Conference Agenda

Strong institutions reduce financial intermediation costs---a cornerstone of law-and-finance research. I show this relationship reverses for high-risk participants in heavily regulated sectors. Using global data on cross-border payment costs as a laboratory, I find that anti-money laundering (AML) risks in advanced economies with strong enforcement have larger cost effects than such risks in developing countries with weak enforcement, despite advanced economies having lower underlying risks. This pattern reflects strong institutions operating through two channels: Directly reducing costs through risk mitigation while forcing risk-based pricing that eliminates cross-subsidization. Strong institutions benefit low-risk jurisdictions but compel high-risk ones to pay costs commensurate with their risk profiles. Declining AML risks could account for one-third of the reduction in costs over the past decade. As for payment-specific regulations, analysis of decisions to grey list countries shows that countries that commit to reform experience cost reductions while those resisting reform face increases. The findings have implications for law-and-finance research, regulatory policy, and emerging payment rails facing AML requirements. Clean money can be cheap.

We examine the procyclical nature and the economic effects on loan origination of bank

regulators’ prudential requirements for fair-valued positions recognized on banks’ balance

sheets beginning in 2016. The prudential requirements oblige banks to estimate additional value

adjustments (AVAs) based on nine sources of uncertainty for all positions recognized at fair

value and subsequently recognize those as a deduction from Common Equity Tier 1 (CET 1).

We expect and find the growth of macroeconomic uncertainty (i.e., economic downturn) to be

positively correlated with the growth of AVAs, indicating that the new prudential requirements

have a procyclical nature. Relatedly, we predict and find that those banks exposed to the new

prudential regulatory regime originate significantly less loans to businesses around the time of

bank regulators’ implementation of those prudential requirements.

In 2018, the Trump administration enacted the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) to ease financial regulation and strengthen financial support to the real economy, thereby ending nearly a decade of stringent oversight. While deregulation can stimulate economic growth, it may also elevate systemic risk in the banking system and generate new financial vulnerabilities. To evaluate the costs and benefits of the EGRRCPA, this study quantifies the Act’s impact on systemic risk in the U.S. banking sector by employing Difference-in-Differences (DID) and Synthetic Difference-in-Differences (SDID) approaches. The empirical results indicate that the impact of the EGRRCPA on systemic risk exhibits pronounced time‑varying characteristics. In the short run, systemic risk in the U.S. banking sector is not significantly affected by the policy. However, in the medium and long run, the Act’s effect on banks’ systemic risk increases. This study enriches the literature on the effects of the EGRRCPA, clarifies the rationale behind U.S. deregulation after a decade of strict oversight, and offers theoretical and empirical insights into systemic risk dynamics under a deregulated regulatory regime.

This paper studies the macroeconomic effects of regulatory risk weights in a DSGE model with bank intermediation, endogenous default, and nominal rigidities, calibrated to euro area data. Risk weights act as sector-specific wedges that reshape bank portfolios, tighten effective leverage constraints, and transmit to aggregate outcomes via credit supply and default risk. A tightening of risk weights for mortgages leads to a decline in both mortgage and corporate lending, highlighting general equilibrium spillovers across credit markets. Output declines modestly due to monetary policy accommodation, while financial resilience improves. Overall, the results show that bank risk weights are not merely regulatory parameters but also operate as macro-financial policy instruments with meaningful effects on aggregate outcomes.