This paper explores the dynamics of unsecured credit supply over the recent credit cycle and around the passage of the CARD Act. We examine a unique data set of over 200,000 credit card mail solicitations to a representative sample of households and introduce credit card offers as a direct, informative measure of supply of such credit. Contrasting personal credit card offer dynamics before and after the passage of the CARD Act with those of personal loans, auto loans, and corporate credit cards, we find that lenders reduced credit supply of personal credit cards to nonprime borrowers in response to the CARD Act. Our analysis highlights the importance of separately examining supply and demand responses to assess the unintended consequences of regulation.

This paper explores the dynamics of unsecured credit supply over the recent credit cycle and around the passage of the CARD Act. We examine a unique data set of over 200,000 credit card mail solicitations to a representative sample of households and introduce credit card offers as a direct, informative measure of supply of such credit. Contrasting personal credit card offer dynamics before and after the passage of the CARD Act with those of personal loans, auto loans, and corporate credit cards, we find that lenders reduced credit supply of personal credit cards to nonprime borrowers in response to the CARD Act. Our analysis highlights the importance of separately examining supply and demand responses to assess the unintended consequences of regulation. Received January 30, 2016; editorial decision August 9, 2017 by Editor Philip Strahan.

The Triparty Repo (TPR) market lies at the heart of the US short-term funding markets. This paper demostrates the existence of strong and stable relationships between investors (Money Market Funds) and dealers in this market, which can significantly affect terms of trade (the probability of a trade and the volume and, to some extent, the price of actual trades). Importantly, such relationships support the funding role of the TPR market, as dealers can rely on such relationships to secure funding in the face of liquidity shocks. We consider two shocks: (i) the Federal Reserve’s Overnight Reverse Repurchase (ON RRP) operations, a negative shock to the supply of funds for dealers; and (ii) Treasury auctions, a positive shock to the demand for funds by dealers. Our results suggest that relationships provide a built-in mechanism in the TPR market to support stability in face of funding shocks.

We examine the extent to which institutional investors herd in the U.S. corporate bond market and the price impact of their herding behavior. We find that the level of institutional herding in corporate bonds is substantially higher than what is documented for equities, and that sell herding is much stronger and more persistent than buy herding. The price impact of herding is also highly asymmetric. While buy herding facilitates price discovery, sell herding causes transitory yet large price distortions. Such price destabilizing effect of sell herding is particularly pronounced for speculative-grade, small, and illiquid bonds, and during the financial crisis.