Three essays in banking

: usury law, climate risk and bank equity capital

Abstract

This dissertation consists of three essays in the field of banking. Chapter 1 examines the effects of interest rate deregulation on banks. Exploiting the passage of Gramm-Leach-Bliley Act, I find that the removal of state interest rate ceiling in Arkansas motivates Arkansas-chartered banks reallocating lending to riskier categories of loan. As a result, the deregulation increases the marginal cost and credit risk of the Arkansas-chartered banks. This finding highlights a caveat to interest rate deregulation. Yet, contrary to the key objective of the deregulation, I find no evidence that the deregulation on interest rate enhances local bank competition.

Chapter 2 studies the heterogeneous effects of natural disasters on local banks and national banks. Local banks may better support communities weathering the shocks with their specialized local knowledge and relationship, but they could be vulnerable to the limited geographic diversification. Exploiting natural disasters in the US in 2018-2019, I find that natural disasters affect local banks and national banks banks differently in terms of deposit-taking and lending. Natural disasters increase (decrease) deposits supply of local (national) banks, leading to an increase (decrease) in deposit volume and lower (higher) deposit rate. The deposit allocation is particularly pronounced in counties with higher social connectedness. With the additional deposit supply, local banks increase more loan supply after natural disasters.

Chapter 3 investigates the role of bank’s equity capital in affecting loan terms. Employing the syndicated loan data set of US borrowers in 1996-2015, I find a non-linear relationship between banks’ equity capital and the amount of loans they produce. Both high-capitalized and low-capitalized banks originate facilities with higher amount, but low (high)-capitalized banks originate loans with more (less) stringent loan terms, driven by the matching between higher credit risk borrowers and lower-capitalized lenders.

Date of Award	9 May 2023
Original language	English
Awarding Institution	University of Bristol
Supervisor	Fabiana A Gomez (Supervisor) & Sonny Biswas (Supervisor)