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.
In this paper, we empirically investigate whether expansionary fiscal stimulus is effective during a consumer-debt-overhang-induced recession. Using transaction-level data on Department of Defense (DOD) spending during the 2007–2009 recessionary period, we document that the open-economy relative fiscal multiplier is higher in geographies with higher pre-recession consumer indebtedness.
This study empirically investigates whether fiscal stimulus is effective during periods of high consumer indebtedness. Using detailed data on Department of Defense spending for the 2006-2009 period, we document that the open-economy relative fiscal multiplier is higher in geographies with higher consumer indebtedness.
Mortgage companies do not fall under the strict regulatory regime of depository institutions. We show that this gap resulted in regulatory arbitrage and allowed bank holding companies to circumvent consumer compliance regulations.
Mortgage companies do not fall under the strict regulatory regime of depository institutions. We show that this gap resulted in regulatory arbitrage and allowed bank holding companies to circumvent consumer compliance regulations.
Mortgage companies do not fall under the strict regulatory regime of depository institutions. We show that this gap resulted in regulatory arbitrage and allowed bank holding companies to circumvent consumer compliance regulations.
Mortgage companies do not fall under the strict regulatory regime of depository institutions. We show that this gap resulted in regulatory arbitrage and allowed bank holding companies to circumvent consumer compliance regulations.
Mortgage companies do not fall under the strict regulatory regime of depository institutions. We show that this gap resulted in regulatory arbitrage and allowed bank holding companies to circumvent consumer compliance regulations.
This Economic Commentary has been removed due to concerns that the underlying data sample used in the analysis does not support the paper’s conclusions.
We argue that fiscal stimulus funded by public debt is effective for increasing economic activity and employment even in recessions that are caused by overborrowing in the private sector. We analyze the impact of government spending on local economies between 2007 and 2009 and find evidence that the fiscal multiplier is higher in geographical areas characterized by higher individual household debt.
New research highlights how disparities in the regulatory treatment of banks and shadow banking organizations before the financial crisis allowed heavily-regulated bank holding companies to lend through their less-regulated subsidiaries.
