Vladimir Yankov

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Working papers
Liquidity Coinsurance in Syndicated Loan Markets
(joint with Filip Zikes and Kevin Kiernan)
[ Slides ] [ Replication code ]

We study the capacity of the banking system to provide liquidity to the corporate sector in times of stress and how changes in this capacity affect corporate liquidity management. We show that the contractual arrangements among banks in loan syndicates co-insure liquidity risks of credit line drawdowns and generate a network of interbank exposures. We develop a simple model and simulate the liquidity and insurance capacity of the banking network. We find that the liquidity capacity of large banks has significantly increased following the introduction of liq uidity regulation, and that the liquidity co-insurance function in loan syndicates is economically important. We also find that borrowers with higher reliance on credit lines in their liquidity management have become more likely to obtain credit lines from syndicates with higher liquidity. The assortative matching on liquidity characteristics has strengthened the role of banks as liquidity providers to the corporate sector.

The Collateral Channel and Bank Credit
(joint with Arun Gupta and Horacio Sapriza)

Our paper studies the role of collateral values for bank credit using a confidential bank-firm-loan dataset that includes detailed information on lenders, borrowers, and the pledging of collateral. We find that the use of real estate collateral is concentrated in private bank-dependent borrowers and in markets with low real estate supply elasticities. We estimate that for every percent increase in collateral values, firms pledging real estate collateral experience 12 basis points higher growth in bank lending with higher sensitivities for more constrained firms. We identify the elasticity of firms' borrowing capacity to collateral values controlling for firm-, bank-, and market-level characteristics as well as credit demand factors identified from the micro-panel data. By relaxing borrowing constraints and increasing credit to bank-dependent borrowers, higher real estate values boost firm capital expenditures, and lead to aggregate effects associated with lower unemployment, higher employment growth and business creation. Our estimates imply that as much as 37 percent of employment dynamics can be attributed to relaxation of borrowing constraints over the period from 2013 to 2019. By highlighting the importance of real estate collateral for bank-dependent borrowers, our study contributes to a growing empirical literature that explores the importance of the collateral channel for macroeconomic fluctuations.

Endogenous Organizational Structure and Internal Allocation of Capital in Banking (first draft 2014)
(joint with Tszkin Julian Chan and Ben Craig )
[ Slides ] [ Replication code ]

We document that large US bank holding companies have organizational structures composed of a large number of individual subsidiaries with different geographic or functional specialization. Moreover, and much less known, the organizational structures across different holding companies vary in their network characteristics. We combine information from the organizational structure of bank holding companies with data from the balance sheets and income statements of the holding company bank and non-bank subsidiaries to construct a unique dataset of the internal allocation of funds within a conglomerate. We document that these internal capital flows are sizeable and increase with the cost of external funding. Furthermore, banks within a conglomerate with higher centrality in the organizational network receive disproportionally higher funding controlling for profitability and investment opportunities. We also show that previous research on the internal allocation of capital in banking, which did not control for the network structure and the endogeneity of organizational structure of bank holding companies, significantly underestimates the role of the internal capital markets.

In Search of a Risk-Free Asset
(first draft 2012; this revision May 13, 2018, revise and resubmit JMCB)
[ Slides ] [ Replication code ] [ Appendix ]

To attract time deposits, more than 6,000 banks post their offer rates. I document a large cross-sectional dispersion, negative spreads over Treasuries, and upward rigid adjustments in these rates following federal funds rate increases. Estimates of an oligopoly model reveal a large fraction of high-search-cost and a small declining fraction of low-search-cost investors that can rationalize the observed pricing. Despite high intertemporal elasticity of substitution and technological innovations over the last two decades, the stable large fraction of high-search-cost depositors, mostly elderly households, grants banks significant monopoly power and allows for the sluggish pass-through of increases in the federal funds rate into deposit rates.

The Impact of Government Debt on the Convenience Yield of Default-Risk-Free Debt (first draft 2012)
[ Slides ] [ Replication code ]

A growing empirical literature documents that the quantity of privately held U.S. government debt affects the spreads on a wide range of fixed-income securities through determining the convenience premium placed on assets with varying degree of safety and liquidity. Shocks to the convenience premium, therefore, constitute an important source of disturbance to banks' relative cost of funds across insured and non-insured deposits. To the extent that one questions the validity of the aggregate correlations found in the literature, the liability side of FDIC insured commercial banks provides a unique laboratory for testing the impact of the public supply of safe and liquid assets on determining asset prices and allocations. Using a proprietary micro-level dataset of prices and quantities of insured and non-insured liabilities of the U.S. commercial banks, I document the heterogeneous response of banks with different capital structure in the pricing and funding choices across the two types of debt to changes in the level and maturity of government debt. The latter have larger impact on banks that have higher share of insured sources of funding. Overall, an increase in the level of government debt and shortening of its maturity have a contractionary effect on the banks' balance sheets pointing to a strong crowding out effect of government debt on the banking system capacity to attract cheap sources of funding in the form of deposits and hence its ability to extend loans.

Limited Deposit Insurance Coverage and Bank Competition (first draft 2014) [ Slides ] [Replication]
(joint with Oz Shy and Rune Stenbacka ) Journal of Banking and Finance, Volume 71, October 2016, Pages 95-108

Deposit insurance schemes in many countries place a limit on the coverage of deposits in each bank. However, no limits are placed on the number of accounts held with different banks. Therefore, under limited deposit insurance, some consumers open accounts with different banks. We compare three regimes of deposit insurance: No deposit insurance, unlimited deposit insurance, and limited deposit insurance. We show that limited deposit insurance weakens competition among banks and reduces consumer welfare as well as total welfare relative to no or unlimited deposit insurance.

Credit Market Shocks and Economic Fluctuations: Evidence from Corporate Bond and Stock Markets
(joint with Simon Gilchrist and Egon Zakrajsek Journal of Monetary Economics, Elsevier, vol. 56(4), pages 471-493, May 2009. [ScienceDirect]
In the Press: Wall Street Journal .

To identify disruptions in credit markets, research on the role of asset prices in economic fluctuations has focused on the information content of various corporate credit spreads. We re-examine this evidence using a broad array of credit spreads constructed directly from the secondary bond prices on outstanding senior unsecured debt issued by a large panel of nonfinancial firms. An advantage of our ``ground-up'' approach is that we are able to construct matched portfolios of equity returns, which allows us to examine the information content of bond spreads that is orthogonal to the information contained in stock prices of the same set of firms, as well as in macroeconomic variables measuring economic activity, inflation, interest rates, and other financial indicators. Our portfolio-based bond spreads contain substantial predictive power for economic activity and outperform - especially at longer horizons - standard default-risk indicators. Much of the predictive power of bond spreads for economic activity is embedded in securities issued by intermediate-risk rather than high-risk firms. According to impulse responses from a structural factor-augmented vector autoregression, unexpected increases in bond spreads cause large and persistent contractions in economic activity. Indeed, shocks emanating from the corporate bond market account for more than 30 percent of the forecast error variance in economic activity at the two-to four-year horizon. Overall, our results imply that credit market shocks have contributed significantly to U.S. economic fluctuations during the 1990--2008 period.

Essays on Banking, Finance and Macroeconomics, Ph.D Dissertation 2013, Boston University
Rewiring repo
(joint with Jin-Wook Chang, Elizabeth Klee, and Erik Larsson)

We study the structure and efficiency of the repurchase agreement (repo) market in allocating cash and collateral across two segments. The first segment is a decentralized tri-party repo market characterized by established and persistent long-term relationships between dealers (borrowers) and cash lenders. The second segment is a centrally-cleared interdealer market that reallocates excess cash borrowed in the decentralized market to dealers with cash deficits. We develop a model of a networked repo market with strategic interactions among dealers who compete for funding from a limited pool of cash allocated across different lenders. The model allows us to disentangle supply and demand factors that determine the clearing of excess demand for cash in the centralized market. We estimate the supply and demand factors along with the supply and demand elasticities for cash and collateral. We determine conditions under which the market could become unstable as a result of competition among dealers and capacity constraints of lenders. Our results are important in designing efficient market interventions to stabilize the market as well as in understanding how monetary policy tools such as the ON RRP facility affect the market.

Liquidity Regulation and Corporate Liquidity Management [ Short description ]

Disclaimer The views expressed herein are those of the author and do not necessarily represent the offical position of the Board of Governors of the Federal Reserve System.

  Last update: September, 2021
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