Conference Agenda
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Session Overview |
Session | |||
FI 08: Lenders and Borrowers
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Presentations | |||
ID: 785
The price of leverage: what LTV constraints tell about job search and wages? 1Tilburg University; 2Norges Bank Does household leverage matter for workers' job search, matching in the labor market, and wages? Theoretically, household leverage has been shown to have opposing effects on the labor market through, among others, a debt-overhang and a liquidity constraint channel. To test which channels dominate empirically, we exploit the introduction of a macroprudential borrowing restriction that exogenously reduces household leverage in Norway. We study home-owners who lose their job and find that a reduction in leverage raises wages by 3.3 percentage points after unemployment. The mandated restriction of leverage enables workers to search longer for jobs, and thereby find positions in firms that pay higher wage premia and switch to new occupations and industries. We observe no evidence that greater use of credit during unemployment drives the extended job search. The positive effect on wages is persistent and more pronounced for workers who are more likely to benefit from improved job search, such as young people. Our findings contribute to the debate on the costs and benefits of policies that constrain household leverage and show that such policies, while primarily aiming at enhancing financial stability, have other positive effects such as improved labor market outcomes.
ID: 974
Asset-side Bank Runs and Liquidity Rationing: A Vicious Cycle The Chinese University of Hong Kong, Shenzhen, China, People's Republic of I study asset-side runs on credit lines in an infinite-horizon banking model. Strategic complementarity between bankers and credit line borrowers arises: borrowers' panic drawdowns and bankers' liquidity rationing reinforce each other, leading to a vicious cycle. Using data from U.S. banks, I estimate the model and quantify the amplification effect due to the strategic complementarity. This amplification effect accounts for two-thirds of the overall credit shortfalls during the 2008-09 crisis. My estimation also suggests policies targeting banks and borrowers simultaneously to support bank credit.
ID: 2238
Concentrating on Bailouts: Government Guarantees and Bank Asset Composition 1IESE Business School, Spain; 2UPF & BSE This paper studies the link between government guarantees for banks and bank asset concentration. We show theoretically that these guarantees, when combined with high leverage, incentivize banks to further invest in asset classes they are already heavily exposed to. We confirm these predictions using U.S. panel data, exploiting exogenous changes in banks' political connections for variation in bailout expectations. At the bank level, we find that higher bailout probabilities are associated with higher portfolio concentration. At the bank-loan class level, we find that banks respond to an increase in their bailout expectations by further loading up on loan classes that already have a high weight in their portfolio.
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