We study how competition between asymmetrically informed banks, one specialized and one non-specialized, affects loan prices. Both banks possess “general” signals regarding the borrower’s quality, which they use to screen loans. The specialized bank also has access to a “specialized” signal on which it bases its loan pricing. This private-information-based pricing makes the specialized bank bid more aggressively, mitigating the informational rent effect that gives...

Recent technological change in lending converts previously subjective assessments into structured, easily accessible data. We study this transformation in a credit market competition model that distinguishes between information span (breadth) and signal precision (quality). Borrower quality depends on multidimensional fundamentals, assessed through hard or soft signals. Two banks observe private hard signals, but only the specialized bank receives a soft signal. Expanding the span of...

This paper develops a general equilibrium model to examine the role of information technology when intermediaries facilitate the origination and distribution of assets given information asymmetry. Information technology measures the informativeness of asset-quality signals received by intermediaries, who purchase assets produced
by originators and then resell them to uninformed investors. Allowing intermediaries to operate has a mixed social welfare effect: Uninformed intermediation can be welfare reducing...

Standard demand elasticity estimation treats investors’ demand slopes as stable objects that can be traced out by exogenous residual supply shifts. We show this identification strategy fails in dynamic settings: supply shocks cause demand curves to tilt and shift through general equilibrium effects. The mechanism is intuitive — investors’ demand depends on the entire distribution of current and future returns, including volatility, covariances, and correlations...

The modern financial system features complicated financial intermediation chains, with each layer performing a certain degree of credit/maturity transformation. We develop a dynamic model in which an entrepreneur borrows from overlapping-generation households via layers of funds, forming a credit chain. Each intermediary fund in the chain faces rollover risks from its lenders, and the optimal debt contracts among layers are time invariant and layer independent....

We characterize equilibrium leverage dynamics in a tradeoff model when the firm can continuously adjust leverage and cannot commit to a policy ex ante. While the leverage ratchet effect leads shareholders to issue debt gradually over time, asset growth and debt maturity cause leverage to mean revert slowly towards a target. Investors anticipate future debt issuance and raise credit spreads, fully offsetting the tax benefits...

Open banking facilitates data sharing consented by customers who generate the data, with a regulatory goal of promoting competition between traditional banks and challenger fintech entrants. We study lending market competition when sharing banks’ customer data enables better borrower screening or targeting by fintech lenders. Open banking could make the entire financial industry better off yet leave all borrowers worse off, even if borrowers could...

In sharp contrast to most previous crisis episodes, the Treasury market experienced severe stress and illiquidity during the COVID-19 crisis, raising concerns that the safe-haven status of U.S. Treasuries may be eroding. We document large shifts in Treasury ownership and temporary accumulation of Treasury and reverse repo positions on dealer balance sheets during this period. We build a dynamic equilibrium asset pricing model in which...