Working Paper/Work-in-progress

Nonbank Market Power in Leveraged Lending (Job Market Paper)
Draft

Abstract: Banks finance their lending to risky firms by selling these loans to nonbank financial institutions. Among these nonbanks, collateralized loan obligations (CLOs) provide the bulk of funds. I show that CLO managers have significant market power during loan origination, which increases firms' cost of borrowing in the leveraged loan market. Akin to bank market power in classic lending relationships which are the result of a bank's “information monopoly,” nonbank market power is the result of asymmetrically informed nonbanks. Information asymmetries across nonbanks arise from differential information flows during loan underwriting. Contrary to the underwriting of public securities, banks in general disseminate private information about the borrower when marketing a loan. However, some nonbanks self-restrict their information access to publicly available information. To identify my results, I construct a new instrument using novel data on mergers in the CLO industry. I provide the first analysis of these mergers and their determinants. Overall, this research highlights a key distinction between public and private debt markets and its economic consequences for borrowing firms. My findings have important implications for the ongoing legal debate on the applicability of securities law to leveraged loans.

Too-Many-to-Ignore: Regional Banks and CRE Risks
with Felipe Severino and Stijn Van Nieuwerburgh
SSRN - Draft

Abstract: Almost one-third of U.S. commercial mortgage dollars sits on regional bank balance sheets. Recent commercial property revaluations have sparked concerns that this substantial exposure may create fractures in the banking system and spill over to the wider economy. To assess commercial real estate (CRE) risks in regional banks, we construct a novel loan-level dataset from county records. While many regional banks have benefited from exposure to better-performing markets thus far, reported delinquencies understate risks from undercollateralized loans by a factor of four. Under realistic further stress scenarios, many regional banks become undercapitalized. High geographic and sectoral portfolio concentrations create vulnerabilities even to localized shocks. We document that regional banks are already lowering lending standards to roll over distressed loans, which may amplify downside risks.

Competition in U.S. Corporate Credit Markets
with Giorgio Mondini, Paul Rintämaki, and Sascha Steffen

Relationship Nonbankers
with Max Jager

Loan Sales and Zombie Lending

Publications

Bitcoin’s Limited Adoption Problem
with Kose John and Fahad Saleh
Journal of Financial Economics, May 2022, Vol. 144(2), pp. 101–126
Journal - SSRN

Abstract: We demonstrate theoretically that Bitcoin’s limited adoption arises as an equilibrium outcome rather than as a short-lived property. Our results are driven by negative network effects which arise due to Bitcoin’s need for consensus and the existence of network delay. As the Bitcoin network expands, network delay grows thereby prolonging the time needed for generating consensus. In turn, transaction settlement becomes prolonged, and users abandon the system, yielding limited adoption. Increasing transaction rates fails to solve this problem because increasing transaction rates increases fork probabilities which prolongs the consensus process and generates limited adoption.