I primarily work on the development of models that assist the Federal Reserve in on-going commercial bank supervision.
My doctoral dissertation was titled “Essays on Repurchase Agreements, Bailouts, and the Macroeconomic Effects of Bank Failures” which focused heavily on elements of the 2008 Financial Crisis and banking crises in general.
“The Macroeconomic Effects of Bank Failures in the United States” (with Robert Reed).
Summary: What are the macroeconomic implications of “large” failures in the banking system? To address this important question, we begin by studying a theoretical framework in which risk-pooling intermediaries are exposed to self-fulfilling bank runs. However, we do so in the presence of a banking system with a significant size distribution that affects risk-sharing and aggregate income. Following the theoretical model, where runs occur for reasons that are unrelated to the fundamentals of institutions, we proceed by empirically examining the effects of exogenous bank failures in the United States from 1973 – 2006. Finally, we consider the possibility of a threshold value within banking shocks. Upon examination, we find that the effects of exogenous failures become asymmetric around $3 billion. That is, shocks equivalent in size to the asset holdings of the top 5% of institutions are fundamentally different from shocks of a smaller magnitude.
“Bailouts and Instability in the Shadow Banking System” (with Robert Reed)
Summary: We study a model in which a risk-pooling intermediary engaging in shadow banking activity is exposed to runs. Inspired by the events during the financial crisis, we show that bailouts of such intermediaries are part of an efficient social insurance scheme when a run emerges. Bailouts can also help minimize the costs of “runs on repos” in which there would be a large-scale liquidation of collateral as a result of a liquidity crisis. A commitment to no bailouts, on the other hand, contributes to financial instability as the repo market collapses in the wake of a run without a public safety net.