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Erica Jiang's research focuses on financial intermediation, household finance, and financial regulation. Her recent work studies the distributional effects of the credit supply-side adjustments in response to the rise of shadow banks, digital disruption, and changing regulatory environment.
Areas of Expertise
INSIGHT + ANALYSIS
Cited: Erica Jiang on The Economist
Work by JIANG, assistant professor of finance and business economics, and co-authors is highlighted in a piece on THE ECONOMIST looking at the systemic flaws in America's banking industry. [Paywall]
Cited: Erica Jiang on MarketWatch
Work by JIANG, assistant professor of finance and business economics, and co-authors is featured in a MARKETWATCH article detailing dozens of banks with similar vulnerabilities as SVB. [Paywall]
Cited: Erica Jiang in Financial Times
JIANG, assistant professor of finance and business economics, and co-authors are showcased in a FINANCIAL TIMES piece discussing the fragility of the U.S. banking system.
Cited: Erica Jiang in Bloomberg
Work by JIANG, assistant professor of finance and business economics, and co-authors is included in an extensive BLOOMBERG Op-Ed regarding the ripple effects and lessons to be learned from the collapse of SVB.
NEWS + EVENTS
Tommy Talks: Unveil the Funding of Shadow Banks
In this month’s Tommy Talk, Prof. Jiang sheds some light on the shadow banking system which currently originates more than 50% of new mortgage loans in the U.S. She talks about their funding sources, how shadow banks' financing affects their competition with banks, and their role during the pandemic.
Forbearance as Credit?
Widespread loan forbearance during COVID has led to fewer delinquencies than 2008 financial crisis, new research co-authored by USC Marshall shows.
RESEARCH + PUBLICATIONS
We study the suspension of household debt payments (debt forbearance) during the COVID-19 pandemic. Between March 2020 and May 2021, more than 70 million consumers with loans worth $2.3 trillion entered forbearance, missing $86 billion of their payments. This debt relief can help explain the absence of consumer defaults relative to the evolution of economic fundamentals. Borrowers’ self-selection is a powerful force in determining forbearance rates: relief flows to households suffering pandemic induced shocks who would have otherwise faced debt distress. Moreover, 55% of forbearance is provided to less creditworthy borrowers with above median income and higher debt balances – i.e., those excluded from income-based policies, such as the stimulus check program. A fifth of borrowers in forbearance continued making full payments, suggesting that forbearance acts as a credit line. About 60% of borrowers already exited forbearance while more financially vulnerable and lower income borrowers are still in forbearance with an accumulated debt overhang of about $60 billion Exploiting a discontinuity in mortgage eligibility under the CARES Act we estimate that implicit government debt relief subsidies increase the rate of forbearance by about a third. Government relief is provided through private intermediaries, with shadow banks less likely to provide forbearance than traditional banks.
Shadow banks service a substantial portion of household debt in the US including half of residential mortgages. They also funded and implemented a large portion of the CARES Act driven debt relief. Despite uniform policy and similar borrowers, shadow banks offered debt forbearance at significantly lower (27%) rate compared to traditional banks. Better capitalized shadow banks offered forbearance at a much higher rate and those with larger exposure to servicing related liquidity shocks reduced this exposure by selling their servicing rights. We highlight fragility of shadow bank servicing during downturns that can impede the pass-through of debt relief to households.