Scientific Director, Leibniz Institute for Financial Research SAFE
Professor of Finance, Goethe University Frankfurt
Papers I am working on, articles published in journals, and older projects that are no longer active.
Identifies a new motive for firms to avert risk, even when doing so is inefficient. In an N-period model with an identical asset-substitution problem in every period, firms at medium leverage avert risk to avoid issuing debt that anticipates their later incentive to take risk, and is therefore expensive today.
The reaction of banks to the ECB’s introduction of a tiered remuneration of reserves reveals a preference for stable liquidity positions across different liquid assets.
A policy-rate change moves bank credit supply in two ways: directly, through banks’ financing constraint, and indirectly, through the screening of borrowers, which alters loan risk and feeds back into the constraint. We test the comparative statics predictions of the model using credit register data from Portugal and Germany, a high-rate and a low-rate environment.
Banks hold cash because it disciplines their risk management, so the demand for liquidity comes from incentives rather than from exposure to funding shocks. In general equilibrium, financial experts allocate equity between banks and the non-banks that buy bank assets in liquidation, which makes asset prices endogenous. Requiring banks to hold more cash sharpens incentives but leaves the banking sector inefficiently large, free-riding on liquidity that non-banks supply; efficiency needs a second instrument, such as a limit on bank size.
A liquid market induces more trading on private information but also makes it harder to detect managerial shirking. We identify novel skin-in-the-game and information-aggregation terms in the optimal incentive contract.
Surveys the transmission of negative monetary-policy rates to bank credit supply. The zero lower bound on retail deposit rates is the key friction.
Margin calls generate a fire-sale externality, yet the market equilibrium is constrained-efficient even though markets are endogenously incomplete.
The zero lower bound on retail deposit rates induces more risk-taking and less lending by banks that rely more heavily on deposit funding.
RFS Editor’s Choice · featured in the New York Times, 11 September 2019
More central bank liquidity increases the private supply of liquidity to stressed countries during the European sovereign debt crisis.
JFI Best Paper Award 2016
Variation margins address endogenous counterparty risk in derivatives contracts.
Published version SSRN FT Alphaville
Featured in Financial Times Alphaville, 11 January 2012
Staggered corporate income tax changes across U.S. states show that taxes are a first-order, and asymmetric, determinant of firms’ capital structure choices.
Asymmetric information about banks’ illiquid assets leads unsecured interbank markets to malfunction, as they did in the 2007–2009 financial crisis.
Bocconi “Business Models in Banking” Best Paper Award 2010 · SUERF Marjolin Prize 2010
Loan officers must prospect for loans and transmit the soft information they gather. Competition worsens the bank’s internal agency problem, reduces loan officers to salespeople with steep volume-based incentives, and lowers lending standards.
Central clearing platforms mutualise counterparty risk. That insurance undermines institutions’ incentives to search for robust counterparties, which is what insures against aggregate risk.
Firms uncertain about the risk of their operations issue equity to close their financing deficit. The evidence points to an adverse-selection cost of debt.
China International Conference in Finance, Xia Yihong Best Paper Award 2011
Banks’ capital structure is driven by much the same factors as firms’. The findings are inconsistent with a first-order effect of capital regulation for most banks.
Ex-post efficient reallocation of resources through internal capital markets makes it harder to give managers incentives.
Explains the decoupling of secured and unsecured rates in the interbank market during the 2007–2009 financial crisis, and the role of the availability of collateral.