This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

  1. Home
  2. ASSA Annual Meeting
  3. 2026
  4. Program
  5. Regulation of Financial Institutions
« Back to Results

Regulation of Financial Institutions

Paper Session

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

Loews Philadelphia Hotel, Regency Ballroom C1
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 banks pay for the insurance does not adjust to completely capture this variation. Consequently, their incentive to supply insured deposits changes with the change in subsidy they enjoy from deposit insurance. Factors that increase the subsidy, such as asset risk, move the supply curve outward. Consistent with this idea, we show that the supply of insured deposits increase when banks become riskier. Our findings uncover a novel channel of deposit supply, with implications for existing research on the monetary policy, deposits channel, 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