We exploit regional variations in U.S. house price fluctuations during the boom-bust cycle of the 2000s to study the impact of the housing cycle on young Americans' choices related to education and employment. We find that in MSAs which experienced large increases in house prices between 2001 and 2006, young adults were substantially more likely to forego a higher education and join the workforce, lowering skill formation. During the bust years, the young, especially those without higher education, were more likely to be unemployed in areas which experienced higher declines in house prices.

We exploit the domestic portfolios of US mutual funds to provide microeconomic evidence that investors are more likely to liquidate geographically remote investments at times of high aggregate market volatility. This has important implications for asset prices. The valuations of stocks with ex ante less local ownership decline more when aggregate market volatility is high. Furthermore, the returns of stocks with geographically distant owners are more exposed to changes in aggregate market volatility.

This paper offers a historical perspective on the evolution of central banks as lenders of last resort (LOLR). Countries differ in the statutory powers of the LOLR, which is the outcome of a political bargain. Collateralized LOLR lending as envisioned by Bagehot (1873) requires five key legal and institutional preconditions, all of which required political agreement. LOLR mechanisms evolved to include more than collateralized lending. LOLRs established prior to World War II, with few exceptions, followed policies that can be broadly characterized as implementing “Bagehot's Principles”: seeking to preserve systemic financial stability rather than preventing the failure of particular banks, and limiting the amount of risk absorbed by the LOLR as much as possible when providing financial assistance. After World War II, and especially after the 1970s, generous deposit insurance and ad hoc bank bailouts became the norm. The focus of bank safety net policy changed from targeting systemic stability to preventing depositor loss and the failure of banks. Statutory powers of central banks do not change much over time, or correlate with country characteristics, instead reflecting idiosyncratic political histories.

Homestead exemptions to personal bankruptcy allow households to retain their home equity up to a limit determined at the state level. Households that may experience bankruptcy thus have an incentive to bias their portfolios toward home equity. Using US household data for the period 1996–2006, we find that household demand for real estate is relatively high if the marginal investment in home equity is covered by the exemption. The home equity bias is more pronounced for younger and less healthy households that face more financial uncertainty and therefore have a higher ex ante probability of bankruptcy. These results suggest that homestead exemptions have an important bearing on the portfolio allocations of US households and the extent to which they insure against bad shocks.

We develop a new identification strategy to evaluate the impact of the geographic expansion of a bank holding company (BHC) across US metropolitan statistical areas (MSAs) on BHC risk. For the average BHC, the instrumental variable results suggest that geographic expansion materially reduces risk. Geographic diversification does not affect loan quality. The results are consistent with arguments that geographic expansion lowers risk by reducing exposure to idiosyncratic local risks and inconsistent with arguments that expansion, on net, increases risk by reducing the ability of BHCs to monitor loans and manage risks.

This paper studies the significant variation in the cross-section of standalone and systemic risk of large banks during the recent financial crisis to identify bank specific factors that determine risk. We find that systemic risk grows with bank size and is inversely related to bank capital, and this effect exists above and beyond the effect of bank size and capital on standalone bank risk. Our results contribute to the ongoing debate on the merits of imposing systemic risk-based capital requirements on banks.