Research
This page contains my current work and blog posts
Working Papers
Delay Your Rivals: Vertical Integration in Securitization and Lending Competition (with Jose Diego Salas) - Working paper available upon request
Presentations: Midwest Finance Association (2024, scheduled), AFA PhD Student Poster Session (2024, scheduled), 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 competition in the commercial mortgage-backed securities (CMBS) market. We show that lenders that are vertically integrated (VI) with the investment bank structuring the CMBS originate loans that have rate spreads that are 8bps lower and have a 10% shorter time from origination to securitization, conditional on observables. VI lenders also have larger market shares, consistent with their relatively lower spreads. To shed light on one mechanism, we show evidence that VI loans are prioritized over non-VI loans when constructing pools, which we call the ``prioritization'' channel, and this leads to shorter times to securitization. This difference in time to securitization gets passed through to higher rates, and we estimate that this explains about 12% of the difference in spreads. The spread and time to securitization results are stronger in quarters with low loan origination, which is exactly when we would expect this prioritization result to have stronger effect. Additionally, we show that prioritization channel impacts pool diversification. By prioritizing their own loans, VI securitizers forgo pool diversification, which could have financial stability implications. We also show that investors value diversification, and so prioritization leads to higher yields on securities through worse diversification. Finally, we construct a model of vertical integration in securitization and lending competition that highlights the problem the securitizer faces. The VI lender balances the benefit of including their rivals' loans when constructing the CMBS pool, which increases pool diversification and therefore securitization profits, with the benefit of prioritizing their own loans, which lowers their own costs compared to their non-VI rivals, due to relatively shorter time from origination to securitization.
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.
Liberty Street Economics Blog Posts
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.