Bank and Borrower Behavior
Friday, Jan. 5, 2018 2:30 PM - 4:30 PM
- Chair: Justin Murfin, Yale University
Decision-making Delegation in Banks
AbstractWe introduce a novel measure of decision-making delegation within banks based on whether individual branches have the authority to set their own deposit rates. Using natural disasters as shocks to local economies, we show that this aspect of bank organizational structure has real effects. Branches that set rates locally increase deposit rates more and experience larger increases in deposit volumes in affected counties following a disaster. Banks with more branches setting rates locally expand mortgage lending more rapidly in affected counties. House prices recover more quickly in affected MSAs with more branches setting rates locally. These effects are distinct from those captured by other commonly used measures of decision-making delegation like bank size or “localness”. Our paper highlights the role that delegation of deposit funding decisions has on bank behavior and local economic outcomes.
Concentration of Control Rights in Leveraged Loan Syndicates
AbstractCorporate loan contracts frequently concentrate control rights with a subset of lenders. In a large fraction of leveraged loans, which typically include a revolving line of credit and a term loan, the revolving lenders have the exclusive right and ability to monitor and renegotiate the financial covenants in the governing credit agreements. Concentration is more common in loans that include nonbank institutional lenders and in loans originated subsequent to the financial crisis, when recognition of bargaining frictions increased. We conclude that concentrated control rights maintain the benefits of lender monitoring and minimize the costs of renegotiation associated with larger and more diverse lending syndicates.
- G2 - Financial Institutions and Services