Working Papers

1) The Design and Transmission of Central Bank Liquidity Provisions

Being revised for resubmission at the Journal of Financial Economics
Co-authored with Luisa Carpinelli, August 2018
Paper · BibTeX
AFA 2017, RFS BSRMM 2017
Young Economist Award, ECB Forum on Central Banking
Edwin Elton Prize for the Best Finance JMP at NYU Stern
Media Mentions: Wall Street Journal

Abstract: We show how the design of central bank provisions of collateralized liquidity to banks following a wholesale funding dry-up affects their transmission. Combining Italian banks’ security-level holdings with the national credit register, we analyze the role of maturity and collateral during the ECB’s three-year Long-Term Refinancing Operations. We find that (i) long-term liquidity helped banks hit by the dry-up support their credit supply to firms; (ii) a government guarantee, by allowing these banks to expand their eligible collateral, was necessary for the transmission to firms; and (iii) banks used most liquidity to buy government bonds.

2) The (Unintended?) Consequences of the Largest Liquidity Injection Ever

Being revised for resubmission at the Journal of Monetary Economics
Co-authored with Miguel Faria-e-Castro and Luìs Fonseca, May 2018
Paper · BibTeX
AFA 2016, SED 2016, CFIC 2017
3rd SUERF/Unicredit & Universities Foundation Research Prize, 2015
Media Mentions: 
Wall Street Journal,
Frankfurter Allgemeine

Abstract: We show that the design of lender-of-last-resort interventions can exacerbate the bank-sovereign nexus. During sovereign crises, central bank provision of long-term liquidity incentivizes banks to purchase high-yield eligible collateral securities matching the maturity of the central bank loans. Using unique security-level data, we find that the European Central Bank’s three-year Long-Term Refinancing Operation caused Portuguese banks to purchase short-term domestic government bonds, equivalent to 10.6% of amounts outstanding, and pledge them to obtain central bank liquidity. The steepening of eurozone peripheral sovereign yield curves right after the policy announcement is consistent with the equilibrium effects of this “collateral trade.”

3) Why Are Banks Not Recapitalized During Crises?

eing revised for resubmission (2nd round) at the Journal of Financial Economics
Paper · BibTeX
EFA 2016, OxFIT 2016, Barcelona Summer Forum 2015
Eleventh Klaus Liebscher Award, 2015
Ieke van den Burg Prize for Research on Systemic Risk, Shortlisted, 2016

Abstract: I develop a model where the sovereign debt capacity depends on the capitalization of domestic banks. Low-capital banks optimally tilt their government bond portfolio toward domestic securities, linking their destiny to that of the sovereign. If the sovereign risk is sufficiently high, low-capital banks reduce private lending to further increase their holdings of domestic government bonds, lowering sovereign yields and supporting the home sovereign debt capacity. The model rationalizes, in the context of the eurozone periphery, the increase in domestic government bond holdings, the reduction of bank credit supply, and the prolonged fragility of the financial sector.

4) The Anatomy of the Transmission of Macroprudential Policies

Co-authors: V. Acharya, K. Bergant, T. EisertF. McCann, November 2018
Paper · BibTeX

Abstract: We show that banks play an important role in the transmission of macroprudential policies aimed at limiting household leverage. Combining supervisory loan-level and house price data, we examine the effect of loan-to-income and loan-to-value limits on residential mortgages in Ireland. In response to the policy, banks reallocate their mortgage issuance toward high-income borrowers and away from areas with high house price appreciation, in turn, cooling down “hot” housing markets. Banks try to maintain a stable risk exposure by increasing credit to risky firms, holdings of high-yield securities, and mortgage credit to borrowers more likely to default during real estate busts.

Other Papers

5) The Portuguese Banking System During the Sovereign Debt Crisis
Banco de Portugal Economic Studies, 1(2), pp. 43-80, July 2015
Co-authored with Miguel Faria-e-Castro and Luìs Fonseca
Paper (english) · Paper (portuguese) · BibTeX
Mentions: Deutsche Bundesbank President speech