower-lender types. We show that the puzzling increase in business loans in response to monetary tightening, documented before the Great Recession, is largely driven by drawdowns from existing commitments at large banks. Spot loans also rise and take considerable time to adjust. Banks, nonetheless, do curtail credit supply by shortening maturities of new loans. Following the Great Recession, the mechanism has worked differently, with loan responses to monetary tightening displaying a significant downward shift.
“Economic Policy Uncertainty and the Supply of Business Loans”
With Andrea Civelli
Using a Vector Autoregressive framework of analysis, we show that banks contract their supply of business credit in response to an exogenous increase in economic policy uncertainty. This contraction takes two main, distinct forms. On the one hand, banks restrict their supply of spot funds, which we document using flows of loans and term loan originations. On the other, banks also curtail their provision of liquidity insurance, reducing the amount of new credit lines and embedding in them a pricing structure that reduces the probability of borrowers ever drawing down on the lines.
“Financial Crisis and the Supply of Corporate Credit”
With Wayne Y. Lee and Timothy J. Yeager
Nearly a decade after the onset of the financial crisis, no consensus has emerged among researchers as to the importance of the bank lending channel in explaining the contraction in corporate investment. Kahle and Stulz (2013) document a tenuous connection between bank distress and corporate investment, but other researchers find large negative effects of bank distress on employment and investment. We improve upon previous research by matching syndicated loans from publicly traded U.S. firms to their lead banks. We then track the connection between lead-bank distress and corporate debt migration and investment. We show that lead-bank distress negatively affected borrowing in 2008, and investment in 2009, but only for rated firms. Firm migration to the public debt market was insufficient to offset the adverse effects from the contraction in bank credit. Ultimately, we document that the bank lending channel indeed accounts for a significant portion of the 2009 decline in corporate investment.
“Banking Crises: Government Intervention and the Recovery of the Bank Credit Market”
With Wayne Lee and Timothy Yeager
We assess the effectiveness of the extraordinary government and central bank intervention on bank lending during the 2007-2009 financial crisis by comparing lending patterns from that crisis with the banking credit crunch of 1990-1993. Although the financial crisis was by every measure more severe than the credit crunch, the supply of bank credit rebounded two years sooner. We show that government and central bank intervention accounts for the differing dynamics in bank credit markets. Our results confirm that expansionary monetary and fiscal policy aimed at easing bank distress following a banking crisis can alleviate the damaging effects from the contraction in bank lending.
“Economic Distress and the Maturity of Debt”
This paper explores the relationship between aggregate economic distress and the maturity of debt. I argue that lenders would prefer shorter maturity of debt during periods of economic distress. I develop a model where a lender chooses the debt contract tenor that maximizes her expected profits. In doing so, she weighs the role of capital rotation with the expected margin on each transaction and the probability that the borrower defaults. The probability of a borrower defaulting depends on the aggregate economic conditions. The main prediction of the model is that a shock to the stability of the economy leads the lender to prefer shorter maturities on new debt contracts. I test this prediction empirically using over twenty years of data on bank and public debt issuances and document a persistent negative relationship between aggregate economic riskiness and maturity of new debt contracts. Furthermore, shortening contract maturities result in significant changes of the financial structure of nonfinancial corporations.