Search

Why did banks experience massive deposit inflows during the first months of the pandemic? Using weekly branch-level data on interest rates and county-level data on COVID-19 cases, we discover that interest rates at bank branches in counties with higher COVID-19 infection rates fell by more than rates at other branches—even branches of the same bank in different counties. When differentiating weeks by the degree of stock market distress and counties by the likely impact of COVID-19 cases on economic anxiety, the evidence suggests that the deposit inflows were triggered by a surge in the supply of precautionary savings.

We evaluate the role of insider ownership in shaping banks’ equity issuances in response to the global financial crisis. We construct a unique dataset on the ownership structure of U.S. banks and their equity issuances and discover that greater insider ownership leads to less equity issuances. Several tests are consistent with the view that bank insiders are reluctant to reduce their private benefits of control by diluting their ownership through equity issuances. Given the connection between bank equity and lending, the results stress that ownership structure can shape the resilience of banks—and hence the entire economy—to aggregate shocks. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

A central debate in economics concerns the relationship between competition and innovation, with some stressing that competition discourages innovation by reducing post-innovation rents and others emphasizing that more contestable markets spur currently dominant and other firms to invest more in innovation. We examine the impact of competition laws on innovation. We create a unique firm-level dataset on patenting activities that includes over 1.4 million firm-year observations, across 68 countries, from 1991 through 2015. Using a new, comprehensive dataset on competition laws, we find that more stringent competition laws are associated with increases in firms’ number of self-generated patents and the citation-impact and explorative nature of those patents. We also conduct the first examination of the relationship between competition laws and firms’ acquisition of patents from other firms. We find that competition increases patent acquisitions but lowers the ratio of acquired to self-generated patents. The results hold when using country-industry data on 186 countries over the 1888-2015 period.

We evaluate the connection between corporate characteristics and the reaction of stock returns to COVID-19 cases using data on more than 6,700 firms across 61 economies. The pandemic-induced drop in stock returns was milder among firms with stronger pre-2020 finances (more cash and undrawn credit, less total and short-term debt, and larger profits), less exposure to COVID-19 through global supply chains and customer locations, more corporate social responsibility activities, and less entrenched executives. Furthermore, the stock returns of firms controlled by families (especially through direct holdings and with non-family managers), large corporations, and governments performed better, and those with greater ownership by hedge funds and other asset management companies performed worse. Stock markets positively price small amounts of managerial ownership but negatively price high levels of managerial ownership during the pandemic.

Does the structure of the financial system influence the economy’s resilience to adverse shocks? Using high-frequency, U.S. county-level data on employment, small business revenue, and COVID-19 cases, we discover that employment, especially the employment of low-income workers, and the revenues of small firms fall by less in response to local COVID-19 cases in counties with a larger proportion of small banks. Furthermore, small banks increase lending to small businesses more than large banks in response to the pandemic. Evidence suggests that small banks provide countercyclical funding to small firms following an adverse shock, with positive repercussions on employment.

Why did banks experience massive deposit inflows during the first months of the pandemic? Using weekly branch-level data on interest rates and county-level data on COVID-19 cases, we discover that interest rates at bank branches in counties with higher COVID-19 infection rates fell by more than rates at other branches—even branches of the same bank in different counties. When differentiating weeks by the degree of stock market distress and counties by the likely impact of COVID-19 cases on economic anxiety, the evidence suggests that the deposit inflows were triggered by a surge in the supply of precautionary savings.

Using a unique dataset on gaming and credit cards, we discover that default rates are higher among individuals who spend more, more frequently, and more erratically on video games, and among those who have more and more diverse games on their mobile devices. These results are less pronounced when spending occurs on weekends or bad weather days and more pronounced among overnight spenders. The findings are not driven by financial literacy or specific game types. Furthermore, intense gamers increase luxury, addictive, and impulsive expenditures more after receiving credit cards. Models of self-control offer a consistent explanation of our findings.

Does the pre-deal geographic overlap of the branches of two banks affect the probability that they merge, post-announcement stock returns, and post-merger performance? We compile information on U.S. bank acquisitions from 1984 through 2016, construct several measures of network overlap, and design and implement a new identification strategy. We find that greater pre-deal network overlap (1) increases the likelihood that two banks merge, (2) boosts the cumulative abnormal returns of the acquirer, target, and combined banks, and (3) reduces employment, boosts revenues, reduces the number of branches, improves loan quality, and expedites executive turnover.

We study the impact of pollution on the migration of high human capital employees. We link data on the opening of toxic-emitting plants with the career paths of executives at S&P 1500 firms. We discover that toxic-emitting plant openings increase executive departures from neighboring firms with adverse effects on stock prices. The results: are larger when polluting plants and firms are geographically closer, hold only for executives physically-based at treated firms, hold only for the opening of polluting plants, do not reflect other local factors or prior stock price performance, and are larger among executives with more general human capital.

We evaluate the impact of the credit conditions facing corporations on their emissions of toxic air pollutants. Exploiting cross-county, cross-time shale discoveries that generated liquidity windfalls at local bank branches, we construct measures of (1) the degree to which banks in non-shale counties, i.e., counties where shale was not discovered, receive liquidity shocks through their branches in shale counties and (2) the degree to which a corporation in a non-shale county has a relationship lender that receives liquidity shocks through its branches. From both the county- and firm-level analyses, we discover that positive shocks to credit conditions reduce corporate pollution.

International audience; For at least 5000 years, people have created, modified and used financial instruments, markets and intermediaries. Whether it was the use of money and debt to facilitate specialization and investment in Babylonia in 3000 BC (Van de Mieroop, 2005), the creation of market-traded securities in ancient Rome to mobilize capital for immense minig projets (Rostovotzeff, 1957; Malmendier, 2005).

We use the cross-state, cross-time variation in bank deregulation across the U.S. states to assess how improvements in banking systems affected the labor market opportunities of black workers. Bank deregulation from the 1970s through the 1990s improved bank efficiency, lowered entry barriers facing nonfinancial firms, and intensified competition for labor throughout the economy. Consistent with Becker’s (1957) seminal theory of racial discrimination, we find that deregulation-induced improvements in the banking system boosted blacks’relative wages by facilitating the entry of new firms and reducing the manifestation of racial prejudices in labor markets.

We use a new identification strategy to assess whether an intensification of competition among banks increases or decreases the provision of a key banking service: liquidity creation. Although theory offers conflicting predictions about the impact of competition on liquidity creation, we find that regulatory-induced competition reduces liquidity creation. Consistent with a subset of models emphasizing that banks pushed toward insolvency reduce risk-taking activities, we discover that regulatory-induced competition reduces liquidity creation more among banks with less risk-absorbing capacity (e.g., less profitable banks).

We use a new identification strategy to assess whether an intensification of competition among banks increases or decreases liquidity creation, which is a vital service that banks provide to the economy. We create a measure of the time-varying exposure of each bank in the United States to competition from banks headquartered in other states, as states lowered regulatory barriers to competition in the 1980s and 1990s. We find that regulatory-induced competition reduced liquidity creation. Consistent with specific theoretical models, we also find that these liquidity-destroying effects are smaller among more profitable banks and larger among smaller banks.

Are firms more resilient to systemic banking crises in economies with higher levels of social trust? Using firm-level data in 34 countries from 1990 through 2011, we find that liquidity-dependent firms in high-trust countries obtain more trade credit and suffer smaller drops in profits and employment during banking crises than similar firms in low-trust economies. The results are consistent with the view that when banking crises block the normal banking-lending channel, greater social trust facilitates access to informal finance, cushioning the effects of these crises on corporate profits and employment.

There was a systemic failure of financial regulation: Senior policymakers repeatedly enacted and implemented policies that destabilized the global financial system, and the authorities maintained these policies even as they learned about the deleterious consequences of their policies during the decade before the crisis. The absence of an informed, expertly staffed, and independent institution that evaluates financial regulation from the public’s perspective is a critical defect in the governance of financial regulation ‐ the system associated with selecting, enforcing, and reforming financial policies. I propose a new institution to address this defect. I. INTRODUCTION This paper’s first objective is to document that systemic weaknesses with the governance of financial regulation ‐ the system associated with designing, implementing, and reforming financial policies ‐ contributed to the global financial crisis. Senior officials repeatedly designed, implemented, and most importantly, maintained policies that destabilized financial markets. Regulators maintained these policies even when they learned that their policies were increasing financial system fragility. Moreover, the authorities acquired this information during the decade before the crisis, when they had ample time and power to adjust their policies under relatively calm conditions. Nonetheless

Financial development disproportionately boosts incomes of the poorest quintile and reduces income inequality. About 40% of the long-run impact of financial development on the income growth of the poorest quintile is the result of reductions in income inequality, while 60% is due to the impact of financial development on aggregate economic growth. Furthermore, financial development is associated with a drop in the fraction of the population living on less than $ 1 a day, a result which holds when conditioning on average growth. These findings emphasize the importance of the financial system for the poor.

Leaders from across the political spectrum articulate the virtues of homeownership. As expressed in the above quotations, both Republican and Democratic presidents emphasize that homeownership is part of the American dream. Besides the direct benefits accruing to a family owning its own house, proponents stress that higher rates of homeownership boost civic activity, reduce crime, and create communities more conducive to the cognitive and non-cognitive development of children.Unsurprisingly, bipartisan consensus has produced public policies with the express purpose of increasing homeownership. But are these policies subsidizing the building of the American dream for more people, or are they bankrolling bigger dream houses for a few?

We assess whether restrictions on insider trading accelerate or slow technological innovation. Based on over 75,000 industry-country-year observations across 94 economies from 1976 to 2006, we find that enforcing insider-trading laws spurs innovation — as measured by patent intensity, scope, impact, generality, and originality. Furthermore, the evidence is consistent with the view that restricting insider trading accelerates innovation by improving the valuation of, and increasing the flow of equity financing to, innovative activities.

Among those concerned with Canadian and American environmental policies, "more democracy" has become a rallying cry. Many analyses of environmental programs and institutions have attributed policy failures to inadequate public engagement and involvement. Following such assessment, recommendations for policy reform frequently have embraced extended provisions for public participation and expanded use of such tools as initiative, plebiscite, policy dialogue, and referendum. Such analysis has been particularly evident in the area of siting waste management facilities. During the 1970s and 1980s, traditional strategies for imposing such facilities through the so-called Decide-Announce-Defend approach failed repeatedly in Canada and the United States. Responding to this, an extensive and diverse set of analysts converged around the idea of pursuing siting only among "volunteer" communities. Under this method, siting would only be considered after communities have had extensive opportunity to study and deliberate over the possibility of accepting a facility. In 1990, the National Workshop on Facility Siting examined American and Canadian experience and developed a "Facility Siting Credo" that emphasized openness and voluntarism in future siting efforts (Kunreuther 1996). In 1993, a multidisciplinary gathering of siting experts meeting at the University of British Columbia considered North American, German, and Japanese experience and reached strikingly similar conclusions (Munton 1 996). More generally, the themes of expanded democracy and voluntarism have been strongly endorsed in much of the literature on facility siting that has emerged in the last halfdecade (Rabe 1994; Munton 1996; Gerrard 1994; Williams and Matheny 1995; Huitema 1998). More than conceptually appealing, the voluntary approach to siting has also achieved some significant successes. Two major Canadian hazardous-waste-facility-siting agreements of the past decade have involved strong community support in the provinces of Alberta and Manitoba (Rabe 1994; Castle and Munton 1996). These cases offered textbook examples of the possibilities for voluntarism. In both instances, a history of not-in-my-back-yard (NIMBY) conflict over siting was supplanted with an extended, provincewide process of public deliberation. Volunteer communities emerged in both provinces and local voters overwhelmingly endorsed the idea of hosting a comprehensive waste management facility through ballot propositions with high voter turnout. Subsequently, other Canadian jurisdictions have had some success with this approach, even in the highly contentious area of low-level radioactive waste facility siting (Gunderson 1997). These experiences have contributed to a significant shift in Canadian policy toward man aging high-level radioactive waste, moving toward a more open, deliberative process than earlier plans that followed a more traditional, top-down approach (Canadian Environmental Assessment Agency 1998; Rabe forthcoming). Opening the doors of a new waste treatment and disposal facility with a resounding expression of local support does not, however, constitute the political or technical end of waste management issues for a province or state. Indeed, much of the siting literature says very little about facility operation or the implementation of waste management programs. Do voluntary siting agreements result in long-term cooperation between facility managers and host communities? Can the same mechanisms designed to foster public understanding and trust at the siting proposal stage also be employed through years or decades of waste treatment and disposal? Can comprehensive waste management facilities remain financially viable in nations with constantly changing regulations, tremendous variation in policy across subnational boundaries, and the tempting option of exporting waste to the jurisdiction with the lowest regulatory standards--and costs--at a given moment? …

The roles of banks and securities markets evolve during the process of economic development. As countries develop economically, (1) the size of both banks and securities markets increases relative to the size of the economy, (2) the association between an increase in economic output and an increase in bank development becomes smaller, and (3) the association between an increase in economic output and an increase in securities market development becomes larger. These findings are consistent with theories predicting that as economies develop, the services provided by securities markets become more important for economic activity, whereas those provided by banks become less important. Copyright 2013, Oxford University Press.

We disaggregate the self-employed into incorporated and unincorporated to distinguish between "entrepreneurs" and other business owners. We show that the incorporated self-employed and their businesses engage in activities that demand comparatively strong nonroutine cognitive abilities, while the unincorporated and their firms perform tasks demanding relatively strong manual skills. The incorporated selfemployed have distinct cognitive and noncognitive traits. Besides tending to be white, male, and come from higher-income families, the incorporated—as teenagers—typically scored higher on learning aptitude tests, had greater self-esteem, and engaged in more disruptive, illicit activities. The combination of "smart" and "illicit" tendencies as youths accounts for both entry into entrepreneurship and the comparative earnings of entrepreneurs. In contrast to past research, we find that entrepreneurs earn more per hour and work more hours than their salaried and unincorporated counterparts.

We disaggregate the self-employed into incorporated and unincorporated to distinguish between “entrepreneurs” and other business owners. The incorporated self-employed have a distinct combination of cognitive, noncognitive, and family traits. Besides coming from higher-income families with better-educated mothers, the incorporated — as teenagers — scored higher on learning aptitude tests, had greater self-esteem, and engaged in more aggressive, illicit, risk-taking activities. The combination of “smarts” and “aggressive/illicit/risk-taking” tendencies as a youth accounts for both entry into entrepreneurship and the comparative earnings of entrepreneurs. In contrast to a large literature, we also find that entrepreneurs earn much more per hour than their salaried counterparts.

We assess the impact of bank deregulation on the distribution of income in the United States. From the 1970s through the 1990s, most states removed restrictions on intrastate branching, which intensified bank competition and improved bank performance. Exploiting the cross-state, cross-time variation in the timing of branch deregulation, we find that deregulation materially tightened the distribution of income by boosting incomes in the lower part of the income distribution while having little impact on incomes above the median. The results suggest that regulatory impediment to competition among banks during the 20th century were disproportionally harmful to lower income workers.

There was a systemic failure of financial regulation: senior policymakers repeatedly enacted and implemented policies that destabilised the global financial system. They maintained these policies even as they learned of the consequences of their policies during the decade before the crisis. The crisis does not primarily reflect an absence of regulatory power, unclear lines of regulatory authority, capital account imbalances, or a lack of information by regulators. Rather, it represents the unwillingness of the policy apparatus to adapt to a dynamic, innovating financial system. A new institution is proposed to improve the design, implementation and modification of financial regulations.

Financial regulators and politicians unsuccessfully maintained the safety and soundness of the U.S. financial system not only because they lacked the proper tools but also because they lacked the proper incentives. While filling regulatory gaps and improving supervisory tools are worthwhile reforms, they do not address the core governance failure - the unwillingness of the policy apparatus to adapt to a dynamic, innovating financial system and act in the best interests of the public. I propose an auxiliary institution to act as a sentinel on behalf of the public to improve the design, interpretation, and implementation of financial regulations.

This paper assesses the impact of competition on racial discrimination. The dismantling of inter- and intrastate bank restrictions by U.S. states from the mid-1970s to the mid-1990s reduced …nancial market imperfections, lowered entry barriers facing non…nancial …rms, and boosted the rate of new …rm formation. We use bank deregulation to identify an exogenous intensi…cation of competition in the non…nancial sector, and evaluate its impact on the racial wage gap, which is that component of the black-white

Which commercial bank supervisory policies ease—or intensify—the degree to which bank corruption is an obstacle to firms raising external finance? Based on new data from more than 2500 firms across 37 countries, this paper provides the first empirical assessment of the impact of different bank supervisory policies on firms’ financing obstacles. We find that the traditional approach to bank supervision, which involves empowering official supervisory agencies to monitor, discipline, and influence banks directly, does not improve the integrity of bank lending. Rather, we find that a supervisory strategy that focuses on empowering private monitoring of banks by forcing banks to disclose accurate information to the private sector tends to lower the degree to which corruption of bank officials is an obstacle to firms raising external finance. In extensions, we find that regulations that empower private monitoring exert a particularly beneficial effect on the integrity of bank lending in countries with sound legal institutions.

This paper draws on our new database on bank regulation and supervision in 107 countries to assess different governmental approaches to bank regulation and supervision and to evaluate the efficacy of specific regulatory and supervisory policies. First, we assess two broad and competing theories of government regulation: the helping-hand approach, according to which governments regulate to correct market failures, and the grabbing-hand approach, according to which governments regulate to support political constituencies. The grabbing-hand theory predicts that countries with powerful official supervisors, limits on bank activities, high levels of government ownership of banks, and restrictions on entry will tend to have higher levels of corruption without a corresponding improvement in bank performance or stability. This view therefore predicts that governments focusing more on empowering private-sector control of bank behavior are more likely to promote bank performance and stability than governments taking a more intrusive approach to regulation and supervision. Second, this paper uses the extensive cross-country database to assess the implications for banking-sector development and fragility of: regulations on bank activities and the mixing of banking and commerce; regulations on domestic and foreign bank entry; regulations on capital adequacy; deposit insurance system design features; supervisory power, independence, resources, loan classification stringency, provisioning standards, diversification guidelines, and prompt corrective action powers; regulations on information disclosure and fostering privatesector monitoring of banks; and government ownership of banks. The findings, generally more consistent with the grabbing-hand view, suggest that regulatory and supervisory practices that (1) force accurate information disclosure, (2) empower private-sector corporate control of banks, and (3) foster incentives for private agents to exert corporate control work best to promote bank performance and stability. The results raise a cautionary flag to strategies that place excessive reliance on direct, government oversight of and restrictions on banks.

The authors examine the impact of bank supervision on the financing obstacles faced by almost 5,000 corporations across 49 countries. They find that firms in countries with strong official supervisory agencies that directly monitor banks tend to face greater financing obstacles. Moreover, powerful official supervision tends to increase firm reliance on special connections and corruption in raising external finance, which is consistent with political and regulatory capture theories. Creating a supervisory agency that is independent of the government and banks mitigates the adverse consequences of powerful supervision. Finally, the authors find that bank supervisory agencies that force accurate information disclosure by banks and enhance private monitoring tend to ease the financing obstacles faced by firms.

This paper assesses two theories regarding the historical determinants of international differences in financial development. The law and finance theory holds that legal traditions differ in terms of the priority they attach to protecting the rights of private investors vis-a-vis the State and this has important implications for financial development. The endowment theory argues that the disease and geographical environment influence the formation of long-lasting institutions that influence financial development. Using a sample of former colonies, we explore whether the legal system brought by colonizers and/or the initial disease/geographical endowments encountered by colonizers explain financial development today. The empirical results indicate that both the legal systems brought by colonizers and the initial endowments in the colonies are important determinants of stock market development and private property rights protection. However, initial endowments are more robustly associated with financial intermediary development than legal origin and initial endowments explain more of the cross-country variation in financial intermediary and stock market development than legal origin.

Does economic development depend on geographic endowments like temperate instead of tropical location, the ecological conditions shaping diseases, or an environment good for grains or certain cash crops? Or do these endowments of tropics, germs, and crops affect economic development only through institutions or policies? We test the endowment, institution, and policy views against each other using cross country evidence. We find evidence that tropics, germs, and crops affect development through institutions. We find no evidence that tropics, germs, and crops affect country incomes directly other than through institutions, nor do we find any effect of policies on development once we control for institutions.

This paper describes and empirically ex amines legal theories of international differences in financial development. The law and finance theory stresses that legal traditions differ in terms of (1) their emphasis on the rights of private property owners vis-a-vis the state and (2) their ability to adapt to changing commercia l and financial conditions, so that historically determined legal traditions shape financial deve lopment today. Other theories reject the centrality of legal tradition in accounting for cross- country differences in financial development. The results are broadly consistent with legal th eories of financial development, though it is difficult to identify the precise channel through which legal tradition influences financial development.