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  1. Home
  2. ASSA Annual Meeting
  3. 2026
  4. Preliminary Program
  5. Regulation of Financial Institutions
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Regulation of Financial Institutions

Paper Session

Sunday, Jan. 4, 2026 8:00 AM - 10:00 AM (EST)

Loews Philadelphia Hotel
Hosted By: American Finance Association
  • Gregory Buchak, Stanford University

How Do Government Guarantees Affect Deposit Supply?

Thomas Flanagan
,
Ohio State University
Edward Kim
,
University of Michigan
Shohini Kundu
,
University of California-Los Angeles
Amiyatosh Purnanandam
,
University of Michigan

Abstract

"The market value of deposit insurance changes over time and across banks as the value of the
underlying put option changes, but the premium they pay for the insurance does not adjust
to completely capture this variation. As a result, the effective subsidy that banks enjoy from
deposit insurance changes over time and across banks, affecting their incentive to supply deposits. Factors that change the market value of insurance, such as asset risk and interest rates,
move the supply curve. Consistent with this idea, we show that the deposit supply curve shifts
outward during periods of high risk and for riskier banks. The effect is more pronounced for
insured deposits. Our findings uncover a novel channel of deposit supply, with immediate implications for the transmission of monetary policies and existing research on “deposit channel
of monetary policy” and “reaching-for-yield” literature."

The Foreign Liability Channel of Bank Capital Requirements

Luigi Falasconi
,
University of Pennsylvania
Pablo Herrero
,
European University Institute
Caterina Mendicino
,
European Central Bank
Dominik Supera
,
Columbia University

Abstract

We examine the effects of tighter capital requirements in a quantitative model of risky financial intermediaries partially funded with defaultable and flighty foreign currency debt. Higher capital requirements enhance banks' resilience against sudden losses and insolvency risk. However, by reducing bank default risk, they also lower uninsured foreign funding costs, increasing banks' reliance on foreign liabilities. This reveals a novel trade-off: higher capital requirements strengthen banks' resilience against domestic shocks, but increase their exposure to foreign funding disruptions. Foreign prudential tools complement capital requirements in mitigating financial vulnerabilities. Empirical evidence from Peru’s capital requirement reform supports model predictions.

Regulatory Uncertainty and FinTech Innovation

Murillo Campello
,
University of Florida
Will Cong
,
Cornell University
Diemo Dietrich
,
University of Greifswald

Abstract

Regulators often lack expertise and resources needed to assess the value of FinTech innovation, with instruments at their disposal being crude and underdeveloped. We advance a theory where FinTech innovators, incumbents, and regulators strategically respond to opportunities to innovate under uncertainty. In it, regulators acquire costly and imprecise information about the societal value of innovation while FinTech firms can not be certain about the regulatory response to this information. We show that the rate of innovation in FinTech depends on the budget and skills of the regulator in assessing the gains and risks to innovation, the private rents that accrue to innovators, and the number of FinTech firms with access to new technology. Multiple equilibria arise from the complementarity between regulatory preparedness/competence and investments into innovation, adding extrinsic risks to the regulation--innovation game. Among several policy implications, our theory shows that skilled regulators with ample budgets prompt FinTechs to innovate more.

Discussant(s)
Itamar Drechsler
,
University of Pennsylvania
Tim Landvoigt
,
University of Pennsylvania
Ben Charoenwong
,
INSEAD
JEL Classifications
  • G2 - Financial Institutions and Services