Session 10: Financial Regulation
August 24-26, 2020, 8 am - 10 am PDT | August 27-28, 2020, 8 am - 11 am PDT
- Gregor Matvos, Northwestern Kellogg School of Management
- Amit Seru, Stanford GSB
The conference covers research that relate to connections of regulation for intermediaries, households, firms and policymakers. This is the fourth in the sequence of annual SITE conference on this topic.
Aug 24 | 8:00 am to 9:00 am
How Costly is Noise? Data and Disparities in the US Mortgage Market
Moderator: Tarun Ramodarai (Imperial)
We quantify the economic cost of the differential informativeness of credit scores across different consumer groups in the US mortgage market. We provide evidence that widely used credit scores are poorer risk predictors for minority applicants but play equal weight in lenders’ approval and pricing decisions. Motivated by these facts, we build a structural model of a lender making loan approval and pricing decisions based on a credit score signal. We estimate the model exploiting novel empirical moments from credit bureau data combined with instrumental variable estimates of marginally approved borrowers’ default rates, revealing the distribution of unobserved risk across different parts of the borrower and score distribution. Our estimation results suggest that commonly used credit scores feature 47% higher standard deviation of signal noise in credit scores for minority mortgage applicants, suggesting substantially lower precision for minorities. In preliminary results, our model suggests that this unequal precision accounts for roughly half of the gap in mortgage approval rates between minority and non-minority applicants. Finally, we translate our estimates into a dollar estimate of loan mis-pricing for mortgages purchased by the government-sponsored enterprises (GSEs).
Aug 24 | 9:00 am to 10:00 am
Wealth, Race, and Consumption Smoothing of Typical Income Shocks
Moderator: Sasha Indarte (Wharton)
Aug 25 | 8:00 am to 9:00 am
Heterogeneous Real Estate Agents and the Housing Cycle
Moderator: Julia Fonseca (UIUC)
Aug 25 | 9:00 am to 10:00 am
iBuyers: Liquidity in Real Estate Markets?
Moderator: Adi Sunderam (Harvard)
Aug 26 | 8:00 am to 9:00 am
Do Credit Conditions Move House Prices?
Moderator: Sophie Calder-Wang (Wharton)
Aug 26 | 9:00 am to 10:00 am
The Role of Intermediaries in Selection Markets: Evidence from Mortgage Lending
Moderator: Claudia Robles-Garcia (Stanford)
Aug 27 | 8:00 am to 9:00 am
Real Effects of Search Frictions in Consumer Credit Markets
Moderator: Anthony Defusco (Kellogg)
Aug 27 | 9:00 am to 10:00 am
The Value of "New" and "Old" Intermediation in Online Debt Crowdfunding
Moderator: Matteo Benneton (Berkeley)
We study the welfare effects of the transition of online debt crowdfunding from the older “peer-to-peer” model to the “marketplace” model, where the crowdfunding platform sells diversified loan portfolios to investor. We develop an equilibrium model of debt crowdfunding capturing platform design (peer-to-peer or marketplace) and lender preferences over loan and portfolio product characteristics, and we estimate it on a novel database on credit at a large online platform based in China. Moving from the peer-to-peer to the marketplace model raises lender surplus, platform profits, and credit provision. At the same time, reducing lender exposure to liquidity risk can be beneficial. A counterfactual scenario where the platform resembles a bank by bearing liquidity risk has similar welfare properties as the marketplace model when liquidity is high, but results in larger lender surplus and credit provision, and only moderately lower platform profits, when liquidity is low.
Aug 27 | 10:00 am to 11:00 am
Conflicting Interests and the Effect of Fiduciary Duty: Evidence from Variable Annuities
Moderator: Ishita Sen (Harvard)
Variable annuities are a popular retirement product with over $2 trillion in assets. We study what drives variable annuity sales. Insurers typically pay brokers a commission/kickback for selling variable annuities that range from 0% to over 10% of investors’ premium payments. Our results indicate that variable annuity sales are about three times more sensitive to brokers’ financial interests than investors’. Brokers earn higher commissions by selling higher-fee products. To help limit conflicts of interest, the Department of Labor proposed a rule in 2016 that would hold brokers to a fiduciary standard when dealing with retirement accounts. We find that after the proposed fiduciary rule, the sales of high-fee variable annuities fell by 50% as sales became more sensitive to fees and insurers increased the relative availability of low-fee products. Based on our estimation of a structural model, investor welfare improved as a result of the DOL fiduciary rule under conservative assumptions.
Aug 28 | 8:00 am to 9:00 am
The Passthrough of Treasury Supply to Bank Deposits
Moderator: Erica Jiang (USC)
Aug 28 | 9:00 am to 10:00 am
The Financial Origins of the Rise and Fall of American Inflation
Moderator: Andreas Fuster (Swiss National Bank)
Aug 28 | 10:00 am to 11:00 am
Credit Cycles with Market Based Household Leverage
Moderator: Emil Verner (MIT)