Pub Date : 2024-10-01DOI: 10.1016/j.jfi.2024.101116
Philipp J. König , Paul Mayer , David Pothier
When will a policy authority (PA) resolve a bank whose solvency is uncertain? Delaying resolution gives the PA time to obtain information about the bank’s solvency. Delaying resolution also gives creditors time to withdraw funds, raising the cost of bailing out depositors. The optimal resolution date trades off these costs with the option value of making a more efficient resolution decision given new information. Providing liquidity support buys the PA time to wait for information, but increases its losses if the bank turns out to be insolvent. The PA may therefore optimally delay the provision of liquidity support.
政策制定机构 (PA) 何时解决偿付能力不确定的银行？推迟决议可使政策当局有时间获取有关银行偿付能力的信息。延迟破产也会给债权人提取资金的时间，从而增加救助储户的成本。最佳的破产清算日期是将这些成本与在获得新信息的情况下做出更有效的破产清算决策的期权价值进行权衡。提供流动性支持可以为 PA 赢得等待信息的时间，但如果银行最终资不抵债，则会增加 PA 的损失。因此，公共权力机构可以推迟提供流动性支持。
{"title":"Optimal timing of policy interventions in troubled banks","authors":"Philipp J. König , Paul Mayer , David Pothier","doi":"10.1016/j.jfi.2024.101116","DOIUrl":"10.1016/j.jfi.2024.101116","url":null,"abstract":"<div><div>When will a policy authority (PA) resolve a bank whose solvency is uncertain? Delaying resolution gives the PA time to obtain information about the bank’s solvency. Delaying resolution also gives creditors time to withdraw funds, raising the cost of bailing out depositors. The optimal resolution date trades off these costs with the option value of making a more efficient resolution decision given new information. Providing liquidity support buys the PA time to wait for information, but increases its losses if the bank turns out to be insolvent. The PA may therefore optimally delay the provision of liquidity support.</div></div>","PeriodicalId":51421,"journal":{"name":"Journal of Financial Intermediation","volume":"60 ","pages":"Article 101116"},"PeriodicalIF":3.1,"publicationDate":"2024-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142441354","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-10-01DOI: 10.1016/j.jfi.2024.101117
Dong Beom Choi , Tanju Yorulmazer
We provide a theoretical framework to analyze the market maker of last resort (MMLR) role of central banks. Central bank announcement to purchase assets in case of distress promotes private agents’ willingness to make markets, which immediately restores liquidity decreasing the need for future intervention. That is, the central bank can reduce the usage of the facility ex post by announcing a large capacity ex ante. This comes with potential fragility due to the possibility of multiple equilibria. Central bank can eliminate the bad equilibrium by announcing a large enough facility. However, fragility resurfaces if market participants doubt central bank’s commitment. Furthermore, permanent access to MMLR may crowd out private liquidity making the intervention ineffective.
{"title":"Whatever it takes? Market maker of last resort and its fragility","authors":"Dong Beom Choi , Tanju Yorulmazer","doi":"10.1016/j.jfi.2024.101117","DOIUrl":"10.1016/j.jfi.2024.101117","url":null,"abstract":"<div><div>We provide a theoretical framework to analyze the market maker of last resort (MMLR) role of central banks. Central bank announcement to purchase assets in case of distress promotes private agents’ willingness to make markets, which immediately restores liquidity decreasing the need for future intervention. That is, the central bank can reduce the usage of the facility ex post by announcing a large capacity ex ante. This comes with potential fragility due to the possibility of multiple equilibria. Central bank can eliminate the bad equilibrium by announcing a large enough facility. However, fragility resurfaces if market participants doubt central bank’s commitment. Furthermore, permanent access to MMLR may crowd out private liquidity making the intervention ineffective.</div></div>","PeriodicalId":51421,"journal":{"name":"Journal of Financial Intermediation","volume":"60 ","pages":"Article 101117"},"PeriodicalIF":3.1,"publicationDate":"2024-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142652193","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-10-01DOI: 10.1016/j.jfi.2024.101115
Junyong Lee , Kyounghun Lee , Frederick Dongchuhl Oh
This study aims to examine whether religion influences branch banking. Using a large sample of U.S. county-level branch banking and religious characteristics data between 1994 and 2018, we find that the local religiosity of the bank headquarters’ region is positively related to the presence of bank branches. By contrast, banks in regions with more Catholics than Protestants are less likely to have branches. Moreover, religious diversity negatively affects branch banking. Overall, our study highlights the significant role of local religions in branch-banking decisions.
{"title":"Religion and branch banking","authors":"Junyong Lee , Kyounghun Lee , Frederick Dongchuhl Oh","doi":"10.1016/j.jfi.2024.101115","DOIUrl":"10.1016/j.jfi.2024.101115","url":null,"abstract":"<div><div>This study aims to examine whether religion influences branch banking. Using a large sample of U.S. county-level branch banking and religious characteristics data between 1994 and 2018, we find that the local religiosity of the bank headquarters’ region is positively related to the presence of bank branches. By contrast, banks in regions with more Catholics than Protestants are less likely to have branches. Moreover, religious diversity negatively affects branch banking. Overall, our study highlights the significant role of local religions in branch-banking decisions.</div></div>","PeriodicalId":51421,"journal":{"name":"Journal of Financial Intermediation","volume":"60 ","pages":"Article 101115"},"PeriodicalIF":3.1,"publicationDate":"2024-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142426095","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-10-01DOI: 10.1016/j.jfi.2024.101118
Kristian Blickle , João A.C. Santos
We make use of rich U.S. data to show that debt overhang significantly reduces firm asset-, capex-, and employee-growth. We show these contractions are likely driven by firm decisions as opposed to the result of credit constraints or changes in investment opportunities. Our measure of overhang – liabilities to cash flow — aligns with traditional theory and focuses on the importance of a firm’s debt servicing capacity. It further allows us to capitalize on the COVID-19 shock as a quasi-natural experiment to confirm the impact of overhang on firm investment and growth.
{"title":"The costs of corporate debt overhang","authors":"Kristian Blickle , João A.C. Santos","doi":"10.1016/j.jfi.2024.101118","DOIUrl":"10.1016/j.jfi.2024.101118","url":null,"abstract":"<div><div>We make use of rich U.S. data to show that debt overhang significantly reduces firm asset-, capex-, and employee-growth. We show these contractions are likely driven by firm decisions as opposed to the result of credit constraints or changes in investment opportunities. Our measure of overhang – liabilities to cash flow — aligns with traditional theory and focuses on the importance of a firm’s debt servicing capacity. It further allows us to capitalize on the COVID-19 shock as a quasi-natural experiment to confirm the impact of overhang on firm investment and growth.</div></div>","PeriodicalId":51421,"journal":{"name":"Journal of Financial Intermediation","volume":"60 ","pages":"Article 101118"},"PeriodicalIF":3.1,"publicationDate":"2024-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142572183","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-10-01DOI: 10.1016/j.jfi.2024.101114
Sonny Biswas , Kostas Koufopoulos , Anjan V. Thakor
We develop a model in which credit ratings are endogenously coarse relative to the underlying default probabilities, and ratings precision is countercyclical. Ratings coarseness arises from the profit-maximizing behavior of rating agencies, and coarseness may maximize welfare even when greater ratings precision is costlessly available. Because the private outcome may differ from the socially desirable outcome, a social planner can improve welfare by putting a ceiling (floor) on the rating agency’s fee if the desired outcome is coarseness (precision). Strikingly, when information production is costless, ratings coarseness is socially optimal, but it does not arise in the laissez-faire equilibrium, thus inviting regulatory intervention.
{"title":"Can information imprecision be valuable? The case of credit ratings","authors":"Sonny Biswas , Kostas Koufopoulos , Anjan V. Thakor","doi":"10.1016/j.jfi.2024.101114","DOIUrl":"10.1016/j.jfi.2024.101114","url":null,"abstract":"<div><div>We develop a model in which credit ratings are endogenously coarse relative to the underlying default probabilities, and ratings precision is countercyclical. Ratings coarseness arises from the profit-maximizing behavior of rating agencies, and coarseness may maximize welfare even when greater ratings precision is costlessly available. Because the private outcome may differ from the socially desirable outcome, a social planner can improve welfare by putting a ceiling (floor) on the rating agency’s fee if the desired outcome is coarseness (precision). Strikingly, when information production is costless, ratings coarseness is socially optimal, but it does not arise in the laissez-faire equilibrium, thus inviting regulatory intervention.</div></div>","PeriodicalId":51421,"journal":{"name":"Journal of Financial Intermediation","volume":"60 ","pages":"Article 101114"},"PeriodicalIF":3.1,"publicationDate":"2024-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142426094","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-10-01DOI: 10.1016/j.jfi.2024.101120
Cecilia Parlatore
In a banking model with imperfect information, I find that more precise information increases the economy’s vulnerability to bank runs. For low information quality, depositors cannot distinguish bad from good states based on their information and, absent liquidity shocks, have no incentives to withdraw early. As information quality increases and signals become more informative, depositors’ incentives to withdraw strengthen and run-proof contracts become costlier in risk-sharing terms: to prevent runs, the bank must offer less to early withdrawers. When information quality is high enough, the bank would rather forgo return and hold excess liquidity than choose a run-proof deposit contract.
{"title":"Transparency and bank runs","authors":"Cecilia Parlatore","doi":"10.1016/j.jfi.2024.101120","DOIUrl":"10.1016/j.jfi.2024.101120","url":null,"abstract":"<div><div>In a banking model with imperfect information, I find that more precise information increases the economy’s vulnerability to bank runs. For low information quality, depositors cannot distinguish bad from good states based on their information and, absent liquidity shocks, have no incentives to withdraw early. As information quality increases and signals become more informative, depositors’ incentives to withdraw strengthen and run-proof contracts become costlier in risk-sharing terms: to prevent runs, the bank must offer less to early withdrawers. When information quality is high enough, the bank would rather forgo return and hold excess liquidity than choose a run-proof deposit contract.</div></div>","PeriodicalId":51421,"journal":{"name":"Journal of Financial Intermediation","volume":"60 ","pages":"Article 101120"},"PeriodicalIF":3.1,"publicationDate":"2024-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142699484","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-09-03DOI: 10.1016/j.jfi.2024.101113
Franklin Allen , Adelina Barbalau
Security design, which broadly speaking deals with the issue of designing optimal contractual mechanisms for overcoming various frictions between agents, is the subject of an extensive literature. This paper presents a review of recent work on security design and is organized around the applications of security design in various fields of finance starting with classic corporate finance applications such as capital structure and corporate governance, financial intermediation applications such as securitization and contingent capital, the interaction of market and security design, as well as emerging applications such as fintech, sustainable finance and healthcare finance. Future research is also discussed.
{"title":"Security design: A review","authors":"Franklin Allen , Adelina Barbalau","doi":"10.1016/j.jfi.2024.101113","DOIUrl":"10.1016/j.jfi.2024.101113","url":null,"abstract":"<div><p>Security design, which broadly speaking deals with the issue of designing optimal contractual mechanisms for overcoming various frictions between agents, is the subject of an extensive literature. This paper presents a review of recent work on security design and is organized around the applications of security design in various fields of finance starting with classic corporate finance applications such as capital structure and corporate governance, financial intermediation applications such as securitization and contingent capital, the interaction of market and security design, as well as emerging applications such as fintech, sustainable finance and healthcare finance. Future research is also discussed.</p></div>","PeriodicalId":51421,"journal":{"name":"Journal of Financial Intermediation","volume":"60 ","pages":"Article 101113"},"PeriodicalIF":3.1,"publicationDate":"2024-09-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S104295732400041X/pdfft?md5=f3f3e147217a9227d9526a3956c7b047&pid=1-s2.0-S104295732400041X-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142167493","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-08-21DOI: 10.1016/j.jfi.2024.101104
Kizkitza Biguri , Jörg R. Stahl
We challenge the theorized trade-off between risk management and investment due to collateral constraints. We compile a unique dataset of derivative transactions and collateral for U.S. public firms. Exploiting exogenous variation in cash-collateral, we observe significant effects on hedging but no impact on investment. Variations in PPE-collateral, instead, impact investment but show no association with hedging. Our findings suggest that a firm’s assets should not be seen as interchangeable; they rather play distinct roles in the collateralization process.
{"title":"Collateral requirements and corporate policy decisions","authors":"Kizkitza Biguri , Jörg R. Stahl","doi":"10.1016/j.jfi.2024.101104","DOIUrl":"10.1016/j.jfi.2024.101104","url":null,"abstract":"<div><p>We challenge the theorized trade-off between risk management and investment due to collateral constraints. We compile a unique dataset of derivative transactions and collateral for U.S. public firms. Exploiting exogenous variation in cash-collateral, we observe significant effects on hedging but no impact on investment. Variations in PPE-collateral, instead, impact investment but show no association with hedging. Our findings suggest that a firm’s assets should not be seen as interchangeable; they rather play distinct roles in the collateralization process.</p></div>","PeriodicalId":51421,"journal":{"name":"Journal of Financial Intermediation","volume":"60 ","pages":"Article 101104"},"PeriodicalIF":3.1,"publicationDate":"2024-08-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142129562","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-08-10DOI: 10.1016/j.jfi.2024.101103
Lee Seltzer
This paper studies whether financing constraints adversely affect renters by reducing maintenance. Consistent with a sensitivity of maintenance to financial resources, housing code violations increased after a change in the law that effectively decreased cash flows available to maintain some rent-stabilized buildings in New York City. The effect is most severe when financing constraints are present. Moreover, results of panel regressions using a dataset of 45 cities obtained with Freedom of Information Act (FOIA) requests are consistent with a hypothesis that buildings with higher LTV ratio mortgages have more code violations. Together, the results provide evidence that financing constraints reduce maintenance, an outcome that exacerbates the unintended consequences of rent control.
{"title":"Effects of financing constraints on maintenance investments in rent-stabilized apartments","authors":"Lee Seltzer","doi":"10.1016/j.jfi.2024.101103","DOIUrl":"10.1016/j.jfi.2024.101103","url":null,"abstract":"<div><p>This paper studies whether financing constraints adversely affect renters by reducing maintenance. Consistent with a sensitivity of maintenance to financial resources, housing code violations increased after a change in the law that effectively decreased cash flows available to maintain some rent-stabilized buildings in New York City. The effect is most severe when financing constraints are present. Moreover, results of panel regressions using a dataset of 45 cities obtained with Freedom of Information Act (FOIA) requests are consistent with a hypothesis that buildings with higher LTV ratio mortgages have more code violations. Together, the results provide evidence that financing constraints reduce maintenance, an outcome that exacerbates the unintended consequences of rent control.</p></div>","PeriodicalId":51421,"journal":{"name":"Journal of Financial Intermediation","volume":"59 ","pages":"Article 101103"},"PeriodicalIF":3.1,"publicationDate":"2024-08-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142002285","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-07-01DOI: 10.1016/j.jfi.2024.101102
Roberto Blanco, Miguel García-Posada, Sergio Mayordomo, María Rodríguez-Moreno
Before the Covid-19 crisis, zero-bank-debt firms, especially risky ones, faced, due to their lack of credit history, more difficult access to bank loans than firms which previously had bank debt. These credit constraints were tightened by the Covid shock, irrespective of firms’ risk, arguably because of increased information asymmetries during a period of high macroeconomic uncertainty. Zero-bank-debt firms, even those which were safe and profitable, were also far more likely to leave the market during the pandemic than firms which previously had bank debt. However, those zero-bank-debt firms that did obtain new credit reduced their probability of exit.
{"title":"Access to credit and firm survival during a crisis: The case of zero-bank-debt firms","authors":"Roberto Blanco, Miguel García-Posada, Sergio Mayordomo, María Rodríguez-Moreno","doi":"10.1016/j.jfi.2024.101102","DOIUrl":"10.1016/j.jfi.2024.101102","url":null,"abstract":"<div><p>Before the Covid-19 crisis, zero-bank-debt firms, especially risky ones, faced, due to their lack of credit history, more difficult access to bank loans than firms which previously had bank debt. These credit constraints were tightened by the Covid shock, irrespective of firms’ risk, arguably because of increased information asymmetries during a period of high macroeconomic uncertainty. Zero-bank-debt firms, even those which were safe and profitable, were also far more likely to leave the market during the pandemic than firms which previously had bank debt. However, those zero-bank-debt firms that did obtain new credit reduced their probability of exit.</p></div>","PeriodicalId":51421,"journal":{"name":"Journal of Financial Intermediation","volume":"59 ","pages":"Article 101102"},"PeriodicalIF":3.1,"publicationDate":"2024-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141993257","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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