We study the causal effect of bank credit rating downgrades on the supply of bank lending. The identification strategy exploits the asymmetric impact of sovereign downgrades on the ratings of banks at the sovereign bound relative to banks that are not at the bound as a result of rating agencies' sovereign ceiling policies. This asymmetric effect leads to greater reductions in ratings-sensitive funding and lending of banks at the bound relative to other banks. Results for foreign borrowers and within lender-borrower relationships confirm that credit demand does not explain our findings.

This paper highlights the importance of middle-class and high-FICO borrowers for the mortgage crisis. Contrary to popular belief, which focuses on subprime and poor borrowers, we show that mortgage originations increased for borrowers across all income levels and FICO scores. The relation between mortgage growth and income growth at the individual level remained positive throughout the pre-2007 period. Finally, middle-income, highincome, and prime borrowers all sharply increased their share of delinquencies in the crisis. These results are consistent with a demand-side view, where homebuyers and lenders bought into increasing house values and borrowers defaulted after prices dropped.

We show that municipalities' financial constraints can have a significant impact on local employment and growth. We identify these effects by exploiting exogenous upgrades in U.S. municipal bond ratings caused by Moody's recalibration of its ratings scale in 2010. We find that local governments increase expenditures because their debt capacity expands following a rating upgrade. These expenditures have an estimated local income multiplier of 1.9 and a cost per job of $20,000 per year. Our findings suggest that debt-financed increases in government spending can improve economic conditions during recessions.

The literature on distressed firms has focused on these firms’ investment, capital structure, and labor decisions. This paper investigates a novel aspect of firm behavior in distress: how financial health affects a firm׳s lobbying and, consequently, its relationship with the government. We exploit the shock to nonfinancial firms during the 2008 financial crisis and the availability of the stimulus package in the first quarter of 2009. We find that firms with weaker financial health, as measured by credit default swap spreads, lobbied more. We also show that the amount spent on lobbying was associated with a greater likelihood of receiving stimulus funds.

This paper develops a difference-in-differences estimator that uses annual changes in the conforming loan limit and the 80% loan-to-value (LTV) threshold to isolate the impact of easier access to credit on house prices. Houses that become eligible for financing with an 80% LTV conforming loan increase in value by about $1.17 per square foot, controlling for a rich set of characteristics. Our estimates imply a local elasticity of house prices to interest rates below 6, which suggests that interest rates are capitalized into prices to a lesser extent than proposed by studies relying on more aggregate variation.

We show the importance of the collateral lending channel for small business employment over the past decade. Small businesses in areas with greater increases in house prices experienced stronger growth in employment than large firms in the same areas and industries. To identify the role of the collateral lending channel separately from aggregate changes in demand, we show that this effect is more pronounced in industries that need little start-up capital and in which housing collateral is more important. This increase is also present in manufacturing industries, particularly those that ship goods over long distances. In aggregate, the collateral lending channel explains 15–25% of employment variation.

We provide new facts on the debt dynamics leading up to the financial crisis of 2007. Earlier research suggests that distortions in the supply of mortgage credit, evidenced by a decoupling of credit flow from income growth, may have caused the rise in house prices and the subsequent housing market collapse. This paper shows that the increase in mortgage originations was shared across the whole distribution of borrowers, and that middle-and high-income borrowers made up the majority of originations even at the peak of the boom. Compared to prior years, middle-and high-income borrowers (not the poor), as well as those with medium and high credit scores, made up a much larger share of delinquencies in the crisis relative to earlier years. We show that the relation between individual mortgage size and income growth during the housing boom was always strongly positive, also in line with previous periods (and independent of how income is measured). These results are most consistent with an expectations based view of the financial crisis in which both homebuyers and lenders were buying into increasing housing values and defaulted once prices dropped.

This paper examines investment choices of nonprofit hospitals. It tests how shocks to cash flows caused by the performance of the hospitals’ financial assets affect hospital expenditures. Capital expenditures increase, on average, by 10 to 28 cents for every dollar received from financial assets. The sensitivity is similar to that found earlier for shareholder‐owned corporations. Executive compensation, other salaries, and perks do not respond significantly to cash flow shocks. Hospitals with an apparent tendency to overspend on medical procedures do not exhibit higher investment‐cash flow sensitivities. The sensitivities are higher for hospitals that appear financially constrained.

We study the causal effect of bank credit rating downgrades on the supply of bank lending. The identification strategy exploits the asymmetric impact of sovereign downgrades on the ratings of banks at the sovereign bound relative to banks that are not at the bound as a result of rating agencies' sovereign ceiling policies. This asymmetric effect leads to greater reductions in ratings-sensitive funding and lending of banks at the bound relative to other banks. Results for foreign borrowers and within lender-borrower relationships confirm that credit demand does not explain our findings.

A central result in the theory of adverse selection in asset markets is that informed sellers can signal quality and obtain higher prices by delaying trade. This paper provides some of the first evidence of a signaling mechanism through trade delays using the residential mortgage market as a laboratory. We find a strong relationship between mortgage performance and time to sale for privately securitized mortgages. Additionally, deals made up of more seasoned mortgages are sold at lower yields. These effects are strongest in the “Alt-A” segment of the market, where mortgages are often sold with incomplete hard information, and in cases where the originator and the issuer of mortgage-backed securities are not affiliated.