Abstract The federal mortgage policy, the conforming loan limit (CLL), was spatially uniform before the 2008 crisis, despite remarkable heterogeneity across geography. I show that in areas that experienced a larger decline in the jumbo loan share following an increase in the CLL, lenders raised jumbo loan approval rates, lowered mortgage rates to defend short-term market share, extended credit to riskier borrowers, and incurred deteriorated asset quality in the long run. This result is not explained away by credit supply or demand changes, the bunching effect, or reverse causality. Instead, my evidence is consistent with a competition channel: the effect of CLL increases on jumbo loan credit expansion is significantly exaggerated in a more competitive jumbo-lending market. Overall, my findings suggest that the securitization policies of the government-sponsored enterprises can induce spillovers on the jumbo market segment and influence credit allocation.

We show that banks expand mortgage lending in the home states of Senate Banking Committee chairs, and the effect is more pronounced in counties where the incumbent senator faces a competitive re-election race. Banks strategically target politically active borrowers. Consequently, banks’ profitability increases after favoring the incumbent politicians’ constituents, but they suffer a deterioration in mortgage asset quality in the long run. Our findings imply that political power could distort private capital allocation beyond conventional political contribution channels.

Abstract Using a large hand-collected database of chief executive officer (CEO) bonus structures, we find that when a CEO’s bonus is directly tied to earnings per share (EPS), his company is more likely to conduct a buyback. This effect is especially pronounced when a company’s EPS is right below the threshold for a bonus award. Share repurchasing increases the probability the CEO receives a bonus and the magnitude of that bonus, but only when bonus pay is EPS based. Bonus-driven repurchasing firms do not exhibit positive long-run abnormal returns.