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Posted: comet.paws on  Apr 10 09:45:39 PM
Title: Thesis Defense: Essays on Bank Competition and Regulation  
Speaker:
Siyu (Eric) Lu
Carnegie Mellon University
Sponsor: Carnegie Mellon University  >  Mellon College of Science  >  Mathematical Sciences
Carnegie Mellon University  >  Tepper School of Business
Series: Center for Computational Finance Seminar
Date: Apr 15, 2019 10:30 AM - 11:30 AM
URL: https://server1.tepper.cmu.edu/Seminars/abstracts.asp?sem_speaker=Lu&sem_date=04/15/19&sem_firstname=Siyu (Eric)
Location: Tepper Quad 4219
Detail: Abstract
The systemic importance of banks in the financial system and the economy has been long recognized by researchers and policymakers. Banks provide essential services to both depositors and borrowers, facilitating all kinds of economic activities. This dissertation investigates the mechanism of bank competition and discusses its implications on bank customers, systemic stability of the banking system, and related policies.

In the first essay, I study how changes in bank competition as a result of bank M&As affect bank performances at the branch level, as well as the impact on local mortgage lending. I exploit the within-bank cross-branch variation in whether there is a merging counterpart branch nearby, as a variation in changes in local competition condition at the branch level. I find that M&As lead to higher deposit growth for all involved branches on average. However, branches with merging counterpart branches nearby see a drop in deposits growth. Regions affected by M&As on average experience increase in mortgage loan denial rates, with an especially large increase in the regions with counterpart branches located closely. The results highlight the geographical heterogeneity in the consequences of bank consolidation.

In the second essay, I investigate the magnitude and economic mechanism of spillover effects of bank failures. Specifically, I identify how each bank failure is affected by its peer banks' failures. Identification is obtained by exploiting the partial overlapping branch networks of banks. I find peer failures lead to lower failure probability of failed banks on average. Moreover, there exists significant heterogeneity in the spillover effects across different acquirer types. In particular, I find failure probability of an affected bank drops if the acquirer of the failed bank is also a peer of the affected bank. The results reveal that the industrial organization structure among affected banks largely determines the direction and magnitude of the spillover effect. The findings also have important implications for the current policy regarding the resolution of failed banks.

In the third essay, I study the role played by bidders? information quality in determining the allocative efficiency in auctions for failed banks. Taking advantage of the bidding data on failed-bank auctions during the most recent financial crisis, I structurally estimate a first price auction model featuring conditionally independent private information to infer bidders? valuation distribution and noise distribution. Through counter-factual simulations, I find a marginal reduction in bidders? noise leads to a significant improvement in allocative efficiency, much larger than the improvement in auction revenue. The contrast highlights that the revenue-motivated incentive to improve information quality is vastly weaker than the valuation-motivated one. Moreover, I also find better information quality strongly complements other two prevalent policy tools in place, including increasing participation and using of Loss Share Agreements, which protects acquirers against future loss on acquired assets. Exploiting this complementarity promotes more efficient auction outcomes.
Interest Area: Mathematical & Physical Sciences, Social, Behavioral & Economic Sciences
 
 
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