Older home sellers receive lower returns than younger home sellers. Homes sold by older people have fewer major renovations but higher rates of poor upkeep. Older sellers are also more likely to sell off-MLS (“pocket listings”) and to sell to investors, leading to lower prices. These patterns suggest that older sellers may be disproportionately disadvantaged by agents’ incentive to maximize fees through generating high sales volume instead of maximizing sale prices. Age-related cognitive decline makes the elderly more vulnerable. For causal evidence, we show that reforms making pocket listings more transparent reduced both the prevalence of pocket listings and the magnitude of the age gap in returns. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

In Australian real estate markets, about a third of properties are sold at auction.We show that properties that fail auctions sell later for a 2.6% discount.This effect increases for properties failing multiple auctions and when no bids are made.Consistent with a causal channel, the effect holds when auction failure is instrumented by the tendency of owners to anchor on nearby better properties (and thus set reserve prices too high).Prices cluster just below salient round numbers, and the discount fades over time, inconsistent with our effects reflecting unobserved property characteristics.We test for several mechanisms and conclude that most of the pricing discounts reflect stigma, which reduces potential buyers' willingness to pay.

This paper studies banks' investment in risk management human capital following the Global Financial Crisis and the advent of stress testing. Our results suggest that 'Too Big to Fail' distortions may have weakened large banks' incentive to invest in risk management talent. Stress testing, which focuses on the largest banks, spurred demand for skilled quantitative risk managers, but only narrowly in anticipation of a test and following poor performance on a test. Stress testing does not affect demand for the over 90 % of risk management jobs not linked to passing tests, limiting its effectiveness in improving risk management practices.

We study U.S. bank branch openings and closings from 2001 to 2023. Both are more common in areas with low deposit franchise value, a consequence of greater interest-rate sensitivity among financially sophisticated households with higher digital banking adoption. The effects are strongest for large banks. Lending plays a minimal role. Incumbents retain branches where depositors are less sensitive to rates because they can extract deposit spreads; entrants avoid such markets because sticky customers are difficult to attract. The pandemic accelerated closures by increasing digital reliance. Our findings highlight deposit franchise value as the primary driver of modern branch restructuring. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Relative performance evaluation (RPE) intensifies competitive pressure by tying executive compensation to the profits of rivals. We show that these contracts make loan syndication harder by reducing banks' willingness to participate in loans underwritten by banks named in their RPE contracts. Lead arranger banks, which are more frequently named in RPE, hold larger shares of the loans they syndicate, and their borrowers receive smaller and fewer loans and face higher spreads. Our results highlight the tension between the normal benefits of competition versus the need for cooperation in loan syndication.

In 2021, the U.S. Treasury instituted hard caps to reduce Government-Sponsored Enterprise exposure to second-home and investment-property mortgages, leading to declines in their purchase of affected mortgages. The policy lowered credit supply to affected housing investors, with higher interest rates and lower originations. Bank and non-bank lenders display a similar supply response, suggesting that deposits offer no advantage in mortgage lending. Lenders adjust at the portfolio level by reallocating mortgage credit across local markets, suggesting that they manage credit provision market-by-market. Rental housing supply and condominium prices decline while rents increase, consistent with higher financing costs in the rental market from the policy.

We test whether measures of influence on regulators affect stress-test outcomes. The large trading banks-those most plausibly Too Big to Fail-face the toughest tests. Supervisory stress tests have a greater effect on large trading banks' portfolios; the large banks respond by making more conservative (initial) capital plans; and, despite their more conservative capital plans, the large banks still fail their tests more frequently than other banks. In contrast, while we find little evidence that political or regulatory connections affect the quantitative element of the stress tests, these connected banks do face less scrutiny under its qualitative dimension.

Abstract We analyze the bank supply of credit under the Paycheck Protection Program (PPP). The literature emphasizes relationships as a means to improve lender information, which helps banks manage credit risk. Despite imposing no risk, however, the PPP supply reflects traditional measures of relationship lending: decreasing in bank size and increasing in prior experience, commitment lending, and core deposits. Our results suggest a new benefit of bank relationships: They help firms access government-subsidized lending. Consistent with this benefit, we show that the bank PPP supply, based on the structure of the local banking sector, alleviates increases in unemployment.

Abstract In March 2020, banks faced the largest increase in liquidity demands ever observed. Firms drew funds on a massive scale from preexisting credit lines in anticipation of cash flow and financial disruptions stemming from the advent of the COVID-19 crisis. The increase in liquidity demands was concentrated at the largest banks, who serve the largest firms. Precrisis financial condition did not constrain large banks’ liquidity supply. Coincident inflows of funds from both the Federal Reserve’s liquidity injection programs and depositors, along with strong preshock bank capital, explain why banks were able to accommodate these liquidity demands. (JEL G21, G28) Received June 7, 2020; editorial decision June 23, 2020 by Editor Isil Erel.

Exposure to liquidity risk makes banks vulnerable to runs from both depositors and from wholesale, short-term investors. This paper shows empirically that banks are also vulnerable to run-like behavior from borrowers who delay their loan repayments (default). Firms in Italy defaulted more against banks with high levels of past losses. We control for borrower fundamentals with firm-quarter fixed effects; thus, identification comes from a firm's choice to default against one bank versus another, depending upon their health. This 'selective' default increases where legal enforcement is weak. Poor enforcement thus can create a systematic loan risk by encouraging borrowers to default en masse once the continuation value of their bank relationships comes into doubt.

Firms affiliated with business groups survive the stress of the global financial and euro crises better than unaffiliated firms. Using granular data from Italy, we show that better performance stems partly from access to an internal capital market, as the survival value of group-affiliated firms increases with group-wide cash flow. Internal cash transfers increase when banks' health deteriorates, with funds moving from cash-rich to cash-poor firms and, some evidence suggests, to firms with favorable investment opportunities. Internal capital markets' role thus increases when external markets (banks) are distressed.

Italian rms delay payment to banks weakened by past loan losses. Exploiting Credit Register data, we fully absorb borrower fundamentals with rm-quarter e ects; thus, identi cation re ects rm choices to delay payment to some banks but not others, depending upon their health. This selective delay occurs more where legal enforcement of collateral recovery is slow. Poor enforcement encourages borrowers not to pay, once the value of their bank relationship comes into doubt. Selective delays occur even by rms able to pay all lenders. Credit losses in Italy have thus been worsened by the combination of weak banks and weak legal enforcement. The long and deep recession after the nancial and foreign debt crises in Europe has left a legacy of non-performing loans on Italian banks' balance sheets. In December of 2015, bad loans summed to about 200 billion, a large gure that represents approximately 11% of the ∗Fabio Schiantarelli is with Boston College and IZA, Massimiliano Stacchini is with Bank of Italy, Philip E. Strahan is with Boston College and NBER. None of the authors received nancial support, other than their normal salaries from their institutions. The article has been reviewed by the Bank of Italy, but the views expressed in it are those of the authors' alone and do not necessarily represent those of the institutions with which they are a liated We are grateful to Massimiliano A nito, Giorgio Albareto, Alberto Alesina, Fabio Braggion, Francesco Columba, Riccardo De Bonis, Emilia Bonaccorsi di Patti, Francesco Giavazzi, Luigi Guiso, Harry Huizinga, Francesco Manaresi, Paola Sapienza, Alfonso Rosolia, Ricardo Serrano-Padial, Paolo Sestito, Alberto Zazzaro and seminar participants at the Bank of Italy, Bocconi University, Boston College, University of Chicago, the Federal Reserve Bank of New York, Georgia Tech, the University of Illinois at Champaign-Urbana, Notre Dame, Nova School of Business, the Bank of Portugal, SAIF, Tilburg University, Tsinghua University, the University of Western Ontario, Drexel University and the NBER Summer Institute for helpful comments. We also thank Marco Errico, Ana Lariau and Danilo Liberati for the helpful research assistance.

In 2011, Colombia instituted a tax on repayment of bank loans, which increased the cost of short-term bank credit more than long-term credit. Firms responded by cutting short-term loans for liquidity management purposes and increasing the use of cash and trade credit. In industries in which trade credit is more accessible (based on U.S. Compustat firms), we find substitution into accounts payable and little effect on cash and investment. Where trade credit is less available, firms increase cash and cut investment. Thus, trade credit provides an alternative source of liquidity that can insulate some firms from bank liquidity shocks.

Structured finance boomed during the run-up to the Financial Crisis. Existing explanations for this growth emphasize supply-side factors. Demand, however, was also encouraged by efforts to avoid regulatory capital requirements. We show that life insurance companies exposed to unrealized losses from low interest rates in the early 2000s increased their holdings of highly rated securitized assets, assets which offered the highest yield per unit of required capital. The results are only evident in accounts subject to capital requirements and at firms with low levels of ex ante capital, consistent with regulation creating distortionary incentives fueling the demand for securitized assets.

Credit default swaps (CDS) were invented to maintain bank-firm relationships as lenders can transfer credit risk without alerting the borrowers. However, we find that borrowers are more likely to switch to new lenders after the inception of CDS trading on their debt. The CDSinduced lender switch is more pronounced for firms that have larger potential benefits from lender switch and for distressed firms. Lenders’ capital and liquidity constraints do not explain the switch. All else equal, CDS-referenced borrowers are more likely to switch to CDS-using banks than non-CDS-using banks, and more likely to switch to a transaction bank than a relationship bank. Our results challenge the notion that risk management tools facilitate relationship lending. Instead, our findings suggest that the traditional role of banks could be eroded by the emergence of credit derivatives. * We thank Viral Acharya, Tim Adam, Edward Altman, Thorsten Beck, Allen Berger, Chun Chang, Jaewon Choi, Greg Duffee, Phil Dybvig, Lijing Du, Rohan Ganduri, Todd Gormley, John Griffin, Jean Helwege, Paul Hsu, Grace Hu, Victoria Ivashina, Dimitrios Kavvathas, Dan Li, Feng Li, Jay Li, Chen Lin, Tse-Chun Lin, Jun Liu, Christian Lundblad, Spencer Martin, Ronald Masulis, Ernst Maug, Greg Niehaus, Neil Pearson, Francisco PérezGonzález, “QJ” Jun Qian, Stephen Schaefer, Philipp Schnabl, Amit Seru, Sascha Steffen, Philip Strahan, René Stulz, Sheridan Titman, Cong Wang, Tan Wang, Yihui Wang, John Wei, Andrew Winton, Deming Wu, and seminar participants at the Office of Financial Research, University of Hong Kong, Australian National University, University of Melbourne, Institute for Financial Studies of Southwestern University of Finance and Economics, Shanghai Advanced Institute of Finance, Central University of Finance and Economics, Renmin University of China, University of South Carolina, Zhejiang University, Chinese University of Hong Kong, Wuhan University, Shanghai University of Finance and Economics, George Mason University, the Office of the Comptroller of the Currency (OCC), the NUS RMI Symposium on Credit Risk, the Fixed Income Conference, the Conference on Financial Markets and Corporate Governance, FMA, the Australian Banking and Finance Conference, and the TCFA Best Paper Symposium for comments and suggestions. We acknowledge the support of the National Science Foundation of China (project #71271134). CDS Trading and Banking Relationship

This paper shows that banks raising deposits in more concentrated markets have more funding stability, which enhances banks' ability to extend longer-maturity loans.We show that banks raising deposits in concentrated markets exhibit less pro-cyclical financing costs and profits, which in turn reduces the funding risk of originating long-term illiquid loans.Consistently, banks with deposit HHI one standard deviation above average extend loans with about 20% longer maturity than those with deposit HHI one standard deviation below average.Deposit concentration also allows banks to charge lower maturity premiums.Access to banks raising funds in concentrated markets improves growth in industries traditionally reliant on long-term credit.

Post-crisis stress tests have altered banks’ credit supply to small business. Banks affected by stress tests reduce credit supply and raise interest rates on small business loans. Banks price the implied increase in capital requirements from stress tests where they have local knowledge, and exit markets where they do not, as quantities fall most in markets where stress-tested banks do not own branches near borrowers, and prices rise mainly where they do. These reductions in supply are concentrated among risky borrowers. Stress tests do not, however, reduce aggregate credit. Small banks increase their share in geographies formerly reliant on stress-tested lenders.

This paper discusses evidence that large, diversified banks lend using `hard' information measures, such as audited financial statements. Structural changes toward larger and more diversified banks may have left some segments of credit markets - those depending on investment in `soft' information - under-served. These trends accelerated following the Financial Crisis. At the same time, bank lending to small businesses, which typically can only supply soft information, has been slow to recover from the Crisis. These trends are worrying because entry of focused banks, the normal market mechanism to counteract such a trend, has been absent since the Crisis.

Multi-market banks reallocate capital when local credit demand increases after natural disasters. Using property damage as an instrument for lending growth, we find credit in unaffected but connected markets declines by a little less than 50 cents per dollar of additional lending in shocked areas. However, banks shield their core markets because most of the decline comes from loans in areas where banks do not own branches. Moreover, banks increase sales of more-liquid loans and they bid up the prices of deposits in the connected markets. These actions help lessen the impact of the demand shock on credit supply.

Credit default swaps (CDS) make it easier for lenders to lay off their credit risk exposure on their CDS-referenced borrowers, potentially helping banks retain clients. However, this new instrument of credit risk transfer may reduce banks’ monitoring incentives that could alter the firm-bank relationship. We document that borrowers are more likely to switch to new lenders after the inception of CDS trading on their debt. Moreover, all else being equal, loan spreads increase after CDS trading than before, but bond spreads remain intact. CDS trading on their debt also leads firms to increase the use of public bonds relative to bank loans for new debt financing. The evidence indicates that CDS trading weakens firm-bank lending relationships and affects borrowers’ debt structure. * We thank Viral Acharya, Tim Adam, Edward Altman, Thorsten Beck, Allen Berger, Chun Chang, Jaewon Choi, Greg Duffee, Phil Dybvig, Lijing Du, Rohan Ganduri, Todd Gormley, John Griffin, Jean Helwege, Paul Hsu, Grace Hu, Victoria Ivashina, Dimitrios Kavvathas, Dan Li, Feng Li, Jay Li, Chen Lin, Tse-Chun Lin, Jun Liu, Christian Lundblad, Spencer Martin, Ronald Masulis, Ernst Maug, Greg Niehaus, Neil Pearson, Francisco Pérez-González, “QJ” Jun Qian, Stephen Schaefer, Philipp Schnabl, Amit Seru, Sascha Steffen, Philip Strahan, René Stulz, Sheridan Titman, Cong Wang, Tan Wang, Yihui Wang, John Wei, Andrew Winton, Deming Wu, Yu Yuan, Haoxiang Zhu, and seminar participants at the Office of Financial Research, University of Hong Kong, Australian National University, University of Melbourne, Institute for Financial Studies of Southwestern University of Finance and Economics, Shanghai Advanced Institute of Finance, Central University of Finance and Economics, Renmin University of China, University of South Carolina, Zhejiang University, Chinese University of Hong Kong, Wuhan University, Shanghai University of Finance and Economics, George Mason University, the Office of the Comptroller of the Currency (OCC), the 2014 NUS RMI Symposium on Credit Risk, the 2014 Fixed Income Conference, the 2014 Conference on Financial Markets and Corporate Governance, the 2014 CICF, the 2014 C.R.E.D.I.T Conference, the 2014 FMA, the Australian Banking and Finance Conference, and the 2014 TCFA Best Paper Symposium for comments and suggestions. We acknowledge the support of the National Science Foundation of China (project #71271134). How Does CDS Trading Affect Bank Lending Relationships? Abstract Credit default swaps (CDS) make it easier for lenders to lay off their credit riskCredit default swaps (CDS) make it easier for lenders to lay off their credit risk exposure on their CDS-referenced borrowers, potentially helping banks retain clients. However, this new instrument of credit risk transfer may reduce banks’ monitoring incentives that could alter the firm-bank relationship. We document that borrowers are more likely to switch to new lenders after the inception of CDS trading on their debt. Moreover, all else being equal, loan spreads increase after CDS trading than before, but bond spreads remain intact. CDS trading on their debt also leads firms to increase the use of public bonds relative to bank loans for new debt financing. The evidence indicates that CDS trading weakens firm-bank lending relationships and affects borrowers’ debt structure.