Rodney Ramcharan

We study the impact of the refinancing channel of monetary policy on very small and medium sized businesses. Using data that cover the near universe of these businesses, increased household refinancing reduces the probability that a business exits or exhausts its debt capacity in the calendar year as well as six years after the first exposure. It also helps younger businesses maintain credit relationships. Financial factors, like business liquidity, as well as local demand dependence amplify these effects, especially for very small businesses. These results suggest that the refinancing channel of monetary policy can have large long-run effects on local economies.

We study the impact of the European Central Bank’s largest quantitative easing (QE) program on lending by Italian banks. We find that historical cost accounting (HCA) in capital regulation significantly mutes the impact of QE on bank lending and creates bank-level heterogeneity in the transmission of QE. This heterogeneity in turn allows some banks to increase lending at the expense of their competitors, reducing the impact of QE on overall bank lending. These results suggest that while HCA can insulate banks’ balance sheets during periods of distress, it also limits the effectiveness of central bank policies aimed at increasing lending.

This paper studies the impact of sales force incentives on the terms of automotive credit and consumer default. We find that loan rates decline and sales volume increase sharply on the last day of the calendar month, when end-of-month sales tournaments conclude and sales force bonus rankings are decided. One day later, interest rates rise sharply and consumers that obtain higher cost automotive credit during this period are more likely to default. These results suggest that sales force incentives can induce material fluctuations in short-term credit supply that affect consumer welfare.

This paper finds that banks and non-banks respond differently to increased competition in consumer credit markets. Increased competition and the greater threat of failure induces banks to specialize more in relationship business lending, and surviving banks are more profitable. However, non-banks change their credit policy when faced with more competition and expand credit to riskier borrowers at the extensive margin, resulting in higher default rates. These results show how the effects of competition depend on the form of intermediation. They also suggest that increased competition can cause credit risk to migrate outside the traditional supervisory umbrella.