Job market paper
Optimal deposit insurance in a macroeconomic model with runs
November 2024
This paper examines the effects of deposit insurance in a
quantitative macroeconomic model that incorporates the risk
of deposit runs faced by banks. During systemic panic episodes,
alert uninsured depositors tend to withdraw their funds from
banks they perceive as vulnerable. While deposit insurance
reduces banks' susceptibility to such runs, it may also weaken
their risk management incentives, resulting in a U-shaped
relationship between insurance coverage and the risk of bank
failure. The model suggests that the welfare-maximizing level
of deposit insurance coverage for the U.S. in 2008 closely aligns
with the observed level. A moderate increase in coverage may be
optimal in contexts of heightened depositor alertness—driven by
technological or demographic factors—, greater fiscal capacity
or stronger capital requirements.
- Frankfurt Summer School (Eltville, Aug 2024)
Working papers and other work in progress
Climate conscious investors, carbon disclosures, and efficiency
with Javier Suarez (CEMFI)
June 2024
We analyze whether carbon disclosures can substitute for carbon emission taxation
when emissions generate negative externalities. In our setup, climate conscious investors
adjust their funding terms based on their beliefs about firms' carbon intensities,
which firms can choose to disclose at a cost. In equilibrium, the least carbon-intensive
firms disclose and are financed at terms based on their carbon intensity, while non-disclosing
firms are financed at more expensive pooling terms. Encouraging disclosuresreduces
investment and therefore emissions by non-disclosing firms, but may increase investment
and emissions by newly disclosing firms, overall having ambiguous effects on total
emissions and social welfare.
- 6th Endless Summer Conference on Financial Intermediation and Corporate Finance (Athens, Sept 2024) (co-author)
- 31st Finance Forum (San Cristóbal de La Laguna, July 2024) (co-author)
- SAFE Brown Bag (Frankfurt, April 2024)
Interest rate risk and bank capital requirements
with Jan Schaefer (CEMFI)
Work in progress
We examine optimal accounting rules for computing regulatory capital in a quantitative
general equilibrium model with bank defaults. Our framework bifurcates the asset side of
banks’ balance sheet into interest rate-sensitive securities and credit-risky loans.
Accounting rules determine whether gains or losses on the former class of assets affect
regulatory bank capital. We show that when regulatory capital is computed under
book value accounting, where unrealized gains or losses are excluded, banks absorb
short-term volatility in securities returns, resulting in a smoother credit supply.
However, prolonged periods of monetary policy tightening features a higher risk of bank
failures, when compared to a regulatory regime based on fair value (or mark-to-market)
accounting of banks’ equity. Banks’ responses to interest rate risk under these regimes
are asymmetric, depending on whether they have accumulated gains or losses on their
securities portfolio. Our welfare analysis suggests that book value capital requirements
are superior, with an optimal capital charge of approximately 13%.
- SAFE Offsite (Grünberg, March 2024)