Using differences in regulation as a means of identification, we find that a reduction in local financial intermediation capacity reduces the recovery rates on assets of failing banks. It also depresses local land prices and is associated with subsequent distress in nearby banks. Fire sales appear to be one channel through which lower local intermediation capacity reduces the recovery rates on failed banks’ assets. The paper provides a rationale for why bank failures are contagious, and why the value of specialized financial assets could depend on the size of the intermediary market that is available to buy it.

This paper studies the long run effects of financial crises using new bank and town level data from around the Great Depression. We find evidence that banking markets became much more concentrated in areas that experienced a greater initial collapse in the local banking system. There is also evidence that financial regulation after the Great Depression, and in particular limits on bank branching, may have helped to render the effects of the initial collapse persistent. All of this suggests a reason why post-crisis financial regulation, while potentially reducing financial instability, might also have longer run real consequences.

This paper investigates the impact of unconventional monetary policy on firm financial constraints using the maturity extension program (MEP). Consistent with bond market segmentation and limits to arbitrage, around the MEP's announcement, stock prices rose for those firms more dependent on longer-term debt. These firms also issued more long-term debt during the MEP and expanded employment and investment. There is also evidence of “reach for yield” behavior, as the demand for riskier corporate debt also increased. Our results suggest that unconventional monetary policy might have relaxed financial constraints for some firms by inducing gap-filling behavior and affecting bond market risk premia.

ABSTRACT H ow did the collapse of the asset‐backed securities (ABS) market during the 2007 to 2009 financial crisis affect the supply of credit to the broader economy? Using new data on the U.S. credit union industry, we find that ABS‐related losses are associated with a large contraction in the supply of credit to consumers, especially among those credit unions that began the crisis with weaker capitalization. We also find that this credit supply shock restricted the availability of mortgage and automobile credit. These results show how movements in the prices of financial assets can affect the real economy.