Essays in financial regulation and macro-finance
- This dissertation consists of three separate contributions to the field of macroeconomics and finance. In the first chapter, I present a quantitative dynamic general equilibrium model for the purpose of determining the optimal capital requirement for banks. Banks play two roles in this model: They contribute to the production of a final good and they provide liquidity in the form of bank debt, which households value. Banks also benefit from an implicit bailout guarantee from the government, which motivates them to take on excessive risk. I quantify this model using data from NIPA and the FDIC. Higher capital requirements lower risk-taking and increase consumption, but they also reduce the supply of bank debt. The reduction in bank debt leads to a lower interest rate on bank debt through a general equilibrium effect. This reduces the overall funding costs of banks and allows them to grow larger, which increases the capital stock and, consequently, production as well as consumption. The optimal capital requirement weighs the reduction in economic volatility and the increase in consumption against the reduction in liquidity. Welfare is maximized at 14%. The second chapter is coauthored with Juliana Salomao. Therein, we study how firms finance themselves over the business cycle. Using Compustat data, we first document that large firms substitute between debt and equity financing over the business cycle whereas small firms increase the amount of funds raised, using both debt and equity financing, in good times and reduce it in bad. We propose a mechanism that explains this empirical feature in a heterogeneous firm optimization model. Our mechanism is based on two main features. First, small firms are growing and therefore have higher funding needs compared to large firms. Second, the cost of debt financing depends endogenously on the default probability of the rm as well as on the recuperation value of the bond. This model can account for the cyclical relationships we see in the data. The third chapter is co-written with Monika Piazzesi and Martin Schneider. It studies US banks' exposure to interest rate and default risk. We exploit the factor structure in interest rates to represent many bank positions as portfolios in a small number of bonds. This approach makes exposures comparable across banks and across the business segments of an individual bank. We also propose a strategy to estimate exposure due to interest rate derivatives from regulatory data on notional and fair values together with the history of interest rates.
|Type of resource
|electronic; electronic resource; remote
|1 online resource.
|Stanford University, Department of Economics.
|Schneider, Martin, (Professor of economics)
|Statement of responsibility
|Submitted to the Department of Economics.
|Thesis (Ph.D.)--Stanford University, 2014.
- © 2014 by Juliane Maria Begenau
- This work is licensed under a Creative Commons Attribution Non Commercial 3.0 Unported license (CC BY-NC).
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