Recent studies using aging analysis have found high rates of default for rated, nonconvertible high‐yield bonds. This paper examines the remainder of the market and concludes that rated and nonrated convertible high‐yield bonds had significantly lower default rates. It also provides some evidence that nonrated, nonconvertible securities may have lower default rates. Even after controlling for issue size and coupon rates in a logit model, these differences remain statistically significant.

Recent studies using aging analysis have found high rates of default for rated, nonconvertible high-yield bonds. This paper examines the remainder of the market and concludes that rated and nonrated convertible high-yield bonds had significantly lower default rates. It also provides some evidence that nonrated, nonconvertible securities may have lower default rates. Even after controlling for issue size and coupon rates in a logit model, these differences remain statistically significant.

Recent studies using aging analysis have found high rates of default for rated, nonconvertible high-yield bonds. This paper examines the remainder of the market and concludes that rated. and nonrated convertible high-yield bonds had significantly lower defaul t rates. It also provides some evidence that nonrated, nonconvertible securities may have lower default rates. Even after controlling for issue size and coupon rates in a logit model, these differences rema in statistically significant.

This study investigates the direct link between regulatory enforcement actions and the shrinkage of bank loans to sectors likely to be bank dependent. We focus on New England because that region has experienced both the widespread application of formal regulatory actions and substantial reductions in new lending by banks. Controlling for weakness in loan demand, previous studies have been able to attribute part of this bank shrinkage to loan supply, with the degree of a bank’s shrinkage related to its capital-to-asset ratio. In this study, we further partition the shrinkage due to loan supply into the component due to explicit regulatory enforcement actions and that due to a voluntary response by bank management to low capital-to-asset ratios. We find that banks with formal actions shrink at a significantly faster rate than those without, even after controlling for differences in capital-to-asset ratios. Furthermore, much of the reduced lending has been in loan categories containing primarily bank-dependent borrowers, indicating that the capital crunch has resulted in a credit crunch.

We find that acquirers tend to recast the target in their own image, causing the small business loan portfolio share of the consolidated bank to converge toward the pre-merger portfolio share of the acquirer. However, concerns that this pattern will necessarily reduce bank small business lending may be overblown. First, most mergers are of two (or more) small banks. Second, acquirers are almost as likely to have larger as smaller shares of small business loans in their portfolios, compared to their targets. Finally, in roughly half the mergers, small business loans increase in the period immediately after the merger.

We examine the stock market reaction to announcements of formal supervisory actions. We find that the variation in the quality and timeliness of disclosure by U.S. banks explains much of the variation in the market's reactions. We also find that these announcements can cause spillover effects. However, rather than representing contagion, these spillover effects are consistent with enhanced transparency. Only banks in the same region as the announcing bank, with similar exposures, are affected. Thus, enhanced disclosure can improve the allocation of resources in the banking system. Journal of Economic Literature Classification Numbers: G21, G28.

We examine the misallocation of credit in Japan associated with the perverse incentives faced by banks to provide additional credit to the weakest firms. Firms are more likely to receive additional bank credit if they are in poor financial condition, because troubled Japanese banks have an incentive to allocate credit to severely impaired borrowers in order to avoid the realization of losses on their own balance sheets. This “evergreening” behavior is more prevalent among banks that have reported capital ratios close to the required minimum, and is compounded by the incentives arising from extensive corporate affiliations.

The Japanese banking crisis provides a natural experiment to test whether a loan supply shock can affect real economic activity. Because the shock was external to U.S. credit markets, yet connected through the Japanese bank penetration of U.S. markets, this event allows us to identify an exogenous loan supply shock and ultimately link that shock to construction activity in U.S. commercial real estate markets. We exploit the variation across geographically distinct commercial real estate markets to establish conclusively that loan supply shocks emanating from Japan had real effects on economic activity in the United States.

The size of Japanese bank lending operations in the United States enables us to use U.S. banking data to investigate the extent to which the sharp decline in Japanese stock prices was transmitted to the United States via U.S. branches of Japanese parent banks, as well as to identify a supply shock to U.S. bank lending that is independent of U.S. loan demand. We find that binding risk-based capital requirements associated with the Japanese stock market decline resulted in a decrease in lending by Japanese banks in the United States that was both economically and statistically significant.