This page contains my current work and blog posts
Presentations: Office of Financial Research PhD Symposium (2024), USC-Marshall PhD Conference in Finance (2024), Midwest Finance Association (2024), AFA PhD Student Poster Session (2024), Australian Finance and Banking Conference (2023, remote), FMA Annual Meeting (2023), UIC Finance Brown Bag Series (2023), Loyola University Finance Seminar Series (2023), FDIC Bank Research Conference (2023), LBS Transatlantic Doctoral Conference (2023), Inter-Finance PhD Seminar (2023), Kellogg Finance Brown Bag (2023)
Abstract: We study the effects of vertical integration in the securitization chain on lending in the commercial mortgage-backed securities (CMBS) market, focusing on lenders vertically integrated (VI) with the investment bank. VI lenders originate loans with lower rates (8.3bps) and securitize loans quicker. We introduce one mechanism for these results: VI loan prioritization in pool construction. Prioritization is counterbalanced by diversification --- non-VI loans improve pool diversification. We estimate a model of VI in securitization. Removing prioritization shrinks the gap in rates by 70%, increases loan origination by 10%, increases securitization frequency by 8%, and decreases average loan rates by 1%.
Media Coverage: Inside Mortgage Finance
Presentations: Economic Graduate Student Conference at Washington University in St. Louis (2022), IHS Graduate Conference, (2022), Inter-Finance PhD Seminar (2022), Kellogg Finance Brown Bag (2022)
Abstract: In frictionless markets, interest rates across various loan products should not differ within borrower, at the same point in time. This paper documents the existence of persistent, loan-level discounts to firms, identified as the difference between spreads on institutional investor-held loans and loans held by banks. Within a loan package -- loans offered to the same firm at the same time -- institutional term loans command a spread 64 basis points above revolving loans and 61 basis points above term loans. We show the discounts are not driven solely by loan characteristics, bid ask spreads, or upward sloping supply curves. Instead we use our measure to test theories of banking relationships and loan pricing. Discounts are higher when no previous banking relationship exists with the borrowing firm, and public borrowers receive higher initial discounts and have steeper declines in the discount over the course of the banking relationship, relative to private borrowers. We propose and provide evidence for a cross-selling model of the pricing of banking services, where banks price services with the impacts on other lines of business in mind. We show that initial discounts are highest to public firms, consistent with greater competition for firms with high likelihood of other banking service needs, and that having previous banking relationships are associated with a greater likelihood of future hiring for all types of banking services.
Signaling Through Security Design: Evidence from Commercial Mortgage-Backed Securities (with Craig Furfine)
We examine how CMBS securitizers' choices in complying with Dodd-Frank's risk retention regulation influence investors' perception of security quality. We find that when securitizers satisfy the requirement by retaining the junior-most tranche, it is associated with lower loan quality and reduced securitization profitability. While traditional security design models suggest that retaining greater credit exposure signals high-quality assets, we show that an exemption in the regulation allows securitizers to offload these junior tranches when choosing this method of risk retention, eliminating their risk exposure. This aligns with standard signaling models, as investors correctly interpret the absence of retained credit risk as an indicator of lower-quality collateral.
By many measures nonfinancial corporate debt has been increasing as a share of GDP and assets since 2010. As the May Federal Reserve Financial Stability Report explained, high business debt can be a financial stability risk because heavily indebted corporations may need to cut back spending more sharply when shocks occur. Further, when businesses cannot repay their loans, financial institutions and investors incur losses. In this post, we review measures of corporate leverage in the United States. Although corporate debt has soared, concerns about debt growth are mitigated in part by higher corporate cash flows.
Cited in Bloomberg and ABA Banking Journal
In response to the financial crisis nearly a decade ago, a number of regulations were passed to improve the safety and soundness of the financial system. In this post and our related staff report, we provide a new perspective on the effect of these regulations by estimating the cost of capital for banks over the past two decades. We find that, while banks’ cost of capital soared during the financial crisis, after the passage of the Dodd-Frank Act, banks experienced a greater decrease in their cost of capital than nonbanks and nonbank financial intermediaries.