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

Draft available soon. I study the impact of asset purchases on the composition of institutional bondholders’ portfolios and how this acts as a transmission mechanism for quantitative easing: As the price of assets targeted by the purchases rises, investors search for yield and purchase untargeted assets, pushing up their price. I propose a mechanism where institutional bondholders take advantage of financial frictions before this policy transmission occurs. When asset purchases increase, institutional bondholders will first build up an inventory of specific bonds targeted by the purchases, diminishing the bonds’ available free float to squeeze out a profit from the Central Banks buying up the bonds. In a second phase, as prices for targeted assets stabilize, institutional bondholders will rebalance their portfolio towards bonds untargeted by the purchases as they search for yield, thereby transmitting quantitative easing to untargeted markets.

Networks in the board of directors

Working Paper, 2022. When landing a board of directors job, a significant portion of external candidates enjoys preexisting relationships with board members. These relationships may be entirely fortuitous, could reflect self-serving behavior on behalf of board members, or simply be used as a screening device to recruit individuals in extremely competitive positions. This paper uses a consideration set framework to disentangle these explanations. I argue that estimates of the impact of preexisting relationships on a director’s probability of appointment are biased upwards in the literature. I make additional observations on the effect of a director’s personal network on her likelihood of appointment.

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.