Regulation and Competition in Global Banking

How do US and Chinese regulators shape and compete over global banking? To answer this question, I hand-collect data on civil and criminal settlements across 45 jurisdictions. I show that US regulators enforce the largest penalties and discipline bank activity, while Chinese regulators enforce the most numerous penalties and incentivize bank activity. This discrepancy in regulatory approaches carries negative consequences for the long-term dominance of US-regulated banks. I causally show this in three steps. First, after settlements with US authorities related to sanctions, anti-money laundering, and bribery, banks reduce their total assets, net revenue, intra-financial liabilities, notional OTC derivative contracts, syndicated lending, and payment processing in non-USD and non-home currencies. Second, in response to the contraction in syndicated lending, borrowers predominantly substitute with credit from Chinese banks. Third, Chinese regulators incentivize their banks to expand abroad by rewarding increased cross-border lending with smaller penalties. I present a multi-period model to jointly explain these facts and show that US regulators must act strategically to preserve the global dominance of their banks.

Presentations: (2024) Stanford Data Science Conference, Inter-Finance PhD Seminar, Kiel–Göttingen–CEPR conference (scheduled)

Asset Purchases and Preferred Habitats in the Municipal Bond Market

This paper shows that state tax policy significantly affects the transmission of asset purchase programs into municipal bond prices. I establish theoretically and empirically two parameters that cross-sectionally determine yields: a state's top income tax rate and the aggregate wealth of the state's top 10% of households in net worth. Using the Federal Reserve's announcement of the Municipal Liquidity Facility in April 2020, I find that more segmented municipal markets react more to asset purchase program announcements by up to 21% relative to less segmented markets. I rationalize this finding in a calibrated model and validate the presence of home bias in municipal bond markets with another policy shock in 2012.

The Long Shadow of Public Interventions in the Financial Sector

With Giovanni Dell'Ariccia, Deniz Igan, Paolo Mauro, Alexander Tieman, and Aleksandra Zdzienicka

The IMF Economic Review, 2022

We track direct public interventions and public holdings in 1,114 financial institutions over the period 2007–17 in 37 countries based on publicly available information. We use aggregate official data to validate this new dataset and estimate the fiscal impact of interventions at end-2017. Direct public support to financial institutions amounted to $1.6 trillion ($3.5 trillion including guarantees), with larger amounts allocated to lower capitalized and less profitable banks. As of 2017, only a few countries had fully divested the initial support they provided during the crisis. Public holdings were divested faster in better capitalized, more profitable, and more liquid banks, and in countries where the economy recovered faster. In countries where the government stake remained relatively high, private investment and credit growth were slower, financial access, depth, efficiency, and competition were worse, and financial stability improved less.

Media coverage: Bloomberg, WSJ

Presentations: (2019) IMF European, Fiscal Affairs, and Research Departments

Corporate Transactions in Hard-to-Value Stocks 

With Itzhak Ben-David, Byungwook Kim, and Darren Roulstone

The Review of Corporate Finance Studies, 2021

Hard-to-value stocks provide opportunities for managers to exploit their informational advantage through trading on their firms’ and their own personal accounts. In contrast to the prediction that such transactions reflect private information about future events, they are contrarian and heavily depend on past returns. Corporate transactions in hard-to-value stocks outperform those in easy-to-value stocks in the early part of our sample, but this difference disappears after 2002, coinciding with a general decline in the profitability of stock market anomalies. Our evidence is consistent with managers’ perception of mispricing, rather than private information, being a key motivator of their transactions.

Media coverage: RCFS blog