Hello and welcome! I work as an economist at Bank of Canada.
My research interests are in macro-finance and corporate finance.
Specific topics are bank regulation, capital structure and disclosure choice.
When banks retain earnings to guard against potential losses from high-risk activities, the additional balance sheet space results in mispricing of low-risk activities. This distorts banks’ franchise values down and lowers their ability to retain earnings, leading to lower financial stability.
Foreign direct investment inflows and overall capital outflows are positively related to growth across developing countries when consumer borrowing limits are tighter in developing countries than in developed countries.
Optimal capital buffers should be large eventually but small in the aftermath of financial crises such that their anticipation does not adversely affect market participants’ expectations about bank moral hazard during crises.
An important class of financial crisis policy responses provides temporary support to solvent institutions, following Bagehot’s principle. The paper analyzes general equilibrium effects from such policy responses and finds that they redistribute from poor to wealthy households.
Firm owners pay managers to run firms, but not all pay depends on performance. Some of it depends on how managers communicate with market participants.
Regulators should raise bank profitability following a financial crisis to alleviate concerns about bank moral hazard during the crisis. Crises are then less deep but recoveries also take longer.
Revision requested at Journal of Corporate Finance
Will banks use capital buffers to maintain lending during financial crises? Macroprudential bank regulators can address a time-consistency problem by relying more on time-varying, and less on static, capital buffers.
Managers play a central role in determining how firms’ disclosure policies affect firm valuations, yielding two conditional cross-sectional predictions: (i) there are differences in information disclosure across firms, and (ii) such differences are not related to differences in firm values.
To avoid moral hazard of national macroprudential regulators, the usage of resolution funding should be positively correlated across member countries of a banking union. Optimal policies imply time-varying financial stability and economic output that is on average higher net of resolution costs.
When a bank holds a lot of safe assets, it is well situated to deal with funding stress. But when all banks hold a lot of safe assets, a pecuniary externality implies that their (wholesale) funding costs increase. This reduces banks’ ability to hold capital buffers and thus, paradoxically, increases the frequency of funding stress.
Time-varying capital buffer requirements are a powerful tool that allow bank regulators to avoid severe financial stress without the cost of imposing very high levels of capital. However, this tool is only effective if banks understand how it is used. I present a model that banks and financial market participants can use to anticipate how time-varying capital buffer requirements change over time.
This note illustrates how insights for macroprudential policy can be obtained from a parsimonious structural model that endogenizes key elements of the financial system (funding market pressure, financial crises, banks’ dividend policy and voluntary capital buffers).