Dong Beom Choi

While geographic specialization can help banks sustain local lending by reducing information frictions, greater exposure to local shocks may constrain credit supply. Using U.S. small business lending data around the COVID-19 pandemic, we find that geographically specialized banks increased lending more than non-local banks, especially in counties more exposed to social-distancing disruptions. Neither stronger deposit growth nor branch presence explains this pattern. The difference is more pronounced among banks with higher capital ratios and more liquid assets. These findings suggest that specialization can mitigate local credit frictions, but its benefits depend on banks having sufficient balance-sheet capacity to lend.

We examine the relationship between firms' environmental and social (ES) performances and their resilience during significant negative shocks. In contrast to prior studies documenting greater resilience among US firms with higher ES scores due to social capital acquisition, we find the opposite trend among Korean firms. Following the COVID‐19 outbreak, firms with higher ES scores exhibited worse stock performances. With more resources allocated toward ES engagement, these firms faced tighter financial and operational constraints, limiting their ability to respond flexibly to adverse shocks. Despite investing more in ES initiatives, Korean firms lacking transparent corporate governance failed to acquire their stakeholders' support.

This study provides direct evidence of the association between debt–equity conflict and investment efficiency in financially distressed firms. Leveraging a unique institutional setting in Japan, we examine the impact of lender-affiliated directors on the managerial decisions of their borrowers. Although banker-directors do not influence firms at low risks of default, their presence leads to more conservative financial decisions in distressed firms, thereby mitigating shareholder exploitation. They also reduce information frictions to prevent overinvestment and underinvestment. However, despite within-firm efficiency gains, potential spillover effects on other stakeholders raise questions about the broader welfare implications of this debt–equity conflict mitigation.

Criticism of conventional shareholder supremacy triggered urges for incorporating the stakeholder perspective and the Environmental(E), Social(S) and Governance(G) issues in managerial decisions. However, the corporations in Korea still lack proper corporate governance to protect shareholder benefits from managerial agency problems. In that case, adopting vague, not readily assessable objectives may lead to a lack of managerial accountability and exacerbate the agency problem. We find that Tobin’s Q of firms without good governance declined when their environmental and social ratings improved, suggesting “E,” “S,” and “G” are not independent. Corporations should prioritize establishing

Postcrisis policy interventions significantly increased the demand for mortgage refinancing, but there is an unexplored possibility that the surge in refinancing applications crowded out the supply of credit to home buyers. We examine two frictions that hamper financial intermediation and cause banks to substitute away from home purchase loans and toward refinance loans. Banks with limited risk capacity may prefer safer loans, and banks with limited operating capacity may prefer applications that require less processing time. We find that, following the 2008 financial crisis, banks constrained by these capacity limits rationed credit to home buyers while supplying more refinancing credit.

We study how monetary policy affects the funding composition of the banking sector. When monetary tightening reduces the supply of retail deposits, banks attempt to substitute wholesale funding for deposit outflows to smooth their lending. Because of financial frictions, banks have varying degrees of access to wholesale funding. Therefore, large banks, or those with greater reliance on wholesale funding, increase their wholesale funding more. Consequently, monetary tightening increases both the reliance on and the concentration of wholesale funding within the banking sector. Our findings also suggest that liquidity requirements could bolster monetary policy transmission through the bank lending channel. This paper was accepted by Tyler Shumway, finance.

We test whether lenders’ screening incentives weaken when faced with the possibility of loan sales. We adopt a new measure of lending standards, the processing time for mortgage applications at the loan level, and use the collapse of the nonagency mortgage-backed securities issuance market as a natural experiment. Secondary market liquidity for nonconforming loans decreased significantly at the end of 2007, but the market for securitizing conforming loans did not experience the same breakdown. Following this event, lenders spent significantly more time screening applications for loans larger than the conforming loan limits than for those below the limits. The processing-time gap widened more for banks with lower capital, greater involvement in the originate-to-distribute model, and larger assets.

Banks are regulated more than most firms, making them good subjects to study regulatory arbitrage (avoidance). Their latest arbitrage opportunity may be the new leverage rule covering the largest U.S. banks; leverage rules require equal capital against assets with unequal risks, so banks can effectively relax the leverage constraint by increasing asset risk. Consistent with that conjecture, we find that banks covered by the new rule shifted to riskier, higher yielding securities relative to control banks. The shift began almost precisely when the rule was finalized in 2014, well before it took effect in 2018. Security level analysis suggests banks actively added riskier securities, rather than merely shedding safer ones. Despite the risk shifting, overall bank risk did not increase, evidently because the banks most constrained by the new leverage rule significantly increased leverage capital ratios.