Research

Working Papers

Banks' Response to Credit Drawdowns: Mechanism and Policy Implications  

I study how banks respond to commercial credit line drawdowns. Using  data from Dealscan and Call Reports, I find that banks contract C&I lending in response to drawdowns during periods of large aggregate draws, notably the Great Financial Crisis and the COVID-19 outbreak, while idiosyncratic draws experienced by individual banks do not lead to a significant reduction in lending. I infer that aggregate conditions in the banking sector, in particular interbank liquidity conditions, are an important determinant of banks' lending response and show that banks with a smaller fraction of liquid assets experience a larger decline in lending. In addition, I study risk exposures in banks' syndicated credit line portfolios and find that banks with riskier potential borrowers reduce lending by more. A model designed to illustrate the mechanism of banks' lending response highlights the connection between the size of aggregate credit line draw shocks, the cost of borrowing in the interbank market and the magnitude of lending contraction. I find that policies that encourage reserve holdings prior to the drawdown shocks can mitigate the magnitude of lending reduction.

Work in progress

Banks, Informational Frictions and Asset Prices 

I study the effects of asymmetric information regarding capital quality on banking sector and asset prices. I build a model with a banking sector that represents consolidated financial and investment sectors of the economy. Bankers’ ability to raise funding in order to finance investment depends on the degree of asymmetric information regarding the quality of risky assets they hold on their balance sheets. I treat bankers as independent asset pricing agents and show that their optimal choices pin down deposit spreads in equilibrium. I derive analytical characterization of the model and then solve for a second-order approximation around the steady state to study the model’s responses to exogenous shocks to productivity and capital quality dispersion.