We model platform competition with endogenous data generation, collection, and sharing, thereby providing a unifying framework to evaluate data-related regulation and antitrust policies. Data are jointly produced from users' economic activities and platforms' investments in data infrastructure. Data improves service quality, causing a feedback loop that tends to concentrate market power. Dispersed users do not internalize the impact of their data contribution on (i) service quality for other users, (ii) market concentration, and (iii) platforms’ incentives to invest in data infrastructure, causing inefficient over- or under-collection of data. Data sharing proposals, user privacy protections, platform commitments, and markets for data cannot fully address these inefficiencies. We introduce and analyze user union, which represents and coordinates users, as a potential solution for antitrust and consumer protection in the digital era.

Money is debt that circulates with no questions asked. Stablecoins are a new form of private money that circulate with many questions asked. We show how stablecoins can maintain a constant price even though they face run risk and pay no interest. Stablecoin holders are indirectly compensated for stablecoin run risk because they can lend the coins to levered traders. Levered traders are willing to pay a premium to borrow stablecoins when speculative demand is strong. Therefore, the stablecoin can support a $1 peg even with higher levels of run risk.

I study credit market outcomes with different competing lending technologies: A fintech lender that learns from data and is able to seize on-platform sales, and a banking sector that relies on physical collateral. Despite flexible information acquisition technology, the endogenous fintech learning is surprisingly coarse---only sets a single threshold to screen out low-quality borrowers. As the fintech lending technology improves, better enforcement harms, while better information technology benefits traditional banking sector profits. Big data technology enables the fintech to leverage data from its early-stage operations in unbanked markets to develop predictive models for expansion into wealthy markets.

Central banks can operate with negative equity, and many have done so in history without undermining trust in fiat money. However, there are limits. How negative can central bank equity be before fiat money loses credibility? We address this question using a global games approach motivated by the fall of the Bank of Amsterdam (1609–1820). We solve for the unique break point where negative equity and asset illiquidity renders fiat money worthless. We draw lessons on the role of fiscal support and central bank capital in sustaining trust in fiat money.

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 to prevent disorderly sales. This, in turn, decreases the future need for the central bank to intervene. Here, the central bank can reduce the expected usage of the facility by announcing a large capacity, that is, it can end up buying less ex-post by committing to do more ex-ante. However, this beneficial feature comes with potential downsides. First, the central bank may not achieve the intended outcome due to the possibility of multiple self-fulfilling equilibria, which may arise if it does not intervene with sufficient aggression or if market participants have doubts about its commitment. Second, public liquidity provision may crowd out private liquidity if the MMLR access becomes permanent and make the intervention ineffective.

Financial regulation has led banks to increase their equity ratios. Yet, several studies find that this has not led to a decrease in bank equity risk. We show theoretically, that keeping less capital in excess of the minimum capital requirement can outweigh the risk-reducing effect on equity of increased total capitalization. Empirically, we find that excess capitalization is a significant determinant of equity risk, and can explain why bank equity risk has not become lower after the Great Financial Crisis. Smaller excess capitalization also leads to decreases in market-to-book ratios. Lower leverage has, however, reduced the cost of bank debt.

How do shocks to banks transmit to loan terms faced by borrowers on different loan markets? In our model of multidimensional contracting between heterogeneous risky borrowers and intermediaries with limited lending capacity, loan terms depend on loan demand elasticities and default elasticities. These two sufficient statistics predict how the cross-section of loan terms and bank risk react to changes in capital and funding costs. Using empirical estimates, they explain the heterogeneous transmission of shocks across loan markets and borrower risk categories. Accounting for non-price loan terms is important for dynamics because their endogenous response can increase the persistence of credit crises.

Does global financial market integration alleviate or exacerbate the transmission of major disruptions in global trade? Using novel data linking regional banking markets with import flows in Brazil, we document that the presence of globally-active banks at the municipal level is associated with a weakened transmission of trade disruptions to imports. For identification, we exploit municipalities’ exposure to pandemic-related lockdowns in their trade partners abroad, controlling for local imports demand. The supply-driven and robust results suggest that global banks compensate for the effect of lockdowns by providing wider access to US dollar funding as well as by reducing cross-border information frictions. This evidence highlights a strong link between global financial integration and the resilience of real-sector integration.

This paper studies how interconnected plants distribute additional liquidity from banks

through the supply chain. Using a spatially segmented bank branch expansion rule in India, we find that direct exposure to additional bank credit allows plants to hold less precautionary cash and increase bank debt. Directly exposed plants pass through liquidity to customer plants as short-term trade credit. This liquidity spillover improves sales, employment, and productivity at customer plants. Structural estimation yields an average credit multiplier of 1.48. Our results underscore the credit multiplier effects of production networks and the importance of financial integration among firms with limited banking services.

I study the effects of private equity (PE) buyouts on labor productivity using a novel micro-data on investments in PE funds and PE buyout deals, combined with confidential Census data. I show that while PE increased productivity at target firms until 2011, it substantially decreased productivity post 2011. In the time series, the decrease in labor productivity is correlated with an increase in capital from the most underfunded public pensions. In the cross-section, I show that firms financed predominantly by the most underfunded public pensions experience a -5.2% annual change in labor productivity, as compared to firms financed by other investors which experience a +5.2% annual change. Firms supported by low quality PE funds face productivity decreases. The key mechanism is the notion of desperate capital, where the most underfunded public pensions allocate capital to low quality GPs, and realize lower PE returns. I introduce a novel instrument of public unionization rates to establish support for underfunded positions causing selection into low quality GPs, which ultimately leads to capital misallocation within private markets.

This paper demonstrates that private equity buyouts relax firms' financing constraints by enabling them to borrow against cash flows. Unlike comparable non PE-backed firms that primarily use asset-based debt, PE-backed firms rely extensively on cash flow-based debt subject to earnings-based borrowing constraints, and their borrowing and investments exhibit high sensitivity to earnings. Thus, private equity raises both the level and cash flow sensitivity of leverage. Documenting that PE sponsors inject equity and stabilize earnings in distress, we highlight how PE sponsors' involvement in distress resolution serves as a key mechanism that enables cash flow-based borrowing.

This paper studies the interactions between corporate law and venture capital (VC) exits by acquisitions, an increasingly common source of VC-related litigation. We find that transactions by VC funds under liquidity pressure are characterized by (i) a substantially lower sale price; (ii) a greater probability of industry outsiders as acquirers; (iii) a positive abnormal return for acquirers. These features indicate the existence of fire sales, which often satisfy VCs' liquidation preferences but hurt common shareholders, leaving board members with conflicting fiduciary duties and litigation risks. Exploiting an important court ruling that establishes the board’s fiduciary duties to common shareholders as a priority, we find that after the ruling maturing VCs become less likely to exit by fire sales and they distribute cash to their investors less timely. However, VCs experience more difficult fundraising ex-ante, highlighting the potential cost of a common-favoring regime. Overall, the evidence has important implications for optimal fiduciary duty design in VC-backed start-ups.

Open banking is a policy initiative that enables borrowers to share data with any financial institutions. This paper explores impact of open banking on lending market competition and its resulting consequences. In our model, banks compete for underbanked borrowers in common-value auctions and engage in maturity transformation. Under closed banking, the bank with borrower data is an informational monopolist. Under open banking, banks with good signals may refrain from lending. Open banking reduces resource allocation efficiency, narrows bank spread, and enhances financial inclusion. Maturity transformation affects the impact of open banking by preventing banks from transferring risks to their creditors.

We study the transmission channels of quantitative tightening (QT). We develop a structural model where reducing the size of the Federal Reserve’s balance sheet affects the demand for reserves by banks and demand for liquidity by non-banks, and calibrate our model to the data of the current monetary tightening cycle. Rather than the demand for reserves by banks which is typically considered in the existing academic literature, we find that the demand for liquidity by non-banks is the binding constraint for the size of the Federal Reserve’s balance sheet. We show that the Federal Reserve can reduce the size of its balance sheet by more if it sets interest rates higher, documenting a novel complimentarity between both monetary policy tools.

We develop a two-layer asset pricing framework to analyze fragility in the corporate bond market. Households allocate wealth to institutions, which allocate funds to specific assets. The framework generates tractable joint dynamics of flows and asset values, featuring amplification and contagion, by combining a flow-performance relationship for fund flows with a logit model of institutional asset demand. The framework can be estimated using micro-data on bond prices, investors holdings, and fund flows, allowing for rich parameter heterogeneity across assets and institutions. We use the estimated model to quantify the equilibrium effects of unconventional monetary and liquidity policies on bond prices.

This study investigates the effects of targeted credit rationing by banks on firms that are likely to generate negative externalities. We use data from Operation Choke Point, a regulatory initiative in the United States that aimed to limit bank relationships with firms in high-risk industries for fraud and money laundering. Our analysis of supervisory loan-level data reveals that targeted banks reduce lending and terminate relationships with affected firms. However, these firms fully substitute credit availability by obtaining loans from non-targeted banks under similar terms, resulting in no changes in total debt, investment, or profitability. Our findings suggest that targeted credit rationing is ineffective in promoting change.

We study the determinants of the liquidity dry-up in the commercial paper market in March 2020 and the role of central bank interventions in reviving the market. We show that the dry-up was driven by money market funds (MMFs) - the key investors in the commercial paper market - that faced investor outflows. Using security-level fund holdings, we establish that the liquidity crisis in MMFs affected corporate funding: non-financial companies were less likely to issue commercial paper if their commercial paper was held by funds experiencing larger investor outflows. We show that the revival of the market was driven by the ECB’s intervention in the European non-financial commercial paper market leading to better terms and conditions for eligible firms.

We develop a simple model of the liquidity and insurance capacity of the interbank network arising from loan syndication. We find that the liquidity capacity has increased significantly following the introduction of liquidity regulation, and that the liquidity co-insurance is economically important for the corporate sector. We also find that borrowers with higher reliance on credit lines have become more likely to obtain credit lines from syndicates with higher liquidity capacities. The increase in liquidity capacities and the assortative matching on liquidity characteristics has strengthened the importance of large banks as liquidity providers to the corporate sector.

We quantify the cost of pledging collateral for small businesses using a revealed preference approach. We exploit a regulatory quirk in which firms are exempt from posting collateral if their loan size is below a threshold. Firms bunch their loans below the threshold, and the resulting distortion in the loan size distribution reveals the magnitude of the collateral cost. The collateral cost is substantial and varies across collateral types, business sectors, and collateral laws in ways consistent with flexibility-based theories. Finally, we introduce the collateral cost into a standard macro-finance model and show that it has important implications for macroeconomic fluctuations.

Using supervisory data from UK central counterparties (CCPs), our paper uncovers persistent collateral cycles in which cash goes back and forth from financial markets to CCPs. In the onward phase of the cycle, clearing members provide cash to CCPs to meet margin requirements. This pattern is procyclical as the pledged collateral increases with market volatility and places upward pressure on repurchase agreement (repo) rates. In the backward phase, CCPs return the cash to the financial markets via reverse repos and bond purchases, in compliance with regulation that requires CCPs to invest their cash holdings in safe assets. The cash given back by CCPs generates downward pressure on repo rates in a countercyclical manner.

The information banks have about borrowers drives their lending decisions and macroeconomic outcomes, but this information is inherently difficult to analyze because it is private. We construct a novel measure of bank information quality from confidential regulatory data that include banks' private risk assessments for US corporate loans. Information quality improves as local economic conditions deteriorate, particularly for newly originated loans and loans with larger potential losses. Our results provide empirical support for theories of countercyclical information production in credit markets.

We study the impacts of global financial sanctions on banks and their corporate borrowers in Russia. Financial sanctions were consecutively imposed between 2014 and 2019, allowing targeted (but not yet sanctioned) banks to adapt their international and domestic exposures in advance. Using a staggered difference-in-differences approach with in-advance adaptation to anticipated treatment, we establish that targeted banks immediately reduced their foreign assets and actually increased their international borrowings, compared to similar other banks. Once sanctioned, however, these banks not only further reduced their foreign assets but also turned to decrease their international borrowings while facing considerable outflow of domestic private deposits. The introduction of government support prevented the banks' disorderly failures and resulted in credit reshuffling: the banks contracted their lending to the domestic corporate sector by at least 4% of GDP and increased household lending by almost the same magnitude, which mostly offset the total economic loss. Further, we introduce a two-stage treatment diffusion approach that flexibly addresses potential spillovers of the sanctions to private banks with political connections. Using unique hand-collected board membership and bank location data, our approach shows that, throughout this period, politically-connected banks were not all equally recognized as potential sanction targets. Finally, using the syndicated loan data, we establish that the real negative effects of sanctions materialized only when sanctioned firms were borrowing from sanctioned banks. (E65, F34, G21, G41, H81.)

We examine how tax evasion affects offshore information production. Using the Foreign

Account Tax Compliance Act (FATCA) as an exogenous shock, we document that affected

offshore asset management companies significantly enhance their performance as a response. This improvement comes from better information processing and is more substantial for tax-sensitive companies. Other policies related to fees and portfolio-based tax management are less affected. Our results reveal a novel substitution effect between tax evasion and information production, suggesting that curbing offshore tax evasion can help improve competitiveness and efficiency in the global asset management industry and related markets.

Increased interdependencies across countries have led to calls for greater harmonization of regulations to prevent local shock from spilling over to other countries. Using the rulemaking process of the Basel Committee on Banking Supervision (BCBS), this paper studies the process through which harmonization is achieved. Through leaked voting records, we document that the probability of a regulator opposing an initiative increases if their domestic national champion (NC) opposes the new rule, particularly when the proposed rule disproportionately affects them. Next, we show that smaller banks, even when they collectively have a higher share in the domestic market, do not have any impact on regulators’ stand – suggesting that regulators’ support for NCs is not guided by their national interest. Further, we find the effect is driven by regulators who had prior experience working in large banks. Finally, we show this unanimous decision-making process results in significant watering down of proposed rules. Overall, the results highlight the limits of harmonization of international financial regulation.