Banking under large excess reserves (JMP)

Working Paper, 2024: We examine the effects of quantitative easing (QE) on bank lending in the Eurozone. QE has substantially increased central bank reserves held by commercial banks and raised the volume of short-term wholesale deposits, which made bank funding less stable. Basel III regulation complicates how large volumes of excess reserves and short-term wholesale deposits influence bank lending. We develop a structural model incorporating imperfect competition in credit and deposit markets and regulatory costs that escalate as banks approach minimum requirements. This framework allows us to quantify how excess reserves contribute to regulatory costs. In France, QE increased the marginal cost of long-term lending by 16 basis points in Q4 2021. Counterfactual analysis indicates that maintaining central bank reserves at 2 trillion euros instead of 4 trillion could have boosted aggregate bank lending by approximately 5% in Q4 2021.

Impact of Asset Purchases on the Bond Market

Working Paper, 2023. Central-bank asset-purchase programmes can matter even in deep bond markets when investor demand is inelastic. Using eMaxx holdings for 16,000 fixed-income funds matched with Refinitiv pricing and rating data over 2016–2020, I estimate a nested-logit demand system to quantify how the ECB’s Asset Purchase Programmes (APP) propagate across the euro-area bond market. I document two key mechanisms. First, front-loading: when the ECB expands purchases, some funds accumulate targeted ISINs, reducing free float and extracting a liquidity premium. Second, portfolio rebalancing: as purchase-eligible spreads compress, funds with more flexible mandates shift into higher-yield, untargeted bonds, pushing their prices up. Estimated price elasticities are low, implying sizeable price multipliers. Markets are imperfectly segmented: sovereign bond purchases spill over to corporate prices. A counterfactual removing all ECB holdings would lower average corporate-bond prices by about 25% and widen spreads by 280 basis points; removing only corporate holdings still lowers prices by nearly 20%. Substitution is asymmetric: funds substitute out of sovereigns far more easily than they substitute into corporates, consistent with mandate rigidities. Overall, the results show that limits to arbitrage amplify the effects of quantitative easing, and that a relatively small group of large funds plays a central role in transmitting ECB purchases to non-targeted markets.

Networks in the board of directors

Working Paper, 2022. Using over 70,000 first-time director appointments from 1990 to 2020, I reassess the role of professional connections in the board selection process. While previous literature suggests that direct ties to incumbent directors increase the likelihood of appointment, I show that this effect is overstated when firms draw from segmented candidate pools, such as industry-specific networks. I develop a two-stage model in which the probability of being considered depends on observable characteristics, and the board selects from among the considered candidates. Empirically, I find that candidates with broader professional networks are significantly more likely to be shortlisted and appointed, consistent with the hypothesis that networks serve as screening tools. In contrast, direct personal ties to the board have no positive effect once consideration is modeled, and are associated with relatively lower odds of appointment. Supporting evidence from board committee appointments suggests that personal connections and favoritism are unlikely to explain the observed patterns. The results imply that prior estimates conflate a candidate’s relevance with their probability of appointment. In practice, boards appear to prefer candidates with broad, well-documented experience over those with personal ties to insiders.

What You See is What You Get (Paid)

Draft available soon. This paper presents a simple model of CEO compensation where salary is dependent on the internal characteristics of the firm and where the salary of one CEO exerts a positive externality on the salary of others. CEOs are considered interchangeable but costly to recruit outside the market, and are randomly matched with firms until they accept the firm’s offer. Since different firms have different levels of monitoring and prestige, and being part of different industries, CEOs enjoy different levels of private benefit when shirking in different firms. Using this model, we can shed light on how the degree of transparency affects CEO compensation. In equilibrium, some of the CEOs have their participation constraint binding while others have a binding incentive compatibility constraint. A change in the degree of transparency moves the participation constraint, inducing a change in wages for some CEOs. We find that the salary is more likely to increase than it is to decrease.