Vladimir L. Yankov

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Working papers
In Search of a Risk-Free Asset (first draft 2012) [ Slides ] [ Replication code ] [ Appendix ]

Abstract:
To attract retail time deposits, over 7,000 FDIC insured U.S. commercial banks publicly post their yield offers. I document a sizeable and pro-cyclical cross-sectional dispersion in these yields during the period 1997 - 2011, revealing the presence of market power for this highly homogeneous financial product. The yields were also adjusted sluggishly and asymmetrically in response to increasing or decreasing fed funds rate target regimes. I investigate to what extent information (search) costs on the part of the investors in this market can explain the observed pricing behavior. I build and estimate an asset pricing model with heterogeneous search cost investors. A large fraction of high information cost uninformed investors and the exit of low information cost informed investors rationalizes the observed price dispersion. I further qualitatively match the asymmetric yield rigidity within the framework of costly consumer search without the need to impose menu costs or other restrictions on the banks' repricing behavior.

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

Abstract:
We document that all 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 network 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. Further, 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.

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

Abstract:
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.

 
Publications
 
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

Abstract:
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 .

Abstract:
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
 
Work-in-progress
 
The Role of Costly Consumer Search for Sticky Prices: Evidence from the Market for Deposits (first draft coming soon )
[ Slides ] [ Replication code ]

Abstract:
I study the role of costly search on part of consumers for generating sticky prices. I investigate the theory against alternative models, such as menu cost models, using pricing data from retail deposit markets.

 
Competition for Money Demand (first draft coming soon )
[ Slides ] [ Replication code ]

Abstract:
FDIC insured banks and money market mutual funds were considered competitors in the market for safe and liquid assets. Contrary to this notion, the growing involvement of traditional banks in the money market industry through advising, managing, and sponsoring of money market funds has expanded banks' span of control in the market for money like instruments. This paper examines the hypothesis that instead of entering into price competition for sophisticated investors, banks use their expanded span of control over money funds to price discriminate across less sophisticated investors who chose deposit products and more sophisticated investors who are steered into money market mutual funds.This theory is tested with a unique dataset of deposits and money market fund flows within and outside bank-money fund relationships.

 

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: October 2017
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