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Session 11: Financial Regulation

September 3-5, 2019 | Landau Economics Bldg, 579 Serra Mall, Rm 134, Stanford

The idea in this session will be to discuss the latest advances in theoretical and empirical issues related to financial regulation, defined broadly. Topics will include, but will not be limited to, connections of regulation for intermediaries, households and policymakers in the U.S. and outside the U.S. This is the third in the sequence of annual SITE conferences on this topic that we have held since 2017.

Organizers: Gregor Matvos (Northwestern University, Kellogg School of Management) and Amit Seru (Stanford Graduate School of Business) 

In this Session

Sep 3 | 10:45 am to 11:15 am

Check-In

Sep 3 | 11:00 am

Session 1: Household Finance

Sep 3 | 11:15 am to 12:00 pm

Testing the Effectiveness of Consumer Financial Disclosure: Experimental Evidence from Savings Accounts

Presented by: Christopher Palmer (MIT)
Co-Author(s): Paul Adams (Autoriteit Financiële Markten), Stefan Hunt (Competition and Markets Authority) and Redis Zaliauskas (Lloyds Banking Group)
Sep 3 | 12:00 pm to 12:15 pm

Break

Sep 3 | 12:15 pm to 1:00 pm

Reference Points in the Housing Market

Presented by: Tarun Ramadorai (Imperial College London)
Co-Author(s): Steffen Andersen (Copenhagen Business School), Cristian Badarinza (National University of Singapore), Lu Liu (Imperial College Business School) and Julie Marx (Copenhagen Business School)

Using comprehensive and granular Danish data, we revisit the determinants of decisions to list, and listing premia in the housing market. Nominal losses and down-payment constraints both affect the gap between listing prices and hedonic valuations; we discover that these determinants have interactive effects on household behavior. To explain these facts, we adopt a structural approach—sellers optimize expected utility from property sale, subject to down-payment constraints, and taking as given the “concave demand” of buyers (the probability of sale more steeply declines with positive listing premia than it rises with negative premia). A model with reference-dependent—but not necessarily loss-averse—preferences combined with penalties associated with down-payment constraints fits best, but cannot fully explain the new facts that we uncover.

Sep 3 | 1:00 pm to 2:30 pm

Lunch

Sep 3 | 2:30 pm to 3:15 pm

Why Do Borrowers Default on Mortgages? A New Test Using High-Frequency Data?

Presented by: Peter Ganong (University of Chicago)
Co-Author(s): Pascal Noel (University of Chicago)
Sep 3 | 3:15 pm to 3:30 pm

Break

Sep 3 | 3:30 pm to 4:15 pm

Macroeconomic Effects of Debt Relief: Consumer Bankruptcy Protections in the Great Recession

Presented by: Adrien Auclert (Stanford)
Co-Author(s): Will Dobbie (Princeton) and Paul Goldsmith-Pinkham (Yale)
Sep 4 | 8:30 am to 9:00 am

Breakfast

Sep 4 | 8:45 am to 12:00 pm

Session 2: Banking and Shadow Banking

Sep 4 | 9:00 am to 9:45 am

Market Power and Small Business Lending

Presented by: Ernest Liu (Princeton)
Co-Author(s): Natalie Bachas (Princeton) and Constantine Yannelis (University of Chicago)

Bank lending is an important financing channel for small firms. Yet, banks in the U.S. have substantial market power and loan terms are unfavorable to borrowers in concentrated markets. What are the efficiency implications and policy remedies to bank concentration? We build a model of bank competition with endogenous interest rates, loan size, and take-up. We estimate the model using the universe of loans made through the Small Business Administration (SBA). Our identification strategy relies on 1) the excess bunching of loans around the discontinuity in SBA’s regulatory restrictions, and that 2) the excess bunching is more pronounced in concentrated markets. Despite federal subsidies through the SBA, preliminary results suggest market power causes 25% aggregate efficiency loss in small business lending. The optimal market-dependent interest rate subsidy can raise welfare by 15%.

Sep 4 | 9:45 am to 10:00 am

Break

Sep 4 | 10:00 am to 10:45 am

Banking without Deposits: Evidence from Shadow Bank Call Reports

Presented by: Erica Jiang (University of Texas at Austin)
Co-Author(s): Gregor Matvos (Northwestern), Tomasz Piskorski (Columbia) and Amit Seru (Stanford)
Sep 4 | 10:45 am to 11:15 am

Break

Sep 4 | 11:15 am to 12:00 pm

The Value of Intermediation in Stock Market

Presented by: Mark Egan (Harvard)
Co-Author(s): Marco Di Maggio (Harvard) and Francesco Franzoni (USI Lugano)

Brokers continue to play a critical role in intermediating institutional stock market transactions. More than half of all institutional investor order ow is still executed by high-touch (non-electronic) brokers. Despite the continued importance of brokers, we have limited information on what drives investors' choices among them. We develop and estimate an empirical model of broker choice that allows us to quantitatively examine each investor's responsiveness to execution costs and access to research and order ow information. Studying over 300 million institutional trades, we find that investor demand is relatively inelastic with respect to commissions and that investors are willing to pay a premium for access to top research analysts and order-ow information. There is substantial heterogeneity across investors. Relative to other investors, hedge funds tend to be more price insensitive, place less value on sell-side research, and place more value on order-ow information. Furthermore, using trader-level data, we find
that investors are more likely to trade with traders who are located physically closer and are less likely to trade with traders that have misbehaved in the past. Lastly, we use our empirical model to investigate the unbundling of equity research and execution services related to the MiFID II regulations. While under-reporting for the average firm is relatively small (4%), we find that the bundling of execution and research allows some institutional investors to under-report management fees by up to 15%.

Sep 4 | 12:00 pm to 1:30 pm

Lunch

Sep 4 | 1:15 pm to 4:15 pm

Session 3: Regulation and Supervision

Sep 4 | 1:30 pm to 2:15 pm

Fiduciary Duty and the Market for Financial Advice

Presented by: Gaston Illanes (Northwestern)
Co-Author(s): Vivek Bhattacharya (Northwestern) and Manisha Padi (University of Chicago)
Sep 4 | 2:15 pm to 2:30 pm

Break

Sep 4 | 2:30 pm to 3:15 pm

Supranational Regulators

Presented by: Vikrant Vig (London Business School)
Co-Author(s): Rainer Hasselman (Goethe University) and Shikhar Singla (London Business School)
Sep 4 | 3:15 pm to 3:30 pm

Break

Sep 4 | 3:30 pm to 4:15 pm

Designing Stress Scenarios

Presented by: Cecilia Parlatore (NYU)
Co-Author(s): Thomas Philippon (NYU)
Sep 4 | 6:00 pm

Dinner

Sep 5 | 8:30 am to 9:00 am

Breakfast

Sep 5 | 8:45 am to 12:00 pm

Session 4: Intermediation, Credit Supply and Exchange Rates

Sep 5 | 9:00 am to 9:45 am

Exchange Rates and Asset Prices in a Global Demand System

Presented by: Moto Yogo (Princeton)
Co-Author(s): Ralph Koijen (Chicago Booth)
Sep 5 | 9:45 am to 10:00 am

Break

Sep 5 | 10:00 am to 10:45 am

A Quantity-Driven Theory of Term Premiums and Exchange Rates

Presented by: Adi Sunderam (Harvard)
Co-Author(s): Robin Greenwood (Harvard), Sam Hanson (Harvard),and Jeremy Stein (Harvard)
Sep 5 | 10:45 am to 11:15 am

Break

Sep 5 | 11:15 am to 12:00 pm

Low Interest Rates, Market Power, and Productivity Growth

Presented by: Amir Sufi (University of Chicago)
Co-Author(s): Atif Mian (Princeton) and Ernest Liu (Princeton)

This study provides a new theoretical result that low interest rates encourage market concentration by raising industry leaders’ incentive to gain a strategic advantage over followers, and this effect strengthens as the interest rate approaches zero. The model provides a unified explanation for why the fall in long-term interest rates has been associated with rising market concentration, reduced business dynamism, a widening productivity-gap between industry leaders and followers, and slower productivity growth. Support for the model’s key mechanism is established by showing that a decline in the ten year Treasury yield generates positive excess returns for industry leaders, and the magnitude of the excess returns rises as the Treasury yield approaches zero.

Sep 5 | 12:00 pm to 1:30 pm

Lunch

Sep 5 | 1:35 pm to 2:30 pm

Redrawing the Map of Global Capital Flows: The Role of Cross-Border Financing and Tax Havens

Presented by: Matteo Maggiori (Harvard)
Co-Author(s): Antonio Coppola (Harvard), Brent Neiman (University of Chicago), and Jesse Schreger (Columbia)
Sep 5 | 2:30 pm to 3:00 pm

Break

Sep 5 | 3:00 pm to 3:55 pm

The International Medium of Exchange

Presented by: Rosen Valchev (Boston College)
Co-Author(s): Ryan Chahrour (Boston College)

We propose a model of endogenous, persistent coordination on the international medium of exchange. An asset becomes the dominant international medium because it is widely held, and remains widely held because it is dominant. The country issuing the dominant asset is a net debtor, but earns an “exorbitant privilege” on its position. In a calibrated model, only steady states with one dominant asset are stable. The dominant country experiences a significant welfare gain, most of which is accrued during its rise to dominance. A mild trade war reduces privilege slightly, while a protracted or deep trade war eliminates it altogether.

Sep 5 | 3:55 pm to 4:25 pm

Break

Sep 5 | 4:25 pm to 5:20 pm

Banks, Dollar Liquidity, and Exchange Rates

Presented by: Saki Bigio (UCLA)
Sep 5 | 6:00 pm

Dinner