Working Papers

Intermediated Credit and Local Resilience (with Erica X. Jiang and Lee Seltzer)

This paper demonstrates the importance of bank capital in improving local resilience and the complementarity of bank capital and government aid programs. We show that following the COVID-19 pandemic and shutdown, areas with more jobs supported by subsidized bank loans during normal times had more job losses and business closures, and more so if the local banking sector is less capitalized. Such losses were heavily borne by low-income workers. We also find that areas with a less capitalized banking sector received disproportionately less Paycheck Protection Program funding. Using a dynamic model of firm entry and exit with bank borrowing, we formulate the mechanism of how bank capital can mitigate the impact of adverse aggregate shocks on employment and firm exit. We calibrate the model to quantify effects of bank capital on resilience and the amount of government funding necessary for full resilience in various simulated scenarios of adverse shocks and bank capitalization.

Regulatory Capital, Business Growth, and Investment Risk: Evidence from Life Insurance Companies

This paper examines how capital requirements affect life insurance companies’ business growth and investment risk taking. I show through a simple model that capital requirements are negatively (positively) associated with life insurers’ equilibrium business scale (average portfolio investment risk). Using staggered changes in U.S. state laws that enable life insurers to raise capital more easily, I find evidence consistent with the model’s prediction: life insurers respond to these law changes by accelerating their insurance underwriting growth and reducing their allocation to risky investments on average. The effect is more pronounced for insurers that are less financially competitive.

Bank Income Tax, Lending Decisions, and Deposit Competition (with Erica X. Jiang) (draft available upon request)

We demonstrate the impact of income tax on commercial banks’ lending decisions. We exploit staggered changes in corporate income taxes across U.S. states and show that the share of jumbo loans in banks’ mortgage origination responds negatively to changes in tax rates. In the cross section, the magnitude of this response is negatively associated with the intensity of deposit competition banks are faced with. In addition, although tax increases (cuts) exert no effect on the amount of conforming loan origination, they lead to an increase (decrease) in the average interest rate spread of such loans over the corresponding prime mortgage benchmark rate. This effect appears to be driven by banks in more competitive deposit markets. The findings suggest that income tax directly influences bank lending decisions through the funding cost channel.

Work in Progress

Product Market Decisions in Mergers (with Qianqian Huang and Chang Shi)

The ESG Preference of Bond Investors (with Chenyu Xiong)

Skilled Labor and Voluntary Forecast Disclosure (with Qianqian Huang and Chang Shi)