This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

  1. Home
  2. ASSA Annual Meeting
  3. 2024
  4. Program
  5. Credit and Banking
« Back to Results

Credit and Banking

Paper Session

Friday, Jan. 5, 2024 2:30 PM - 4:30 PM (CST)

Convention Center, 225D
Hosted By: American Economic Association
  • Chair: Lucie Lebeau, Federal Reserve Bank of Dallas

Borrowing Beyond Bounds: How Banks Pass On Regulatory Compliance Costs

Felix Christian Corell
,
Columbia University
Melina Papoutsi
,
European Central Bank

Abstract

Banks in the euro area must inform supervisors about exposures to individual counterparties that exceed 10% of the bank’s capital. Using a new granular dataset that combines banks’ loan and security exposures, we test whether banks pass on the cost of complying with the large-exposure framework to borrowers above the threshold. We show that after a lowering of the reporting threshold, small banks react by shifting more exposures just below the threshold. Moreover, they charge a sizable 68 basis point interest rate premium for large exposures, relative to firms just below the threshold. This premium is more pronounced for borrowers with fewer banking relationships and hence fewer outside options. In response, when firms approach their bank’s large exposure threshold, they become more likely to borrow from other banks. However, we find no statistical evidence for bunching below the threshold, suggesting that there are substantial frictions that prevent firms from switching to higher-capital banks to reduce interest expenses.

Does the Disclosure of Consumer Complaints Reduce Racial Disparities in the Mortgage Lending Market

Xiang Li
,
Boston College

Abstract

The Consumer Financial Protection Bureau (CFPB) publicly disclosed consumer complaint narratives in 2015. Utilizing a difference-in-differences design, I find that, following disclosure, CFPB-supervised banks whose complaint narratives are disclosed are less prone to discriminate against minority borrowers in the mortgage lending market. This reduces racial disparities in interest rates, default rates, and rejection rates. The disclosure saves minority borrowers $102 million in interest payments and aids over 14,000 minority households in securing loans annually, thereby narrowing the racial gap in homeownership. Stakeholders including consumers, peer banks, and stock market investors facilitate the disclosure's effects on reducing discrimination.

Climate-Related Disclosure Commitment of the Lenders, Credit Rationing, and Borrower Environmental Performance

Iftekhar Hasan
,
Fordham University
Haekwon Lee
,
University of Sydney
Buhui Qiu
,
University of Sydney
Anthony Saunders
,
New York University

Abstract

Using lenders becoming members of the Task Force on Climate-Related Financial Disclosures (TCFD) as a plausible exogeneous shock, we examine whether and how lenders’ commitment to transparent climate-related disclosures affects borrower firms’ environmental performance. We find that client firms of TCFD-member lenders, relative to control firms, significantly improve their environmental performance after the TCFD launch. The effects are stronger for polluting firms. Moreover, TCFD-member lenders influence their borrowers’ environmental performance via charging higher loan spread and reducing the number and amount of new loans issued to polluting firms. Finally, polluting clients of TCFD-member lenders experience tightened financial constraints subsequently.

Local Bank Supervision

Thomas Lambert
,
Erasmus University Rotterdam
Di Gong
,
University of International Business and Economics
Wolf Wagner
,
Erasmus University Rotterdam and CEPR

Abstract

We study the impacts of a reform that decentralized supervision for a subset of commercial banks in China using novel branch-level data on enforcement actions. Using a difference-in-differences design, we find that decentralization reduces supervisory leniency. The effect is stronger when centralized supervision suffers from informational frictions, when local supervisory capture is limited, and when local banking sector is weak. We also observe from individual lending decisions that more effective enforcement lowers risk-taking at banks, contracting in turn credit supply at the regional level. Our findings inform the debate on the characteristics of an optimal supervisory architecture.

The Effect of Treasury Debt on Bank Lending and the Economy

Roberto Robatto
,
University of Wisconsin-Madison
Jason Choi
,
University of Toronto

Abstract

What are the long-term effects of an increase in the supply of Treasury securities on the financial sector and the economy? We assemble a dataset spanning 140 years with data about banks, firms’ investments, fiscal policy, and other macroeconomic and financial variables. We then employ a VAR analysis to show that a higher supply of Treasury securities relative to GDP (i) reduces bank liabilities and the supply of bank loans, (ii) reduces firms’ investments, and (iii) has negative impact on workers and the labor market. We then present a model that rationalizes these findings and allows us to derive policy implications. The current scenario in which the government can borrow at low or negative real rates does not necessarily imply that higher government debt is beneficial. We are working to provide a full quantitative policy analysis to determine the optimal supply of Treasury securities.
JEL Classifications
  • G2 - Financial Institutions and Services