Knowledge that Transforms

We investigate the transmission of monetary policy through the supply chains with US data on corporate linkages. Our analysis uncovers three key insights. First, contractionary monetary conditions lead to production disruptions in financially constrained rms. Second, these disruptions extend to the suppliers and customers of such firms. Third, disruptions intensify when financially constrained firms purchase or sell specialized goods. These findings suggest that monetary tightening creates bottlenecks in supply chains, forcing firms to curtail production when they cannot substitute their constrained business partners. \Monetary policy bottlenecks" amplify the impact ofmonetary policy beyond the standard balance sheet channel of transmission.

We document a significant role for nonbanks in financing the green transition following the Paris Agreement, primarily through lending partnerships with banks. Using textual analysis to identify green loans, we show that nonbanks participate in a greater number of green syndicated loans and commit larger amounts in response to corporate demand for green financing. Such nonbank investment in green loans is associated with more favorable loan terms and is consistent with a nonbank-led expansion in credit supply rather than bank-driven risk offloading. Nonbank investment is highly sensitive to policy signals, suggesting that regulatory transition risk is a key driver. Overall, our findings show the potential for nonbanks to support the transition but only under credible political commitment to climate goals.

We study gender differences in on-time loan payment responsiveness to collection mechanisms using randomized dunning text messages sent to 17,545 FinTech borrowers. Reminder text messages significantly reduce delinquency rates relative to a no-message control, with messages incorporating social or financial incentives proving more effective. Women are more responsive to social pressure, while men are more sensitive to financial incentives. These results are robust to observable control variables and matching methods. Channel analyses indicate that gender differences in responsiveness to the existence and size of the incentive explain the observed gender differences under the social incentive treatment. However, only gender differences in sensitivity to the existence of incentives explain the gender difference in financial incentive treatments. These findings inform practitioners and policymakers that some seemingly gender-neutral practices may create unintended gender disparities in financial markets.

Despite surging environmental laws, how their enforcement influences banks' management of climate risks remains underexplored.Using the Brazilian Amazon as a laboratory, we examine the impact of a shock to environmental law enforcement capacity on bank management of risks arising from deforestation-a significant but understudied climate risk.After enforcement declined, Brazilian banks significantly altered their priorities to more short-term profitability over longerterm risk concerns.Banks greatly increased lending to agribusinesses engaged in deforestation and actively shifted resources to regions with higher deforestation potential.Results suggest that without rigorous enforcement, banks may fail to fully internalize deforestation risks, despite existing environmental laws.

We study information substitutability in the financial market through a quasi-natural experiment: the pandemictriggered lockdown that has hampered people's physical interactions hence the ability to collect, process, and transmit interaction-based information. Exploiting the cross-sectional and time-series variations of lockdown and its implications on proximate investment, we investigate how the difficulty of collecting information through physical interactions has prompted a switch to electronic interactions including synchronous interactions such as virtual meetings and asynchronous ones like collecting information from the internet. We show that local-investing funds (LIFs) that mostly relied on physical interactions to access information before the pandemic had even worse performance than other funds, though the difference in performance was insignificant before the lockdown. Moreover, LIFs rebalance portfolios toward faraway stocks due to portfolio diversification and risk reduction. These findings indicate that physical-interaction-based and electronic-based information is not fully substitutable. We also show that the advantages of human-interaction-based information originate mainly from physical contacts, primarily in cafés, restaurants, bars, and fitness centers; and the virtual world based on Zoom/Skype/Team can provide a buffer but cannot substitute personal meetings in generating sufficient information.

We evaluate the joint impact of structural liquidity regulation and unconventional monetary policy on Eurozone banks’ lending. Using an extensive bank-level quarterly dataset from 2008 to 2020, we study the introduction of the Net Stable Funding Ratio (NSFR) under Basel III and the European Central Bank’s Longer-Term Refinancing Operations (LTROs) and Targeted LTROs (TLTROs). We find that while the NSFR had no effect on aggregate lending, it led to an increase in short-term lending and a reduction in long-term lending, consistent with lower maturity transformation. LTRO participation is associated with higher medium- and long-term lending, and our results indicate that this effect is conditional on banks’ structural liquidity positions: banks with rising NSFRs were able to use LTRO and TLTRO funding to sustain long-term credit supply. These findings suggest that central bank liquidity interventions can mitigate the adjustment costs of tighter liquidity regulation during the transition period, enabling banks close to regulatory compliance to maintain longer-maturity lending.

During a flight to liquidity, investors demand large amounts of governmentbacked safe assets in a rush. The sluggish reaction of the public supply of safe assets opens up a role for government-sponsored shadow banks. We exploit exogenous changes in both demand and supply of safe assets from the 2014 money fund reform and the 2015 debt limit. We find that shadow banks act as a substitute as well as a complement to public supply during a flight to liquidity. Our findings carry over to the dash for cash at the onset of the Covid-19 pandemic.

Using earnings conference calls, we investigate banks’ views of the Troubled Asset Relief Program (TARP) to understand why TARP generated so few loans. We find that banks generally regarded TARP favorably and many mentioned using TARP funds to make loans. However, actual loan growth fell well below expectations based on prior capital ratios, even among banks that publicly committed to lending. Other banks highlighted that the funds would improve their capital ratios. We show that these perspectives are largely unrelated to banks’ ex-ante financial characteristics, but instead reflect the evolving conditions during the crisis period. These shifts are consistent with a large decline in the fraction of banks that commented on the favorable pricing of the preferred stock over time. Our findings suggest that banks primarily used TARP funds to strengthen capital ratios, partly driven by CEO career concerns. Weak loan demand and evolving market conditions also contributed to the sluggish loan growth following the TARP injections.