what drives deregulation economics and politics of the relaxation of bank branching restrictions this paper investigates private interest public interest and political institutional theories of regulatory change to analyze state level deregulation of bank branching restrictions using a hazard model we find that interest group factors related to the relative strength of potential winners large banks and small bank dependent firms and losers small banks and the rival insurance firms can explain the timing of branching deregulation across states during the last quarter century the same factors also explain congressional voting on interstate branching deregulation while we find some support for each theory the private interest approach provides the most compelling overall explanation of our results

efficient methods of measuring welfare change and compensated income in terms of ordinary demand functions a utility maximizing consumer with a completely known system of ordinary demand functions q h p c is considered let p qo and p q be two arbitrary equilibrium situations the problem is to evaluate in which of the situations the utility is higher without knowing the utility function revealed preference theory tells that the ordinary demand functions which are in principle observable contain enough information to solve the problem remaining difficulties are therefore mainly computational we present how the compensated income c i c p qo and the compensated demand h p cl1 are calculated with arbitrary accuracy using only the ordinary demand system our two efficient algorithms also have interesting interpretations in terms of index numbers and consumer surplus measures

the effects of regulatory policies on the cost of debt for electric utilities an empirical investigation this article develops a model of debt cost determination for regulated electric utilities based on an application of finance theory estimation of the model allows the hypothesis that regulatory policy directly influences the cost of debt to be tested and also enables the specific effects attributable to individual regulatory policy variables to be examined regulatory decisions are found to have statistically and economically significant effects on the cost of debt for electric utilities and the most important effects are associated with the treatment of construction work in progress for ratemaking purposes the extent of regulatory delay and whether or not interim rate relief is provided copyright 1989 by the university of chicago

frameworks for analyzing the effects of risk and environmental regulations on productivity three separate effects of regulatory policies on enterprise decisions can be distinguished first increased regulatory penalties will diminish output and profits in static models or equivalently in multiperiod models in which investments are completely reversible as is well known second if investment commitments are irreversible there will be an additional effect of a known schedule of changes in the regulatory policy which will depress output even further finally the addition of uncertainty with regard to regulatory policy produces a third effect resulting in expected opportunity losses for firms both output and quality investments will be depressed by regulatory policy lotteries regulations influence current enterprise decisions not only through their current level but through their expected future level and the degree of uncertainty regarding these future regulatory policies 9 references 1 figure

the finance growth nexus evidence from bank branch deregulation this paper provides evidence that financial markets can directly affect economic growth by studying the relaxation of bank branch restrictions in the united states we find that the rates of real per capita growth in income and output increase significantly following intrastate branch reform we also argue that the observed changes in growth are the result of changes in the banking system improvements in the quality of bank lending not increased volume of bank lending appear to be responsible for faster growth

corruption in america abstract we use a data set of federal corruption convictions in the u s to investigate the causes and consequences of corruption more educated states and to a smaller degree richer states have less corruption this relationship holds even when we use historical factors like congregationalism in 1890 as an instrument for the level of schooling today the level of corruption is also correlated with the level of income inequality and racial fractionalization and uncorrelated with the size of government there is a weak negative relationship between corruption and economic development in a state these results echo the cross country findings and support the view that the correlation between development and good political outcomes occurs because education improves political institutions

surprised or not surprised the investors reaction to the comprehensive assessment preceding the launch of the banking union abstract did the comprehensive assessment ca preceding the single supervisory mechanism ssm launch in europe achieve its aims of producing new valuable information for the market we show that the ca achieved the goal of increasing transparency investors were able to detect weak banks at the announcement of the procedure 23rd october 2013 but gained full information on the amount of the capital shortfall only at the disclosure of the results 26th october 2014 furthermore at the official launch of the ssm 4th november 2014 banks under direct european central bank ecb supervision registered a more negative market reaction with respect to banks maintaining their national supervisors using a regression model including possible confounders and allowing for treatment effect heterogeneity this negative reaction is confirmed these findings suggest that at least in the short run investors penalized banks subject to direct ecb supervision probably because of the fear of regulatory inconsistencies

bailouts sovereign risk and bank portfolio choices abstract i study the role of sovereign risk in determining the effects of expected bailouts on banks portfolio decisions empirically data on italian banks show that they decrease lending to firms and increase purchases of government bonds following an increase in the probability of a bailout if the risk of sovereign default is sufficiently low crucially the portfolio adjustment becomes weaker and eventually reverses sign as sovereign risk increases to interpret these results i develop a model in which the relation between the bailout probability and the corresponding payoff to bank owners bailout rents depends on sovereign risk the model s predictions are consistent with the key features of the data

zombie lending and depressed restructuring in japan this paper explores the role that misdirected bank lending played in prolonging the japanese macroeconomic stagnation that began in the early 1990s the investigation focuses on the wide spread practice of japanese banks of continuing to lend to otherwise insolvent firms we docu ment the prevalence of this forbearance lending and show its distorting effects on healthy firms that were competing with the impaired firms the paper by hoshi 2000 was the first to call attention to this phenomenon and its ramifi

insider trading in supervised industries abstractwe investigate the impact of government agency oversight such as by the federal reserve on insider trading at the firm level regulatory supervision potentially limits trading based on material nonpublic information as it provides another layer of corporate governance to mitigate outflows of private information yet regulators themselves may serve as a source of information leakage thereby facilitating insider trading activity we find first that in comparison to nonsupervised firms supervised firms exhibit substantially greater trading based on inside information prior to earnings announcements second in the first few days after firms provide private information to regulators or when regulators possess private information inaccessible to corporate insiders these firms exhibit greater symptoms of insider trading finally within a given supervised industry insider trading symptoms appear more pronounced when regulators exhibit greater leniency or operate in states with more political c

separation of regulators against collusive behavior we show that the separation of powers in regulation may act as a commitment against the threat of regulatory capture splitting regulatory tasks and monitoring technologies among several nonbenevolent regulators may reduce their discretion in engaging in socially wasteful activities when regulators make collusive offers that are accepted by the agent whatever his characteristics competition between regulators relaxes collusion proofness constraints and improves social welfare this result is robust to different specifications of the agent s preferences and to the timing of the game as long as one insists on safe side contracting offers we also discuss how separation affects both allocative efficiency and the distribution of rents in the economy

evaluation of nonmarket goods recovering unconditional preferences a new approach is proposed for the evaluation of nonmarket goods starting from a complete or incomplete conditional demand system for market goods which is observable and depends on nonmarket goods this information is not sufficient to recover the underlying preference ordering of the representative consumer the central idea is to employ additional marginal willingness to pay functions for the nonmarket goods since they can be estimated either together with the demand system or in a separate step they are less arbitrary than the assumptions or hypotheses usually made if the entire system is weakly integrable the underlying ordering and appropriate welfare measures can be derived in this article i investigate the relationship between conditional and unconditional demand systems present sufficient conditions for weak integrability and demonstrate the practicability of the procedure proposed by means of three examples

drivers of systemic risk do national and european perspectives differ abstract with the establishment of the banking union the european central bank has been granted the power to impose stricter regulations than the national regulator if systemic risks are not adequately addressed at the national level we ask whether there is a cross border externality in the sense that a bank s systemic risk differs when applying a national versus a european perspective on average banks contribution to systemic risk is similar at the two regional levels and so is the ranking of banks generally larger banks and banks with a lower share of loans are more systemically important the effects of these variables are qualitatively but not quantitatively similar at the national versus the european level

endogenous matching and the empirical determinants of contract form empirical work on contracts typically regresses contract choice on observed principal and agent characteristics if i some of these characteristics are unobserved or partially observed and ii there are incentives whereby particular types of agents end up contracting with particular types of principals estimated coefficients on the observed characteristics may be misleading we address this endogenous matching problem using a data set on agricultural contracts between landlords and tenants in early renaissance tuscany controlling for endogenous matching has an impact on parameters of interest and tenants risk aversion appears to have influenced contract choice

the revolving door and worker flows in banking regulation abstract this paper traces career transitions of federal and state u s banking regulators from a large sample of publicly available curricula vitae and provides basic facts on worker flows between the regulatory and private sector resulting from the revolving door we find strong countercyclical net worker flows into regulatory jobs driven largely by higher gross outflows into the private sector during booms these worker flows are also driven by state specific banking conditions as measured by local banks profitability asset quality and failure rates the regulatory sector seems to experience a retention challenge over time with shorter regulatory spells for workers and especially those with higher education evidence from cross state enforcement actions of regulators shows gross inflows into regulation and gross outflows from regulation are both higher during periods of intense enforcement though gross outflows are significantly smaller in magnitude these results appear inconsistent with a quid pro quo explanation of the revolving door but consistent with a regulatory schooling hypothesis

exact consumer s surplus and deadweight loss consumer s surplus is a widely used tool in applied welfare economics both economic theorists and cost benefit analysis often use consumer s surplus despite its somewhat dubious reputation the basic idea is to evaluate the value to a consumer or his willingness to pay for a change in price of a good from say pricep to pricep because price changes affect consumer welfare an evaluation of this effect is often a key input to public policy decisions yet consumer s surplus is probably the most controversial of widely used economic concepts both paul samuelson and ian little conclude that the economics profession would be better off without it it is my feeling of the situation that substantial agreement exists on the correct quantities to be measured the amount the consumer would pay or would need to be paid to be just as well off after the price change as he was before the price change the quantities correspond to john hicks compensating variation measures an alternative measure which takes ex post price change utility as the basis of comparison is hicks equivalent variation the controversy arises in the measurement of these quantities the usual measurement procedure is to use the area to the left of the marshallian market demand curve between two price levels jules dupuit originated this measure of welfare change and alfred marshall and hicks derived appropriate conditions for its use the primary condition for the area to the left of the demand curve to correspond to the compensating variation is to have constant marginal utility of income marshall gave this condition and if it holds the same quantity will be derived as the area to the left of the compensated hicksian demand curve this area to the left of the compensated demand curve is exactly what the compensating variation and equivalent variation measure thus the constant marginal utility of income is a sufficient condition for marshallian consumer s surplus to be equal to hicks consumer s surplus in this case arnold harberger s plea to use the welfare triangle as one half times the product of the price change times the quantity change to measure deadweight loss corresponds to the correct theoretical amount of welfare change in a recent paper robert willig derives bounds for the percentage difference between the correct measure of either the compensating or equivalent variation and the marshallian measure derived form the market demand curve his bounds which depend on the income elasticity of demand for the single good in the region of price change being considered as well as the proportion of the consumer s income spent on the good demonstrate that the marshallian consumer s surplus is often a good approximation to hicks consumer s surplus the fact that the proportion of the consumer s income spent matters as well as the income elasticity was first pointed out by harold hotelling willig contends that the approximation error will be less than the errors involved in estimating the demand curve thus he hopes to remove the need for apology that applied economists often need to give to theorists who remark on the inappropriateness of using marshallian consumer s surplus to measure welfare change however in this paper i show that for the case primarily considered by willig of a single price change which is also the situation in which consumer s surplus is often used in applied work no approximation is necessary professor of economics massachusetts institute of technology and research associate national bureau of economic research i would like to thank peter diamond erwin diewert daniel mcfadden robert merton robert solow hal varian joel yellin and the referees for help and comments research support from the national science foundation is acknowledged the reason that we still have two rather than one of samuelson s six measures of consumer s surplus arises from an index number problem of the correct basis for the welfare comparison i will give both measures but plan to concentrate on the compensating variation

what fuels the boom drives the bust regulation and the mortgage crisis the weakly regulated independent mortgage companies imcs had a vastly disproportional contribution to the expansion in risky credit during the mortgage boom and to the ensuing foreclosure crisis we exploit a quasi experimental setting created by the inconsistency of state lender regulations between banks and imcs and their heterogeneity across states to isolate the impact of regulation on lending standards using county pairs straddling state borders we find that weaker state regulation of imcs is associated with a sharper expansion of imcs particularly in risky high yield loans which were also of worse quality in the weakly regulated states based on subsequent delinquency

capital investment strategies under uncertain regulation this article presents a positive model of investment choices by regulated firms that offers rational explanations for electric utilities recent behavior of delaying investment and choosing smaller shorter lead time technologies the model assumes thatfirms capital investments require long lead times during which the value of the completed project is uncertain firms anticipate regulatory profit and loss restrictions but expectations about the value of a completed project change over time firms decisions are modelled using an option pricing approach that incorporates the value of flexibility to delay or abandon projects the article shows why rational firms invest in smaller shorter lead time plants or delay investment when faced with uncertain and asymmetric profit and loss restrictions it also looks at decisions to abandon partially completed plants and shows that the static result that a higher cost allowance on abandoned projects increases the incentive for investment is not generally true in a dynamic model

investment banks as corporate monitors in the early twentieth century united states we study the effect of financial relationships on firms investment decisions and access to external finance in the early twentieth century securities underwriters commonly held directorships with american corporations section 10 of the clayton antitrust act prohibited bankers from serving on the boards of railroads for which they underwrote securities we find that following the implementation of section 10 railroads with strong preexisting relationships with underwriters saw declines in their investment rates valuations and leverage and increases in their costs of external funds reassuringly we do not observe similar effects among industrials and utilities which were not subject to section 10 our results are consistent with underwriters on corporate boards acting as delegated monitors and highlight the potential for regulations intended to address conflicts of interest to disrupt valuable information flows

credit induced boom and bust this paper exploits the federal preemption of national banks in 2004 from local laws against predatory lending to gauge the effect of the supply of credit on the real economy first the preemption regulation resulted in an 11 increase in annual lending in the 2004 2006 period which is associated with a 3 3 rise in annual house price growth rate and a 2 2 expansion of employment in nontradable sectors this was followed by a sharp decline in subsequent years furthermore we show that the increase in the supply of credit reduced delinquencies during boom years but increased them in bust years received june 7 2015 editorial decision december 22 2016 by editor robin greenwood

regulation and corporate investment policy in a previous paper it was shown that the traditional rule that the allowed return on the equity of a regulated firm should be set equal to its cost of equity capital was conceptually deficient 2 this deficiency arises because the cost of equity capital of a regulated firm depends upon its risk which depends in turn upon the regulatory policy that will be followed in the future including the allowed rate of return it was argued therefore that this traditional rule should be replaced by the requirement that the regulatory policy be consistent a consistent regulatory policy achieves what the traditional rule only attempts it ensures that at the time of a regulatory hearing the market value of the firm equity is equal to the equity financed portion of the rate base to devise a consistent regulatory policy it is necessary to have a valuation model which takes explicit account of regulatory policy such a model was developed in the above mentioned paper in this paper we generalize the earlier valuation model so that the investment policy of the regulated firm is determined by the value maximizing decisions of the management instead of being taken as exogenous to the extent that investment policy is discretionary its endogeneity must be taken into account in devising a consistent regulatory policy and this is made possible by the generalized model in reality it seems unclear to what extent the investment policies of regulated firms are predetermined by the requirement that they meet demand and to what extent they are discretionary since the model presented here easily accommodates constraints on the investment policy it is the more appropriate model so long as there exists any element of discretionary investment behaviour and permits a more adequate approach to the determination of consistent regulatory policies with discretionary investment policy an important consequence of any particular consistent regulatory policy is the investment policy it induces in section 4 we show how the value maximizing investment policy is affected by the choice of regulatory policy on the other hand regulated firms are wont to argue that their investments are in the main predetermined by demand and must be undertaken regardless of their profitability this putative lack of discretion it is maintained means that the appropriate allowed rate of return is higher than would otherwise be the case in section 4 also we evaluate the strength of this consideration by comparing the allowed rate of return under consistent regulatory policies when investment policy is and is not discretionary section 5 shows briefly how the analysis can be extended to account for the effect of debt in the capital structure

on measuring the value of a nonmarket good using market data we use line integral theory to lay out in a more general theoretical framework the conditions under which it is possible to measure with market data the welfare effects of a change in a nonmarket good we present in detail a numerical method of measuring the value of nonmarket goods using market data under either weak neutrality or weak complementarity our numerical method is more flexible than the existing analytical method because it can be used with any well behaved marshallian demand function and can be used even when the willig condition does not hold

on the measurement of welfare for market and nonmarket goods a numerical approach extending vartia s 1983 framework the paper presents a simple numerical approach to the measurement of welfare for market and nonmarket goods on the basis of an incomplete mixed demand system the method allows the determination of exact welfare measures it provides a flexible and well founded alternative to ad hoc methods based on consumer surplus

is three a crowd competition among regulators in banking banks are able to switch among three options for a primary federal regulator the fdic the federal reserve and the occ we examine why they switch and what the results of switches are we find support for the hypothesis that competition among regulators has beneficial aspects regulators seem to specialize in offering banks that are changing strategy the ability to improve performance by switching regulators there is also evidence that the ability to switch regulators allows banks to get away from bank examiners who desire a quiet life that is examiners who attempt to minimize the effort they spend on work

inconsistent regulators evidence from banking we find that regulators can implement identical rules inconsistently due to differences in their institutional design and incentives and this behavior may adversely impact the effectiveness with which regulation is implemented we study supervisory decisions of u s banking regulators and exploit a legally determined rotation policy that assigns federal and state supervisors to the same bank at exogenously set time intervals comparing federal and state regulator supervisory ratings within the same bank we find that federal regulators are systematically tougher downgrading supervisory ratings almost twice as frequently as do state supervisors state regulators counteract these downgrades to some degree by upgrading more frequently under federal regulators banks report worse asset quality higher regulatory capital ratios and lower return on assets leniency of state regulators relative to their federal counterparts is related to costly outcomes such as higher failure rates and lower repayment rates of government assistance funds the discrepancy in regulator behavior is related to different weights given by regulators to local economic conditions and to some extent differences in regulatory resources we find no support for regulator self interest which includes revolving doors

the subsidiarity bias in regulation abstract we study the choice of the regulatory structure when a firm engages in different activities for different countries under decentralization regulatory contracts suffer from two opposite distortions the competition between regulatory authorities leads to too high powered contracts however with a dispersed ownership structure contracts tend to be too low powered for sufficiently substitutable activities decentralization always leads to an inefficient drift towards fixed price contracts nonetheless when regulators have private agendas and possess the discretion to distort their policy to gain the support of some interest groups decentralization may be preferred to centralization as competition between regulatory authorities mitigates their discretionary power

financial consumer protection and the cost of financial intermediation evidence from advanced and developing economies using a data set of approximately 3 000 commercial banks from more than 100 countries i examine the impact of financial consumer protection policies on the cost of financial intermediation i find evidence that the existence of internal mechanisms for handling complaints requirements for fair treatment supervisory power related to consumer protection and various disclosure requirements reduce the cost of financial intermediation in advanced countries the results are different in the case of developing countries where i observe that most financial consumer protection policies increase the cost of intermediation suggesting that banks pass on regulatory burdens to their customers this paper was accepted by amit seru finance

impact of state exemption laws on small business bankruptcy decision 1 introductionsmall businesses are a primary source of employment in the u s economy employing over half of the private sector workforce small businesses are responsible for about two thirds of all net new jobs created according to the 2002 small business economic indicators sbei 1 over 99 7 of the 5 7 million firms in the united states are classified as small to medium sized businesses hence small businesses are a substantial contributor to economic growth in the united states small business owners enjoy more flexibility and freedom to capitalize on profitable opportunities than their larger business competitors hence they challenge the larger firms to be more efficient which is ultimately beneficial to consumers unfortunately small and medium sized businesses have a very low survival rate sbei 2002 in 2002 on the heels of the 2001 recession there were 550 100 small business births and 584 500 small business terminations both academics and public policy analysts have become increasingly concerned about the success of small businesses recently there has been a surge in small business research particularly surrounding small business credit supply and demand not surprisingly much of the literature has been focused on changes in lending technologies relationship2 versus scored3 information processing technologies soft versus hard 4 loan size considerations 5 and loan type considerations6 as they relate to small business supply and demand however very few have actually examined why small and medium sized businesses have very low survival rates some studies have analyzed the sensitivities of small business administration sba guaranteed loans to macroeconomic changes industry risks maturity structures 3 7 and 15 year maturities as well as lender and debt characteristics e g glennon and nigro 2001 2002 dunsky and pennington cross 2003 meanwhile agarwal chomsisengphet and liu 2003 empirically assessed the significant importance of owner and firm characteristics in determining the risk of small business default while controlling for the macroeconomic and industry risks with bankruptcy filings continuing to rise significantly in recent years many policy makers are turning their attention to bankruptcy laws specifically congress is considering reforming personal bankruptcy laws that if passed will significantly impact the demand for and supply of both consumer credit and small business funding white 2001 concludes that this bankruptcy reform could potentially reduce small business ownership but increase the supply of small business credit and in turn affect the growth of the u s economy small business owners have an incentive to file for personal bankruptcy when their indebtedness exceeds the value of their assets because both their personal and business debts can be discharged 7 though the bankruptcy exemption law is primarily designed for consumers the personal bankruptcy exemption law is a de facto bankruptcy procedure for small business owners because the debt of a noncorporate firm is the personal liability of the entrepreneur owner fan and white 2003 hence investigating the potential impact of the exemption law on small business bankruptcy decisions may provide some insight into how the bankruptcy laws should be reformed further fan and white 2003 argue that while the expected return to creditors should be lower in states with higher exemption level upon small business shutdown it is not entirely clear whether lenders will actually shut down a financially troubled small business while they empirically find that small businesses in high exemption states are more likely to be shut down this positive relationship is statistically insignificant the authors conclude that additional research will be needed to determine if a significant relationship exists p

the regulatory record of the greenspan fed alan greenspan played an important role in shaping major changes in the structure and rules of financial regulation indeed it is in this realm that chairman greenspan has made his most important contributions as an institutional innovator just describing how the federal reserve made possible the expansion of commercial banks powers to permit them to engage in investment banking could occupy this entire essay that change occurred in several stages beginning with the fed s decision in 1987 to allow small inroads by banks into investment banking those changes created a favorable track record which laid the groundwork for the administration s and congress s willingness to eliminate restrictions entirely in 1999 a policy the fed advocated in the 1990s the growth in commercial banks market share in investment banking has been dramatic in 1992 only 10 percent of corporate debt and less than 1 percent of corporate equity flotations were underwritten solely or jointly by commercial banks by 2002 that share had grown to 66 percent of debt and 36 percent of equity calomiris and thanavut pornrojnangkool 2006 can one identify a philosophy of regulation that underlies the regulatory advocacy of the fed under chairman greenspan although the fed s advocacy on various matters may appear somewhat contradictory or at least philosophically heterodox the fed has behaved in a manner that is remarkably predictable once one takes account of the political arena in which both regulatory and monetary policy are made there is fairly straightforward logic to the fed s regulatory advocacy to understand it one must consider the fed as a political player in the washington drama as a creature of congress subject to its oversight as a competitor with other regulators for influence within the financial services industry and within the political realm and as a prioritizing agent that had to decide which battles monetary or regulatory to fight when and how hard one lesson of this overview of fed regulatory advocacy during the greenspan years is that the algorithm of fed advocacy the decision process that decides which position the fed will advocate has not changed although some of the specific policy advocacy has john hawke 1988 wrote an evaluation of chairman paul volcker s regulatory policy during his years at the fed which was presented at the 1988 assa annual meeting and which describes an approach to fed policy that is similar to the one suggested here in that sense chairman greenspan did not change the fed indeed it is probably more accurate to say that his personal advocacy was changed by being at the fed but that does not imply an irrelevance to his leadership what emerges from a review of greenspan s regulatory record is an appreciation of his skill as a beltway warrior particularly with respect to his success in facilitating the geographical expansion of banks broadening bank powers and securing a prominent role for the fed under the gramm leach bliley act of 1999

is bank supervision central to central banking whether central banks should play an active role in bank supervision and regulation is being debated both in the united states and abroad while the bank of england has recently been stripped of its supervisory responsibilities and several proposals in the united states have advocated removing bank supervision from the federal reserve system other countries are considering enhancing central bank involvement in this area many of the arguments for and against these proposals hinge on the effect this change would have on the ability of the central bank to conduct monetary policy we find that confidential supervisory information on bank ratings significantly improves

a skeptical view of financialized corporate governance managerial compensation typically relies on financial yardsticks such as profits stock prices and return on equity to achieve alignment between the interests of managers and shareholders but financialized governance may not actually work well for most shareholders and even when it does significant tradeoffs and inefficiencies can arise from the conflict between maximizing financialized measures and society s broader interests effective governance requires that those in control are accountable for actions they take however those who control and benefit most from corporations success are often able to avoid accountability the history of corporate governance includes a parade of scandals and crises that have caused significant harm after each most key individuals tend to minimize their own culpability common claims from executives boards of directors auditors rating agencies politicians and regulators include we just didn t know we couldn t have predicted or it was just a few bad apples economists as well may react to corporate scandals and crises with their own version of we just didn t know as their models had ruled out certain possibilities effective governance of institutions in the private and public sectors should make it much more difficult for individuals in these institutions to get away with claiming that harm was out of their control when in reality they had encouraged or enabled harmful misconduct and ought to have taken action to prevent it

mortgage modification and strategic behavior evidence from a legal settlement with countrywide abstract we investigate whether homeowners respond strategically to news of mortgage modification programs we exploit plausibly exogenous variation in modification policy induced by settlement of us state government lawsuits against countrywide financial corporation which agreed to offer modifications to seriously delinquent borrowers using a difference in differences framework we find that countrywide s monthly delinquency rate increased more than 0 54 percentage points a 10 percent relative increase immediately after the settlement s announcement the estimated increase in default rates is largest among borrowers least likely to default otherwise these results suggest that strategic behavior should be an important consideration in designing mortgage modification programs jel d14 g21 k22 r31

the determinants of bank mergers a revealed preference analysis we provide new estimates of merger value creation by exploiting revealed preferences of merging banks within a matching market framework we find that merger value arises from cost efficiencies in overlapping markets relaxing of regulation and network effects exhibited by the acquirer target matching beyond our findings the revealed preference method has notable advantages that warrant its application beyond the bank merger market notably we show that the method outperforms reduced form alternatives out of sample enables sensible counterfactual experiments and can be used to evaluate private to private mergers which have been understudied because of lack of stock market data data as supplemental material are available at http dx doi org 10 1287 mnsc 2015 2245 this paper was accepted by amit seru finance

renegotiation design with multiple regulators abstract one striking feature of the internal organization of governments is the existence of multiple regulators this paper explains this organizational choice as coming from the government s limited ability to commit the separation of powers between two regulators is modeled as a stackelberg common agency game with respect to the case of a single regulator the allocative efficiency and the regulated firm s informational rent are both reduced in the unique equilibrium of this game however when regulators have a limited ability to commit this static cost of regulators separation becomes a dynamic benefit separation makes renegotiation harder and improves commitment journal of economic literature classification numbers d82 l51

regulatory incentives and the thrift crisis dividends mutual to stock conversions and financial distress during the 1980s insolvency of individual thrifts and the thrift deposit insurer created severe incentive problems lacking cash to close insolvent thrifts regulators induced nearly 10 billion of private capital to flow into the industry through mutual to stock conversions we test a theory of how regulators encouraged capitalimpaired mutual thrifts to convert by permitting them to pay dividends rather than rebuild capital we estimate the costs of this policy and interpret the 1991 federal deposit insurance corporation improvement act as requiring regulators to impose restraints on depository institutions parallel to debt covenants that prevent capital distributions by nonfinancial firms experiencing distress