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.