Published Papers

Journal of Financial and Quantitative Analysis (2021): 1-27

WFA-CFAR Best Finance Ph.D. Award in Honor of Professor Stuart I. Greenbaum, Washington University in St. Louis, 2017

This paper exploits an influx of Chinese students to US universities from 2000 through 2018 to study synergies between banks' deposit-taking and lending activities. Banks that are more recognizable by Chinese students experience higher deposit inflows and increase their local credit supply. This credit supply expansion only occurs in information sensitive credit markets: small business loans and second lien mortgages. Such increase concentrates in non-tradable sectors and is more pronounced at locations where managers have more autonomy. The results indicate that deposits from local consumers convey private information about the local credit market, which helps banks in information-sensitive lending. 

Review of Finance, Volume 27, Issue 2, March 2023, Pages 423–46

We test whether measures of influence on regulators affect stress test outcomes.  The large trading banks – those most plausibly ‘Too big to Fail’ – face the toughest tests.  Stress tests have a greater effect on large trading banks’ portfolios; the large banks respond by making more conservative (initial) capital plans; and, despite their more conservative capital plans, the large banks still fail their tests more frequently than other banks. In contrast, while we find no evidence that political or regulatory connections affect the quantitative element of the stress tests, these connected banks do face less scrutiny under its qualitative dimension.

Relative performance evaluation (RPE) intensifies competitive pressure by tying executive compensation to the profits of rivals. We show that these contracts make loan syndication harder by reducing banks’ willingness to participate in loans underwritten by banks named in their RPE contracts. Lead arranger banks which are more frequently named in RPE hold larger shares of the loans they syndicate, and their borrowers face higher spreads. These banks, in turn, lose market share to banks less likely to be named in RPE. Our results highlight the tension between the normal benefits of competition versus the need for cooperation in loan syndication. 

Working Papers

This paper studies banks’ investment in risk management practices following the Global Financial Crisis and the advent of stress testing. Banks that experienced greater losses during the Crisis exhibit stronger demand for risk management talents. Banks increase their demand for highly skilled stress test labor in anticipation of a test and following poor performance on a test. Following this higher demand, banks exhibit lower systematic risk and lower profitability. While stress testing has modernized banks’ internal risk management by spurring the acquisition of highly skilled risk management talent, recent changes to the tests could erode its efficacy.

Bank branch density, defined as the number of bank branches to total deposits, has significantly declined over the past decade, fueled by a confluence of branch closings and the almost doubling of deposits between 2016 and 2022. During this period, banks with low branch density benefited from large deposits inflows, leading to even lower density. But the virtuous cycle of deposits growth in these banks stopped spinning when investors became wary about their financial health. Stock prices of banks with low branch density plummeted during the 2023 Banking Crisis as these banks experienced larger outflows of uninsured deposits. Our results suggest that digital banking enabled banks to grow faster and attract uninsured deposits, but those large deposits inflows took the form of “hot money” that changed its course when economic conditions worsened.

Geographic Concentration & Liquidity Management: A Tale of Two Sides

I study the impact of geographic concentration on banks’ liquidity management behaviors during liquidity crises. The results lend support to the view that concentrated banks invest more in private information production. On the asset side, concentrated banks hold loan portfolios that contain more private information, which becomes harder to sell as the environment becomes increasingly illiquid. I show that banks that were more concentrated in the home mortgage market were more likely to increase their liquid assets and reduce new lending during the 2007-2009 liquidity crisis. On the liability side, concentrated banks invest more in private information in deposit markets and have closer connections with local communities, which mitigates liquidity risk. I show that banks with concentrated deposit resources experience higher deposit inflows, and are less likely to hoard liquidity or cut new lending during the liquidity crisis. My results suggest that geographic concentration measured on either side of the balance sheet affects banks’ liquidity management differently.

Work in Progress

Bank Convexity Risk with Martijn Cremers, and Priyank Gandhi

The Effects of the Aggregate Stock Market on Mergers and Acquisitions with Vyacheslav Fos