Essays on Banks and Macroeconomics

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This dissertation presents three essays on the impact of banking sector shocks and changes on the real economy. The first chapter in my dissertation studies the link between a substantial consolidation in the US banking sector and a decline in business dynamism in the real sector over the last four decades. Using loan-level data, I show that banks of different size vary in their pricing patterns. In particular, borrower credit ratings are more strongly associated with loan rates for large bank lenders compared to small bank. The disparity in price patterns is consistent with different information usage of large and small banks. Small banks rely less on standardized credit measures, making them a more important source of credit for startups compared to large banks. I build a general equilibrium model with endogenous occupation and capital structure choice to study the impact of the distribution of banks on business dynamism. In such model, a shift in banking sector size distribution has differential impact on financing conditions of firms with different size, age, and wealth. A quantitative exercise using a calibrated model suggests that bank consolidation results in a substantial decline in startup rate by increasing the relative cost of funds faced by younger firms. The second chapter uses MSA-level variation in the exposure to bank mergers to explore the distributional impact of bank mergers on local credit supply. Bank mergers can impact local credit supply through different channels, including the loss of local information from branch closings, the change in affected banks’ organizational structure, and the change in local market power of involved banks. Using loan application level US mortgage loan data, I show that bank mergers are followed with an increase in credit gap between different income groups. Additionally, I show that an exposure to bank merger is associated with an increase in rejection rate for the lowest income group following mergers. My results suggest that bank mergers may have disruptive impact on credit supply to the lowest income group and that the result is not solely led by demand factors. The third chapter, co-authored with Richard Varghese, constructs a novel bank level dataset on foreign currency denominated assets and liabilities in emerging market economies in Europe to study how banks' foreign currency exposure affects the transmission of exchange rate shocks to the real economy. Using bank balance sheet data, we show that following home currency depreciation banks with net foreign liabilities lend less relative to banks without net foreign liabilities. This reduction in lending growth is economically significant with an average home currency depreciation during the sample period associated with 5 percentage point lower loan growth for banks with net foreign currency liabilities. Our results are robust to alternate econometric specifications and measures of foreign currency exposure, the choice of foreign currency, and banks' ownership type. The inclusion of off-balance sheet positions that could be utilised to hedge foreign currency exposure too does not affect our results.

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132 pages
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Caunedo, Julieta
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Nimark, Kristoffer
Taschereau-Dumouchel, Mathieu
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Ph. D., Economics
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Doctor of Philosophy
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Government Document
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Attribution-NonCommercial-NoDerivatives 4.0 International
dissertation or thesis
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