We study how bank advertising practices contribute to racial disparities in financial markets by steering minorities toward inferior products. We exploit a regulatory change that incentivizes deposit collection at the Freedman’s Savings Bank, the first institution to collect deposits from African Americans post-Emancipation, by facilitating misuse of depositor funds. After deregulation, advertising volume rises, particularly in African American newspapers, leading to increased deposits from Black depositors despite the bank’s insolvency. We identify persuasion as a key mechanism; prescriptive stereotypes and false claims likely amplify advertising’s impact on African Americans, exacerbating historically large depositor losses after the bank’s collapse.

[To study the role of talent in finance workers’ pay, we exploit a special feature of the French higher education system. Wage returns to talent have been significantly higher and have risen faster since the 1980s in finance than in other sectors. Both wage returns to project size and the elasticity of project size to talent are also higher in this industry. Last, the share of performance pay varies more for talent in finance. These findings are supportive of finance wages reflecting the competitive assignment of talent in an industry that exhibits a high complementarity between talent and scale.]

[This paper studies how financial inclusion affects wealth accumulation. Exploiting the U.S. interstate branching deregulation between 1994 and 2005, we find that an exogenous expansion of bank branches increases low-income household financial inclusion. We then show that financial inclusion fosters household wealth accumulation. Relative to their unbanked counterparts, banked households accumulate assets in interest-bearing accounts, invest more in durable assets, such as vehicles, have a better access to debt, and have a lower probability of facing financial strain. The results suggest that promoting financial inclusion for low-income populations can improve household wealth accumulation and financial security.]

This paper studies how financial inclusion affects wealth accumulation. Exploiting the U.S. interstate branching deregulation between 1994 and 2005, we find that an exogenous expansion of bank branches increases low-income household financial inclusion. We then show that financial inclusion fosters household wealth accumulation. Relative to their unbanked counterparts, banked households accumulate assets in interest-bearing accounts, invest more in durable assets, such as vehicles, have a better access to debt, and have a lower probability of facing financial strain. The results suggest that promoting financial inclusion for low-income populations can improve household wealth accumulation and financial security. Received April 13, 2017; editorial decision November 14, 2018 by Editor Stijn Van Nieuwerburgh.

To study the role of talent in finance workers’ pay, we exploit a special feature of the French higher education system. Wage returns to talent have been significantly higher and have risen faster since the 1980s in finance than in other sectors. Both wage returns to project size and the elasticity of project size to talent are also higher in this industry. Last, the share of performance pay varies more for talent in finance. These findings are supportive of finance wages reflecting the competitive assignment of talent in an industry that exhibits a high complementarity between talent and scale. Received October 11, 2017; editorial decision September 4, 2018 by Editor Stijn Van Nieuwerburgh.

This study investigates how banks design financial products to cater to yield-seeking investors. We focus on a large market of investment products targeted exclusively at households: retail structured products. These products typically offer a high return under their best-case scenario—the headline rate—that is nested in a complex payoff formula. Using a text analysis of the payoff formulas of the 55,000 products issued in Europe from 2002 to 2010, we measure product headline rates, complexity, and risk. Over this period, product headline rates depart from the prevailing interest rates as the latter decrease, complexity increases, and risky products become more common. In the cross section, the headline rate of a product is positively correlated with its level of complexity and risk. Higher headline rate, more complex, and riskier products appear more profitable to the banks distributing them. Our results suggest that financial complexity is a by-product of banks catering to yield-seeking investors.

This paper shows that securities with nonlinear payoff designs can foster household risk‐taking. We demonstrate this effect by exploiting the introduction of capital guarantee products in Sweden between 2002 and 2007. Their fast and broad adoption is associated with an increase in expected financial portfolio returns. The effect is especially strong for households with low‐risk appetite ex ante. These empirical facts are consistent with a life‐cycle model in which households have pessimistic beliefs or preferences combining loss aversion and narrow framing. Our results illustrate how security design can mitigate behavioral biases to increase mean household portfolio returns.