Abstract: Bank capital regulation flattens the yield curve by increasing banks’ holdings of long maturity
government bonds. I study the implementation of bank capital requirements, and their subsequent
relaxation in 2018, to show that stricter requirements lead banks to shift their portfolios
toward long bonds, effectively acting as a large scale asset purchase program. I develop a
bank portfolio choice model featuring costly bank deposit franchises, counter-cyclical loan
losses, and inelastic markets to rationalize the reduced form findings. I quantify the model
to evaluate counterfactual bank portfolios and asset prices under alternative regulatory and
unconventional monetary policy rules.
Abstract: One third of U.S. mortgages are originated by small correspondent lenders and securitized by large aggregators, e.g. Wells Fargo. I show matching frictions impact credit supply using a novel dataset on aggregator-correspondent lender relationships. One standard deviation increase in correspondent lenders' decreases correspondent lenders' credit supply by 12.5% and to low income borrowers by 4.5% more. Origination reductions attenuate when correspondent lenders have lower concentration in selling relationships and more aggregators near their headquarters. My results quantify the role of mortgage aggregation in easing securitization frictions and highlight the specialization of correspondent lenders in ensuring credit access for low-income borrowers.
Abstract: I study the interplay of interest rate risk, credit risk, and bond quantities in a term structure model of Treasury and corporate bond yields. The core of the theory is an endogenous connection between credit and duration risk premia through bond portfolios. Shocks to default probabilities propagate to Treasury yields through their impact on the price of interest rate risk. The dependence of credit risk premia on interest rates affects the strength of monetary policy transmission to both long term Treasury and corporate yields. The credit and the duration risk premia amplify the effect of an increase in default rates on credit spreads. A decline in Treasury supply can adversely impact corporate yields by raising the price of credit risk through a safety channel. The impact of quantitative easing is asymmetric and depends on which assets are purchased.
