Essays in financial intermediation and household finance
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This dissertation consists of two papers. The papers examine the U.S. credit markets, first through an examination of the consumer bankruptcy system, and second through the study of the impact of deposit shocks on credit supply. The common thread throughout this dissertation is a focus on the causes and consequences of financial intermediation in the U.S. This dissertation is characterized by the use of new datasets and cross-sectional identification techniques. In the first paper, I study the effect of debt relief provided by the personal bankruptcy system on debtor's ex-post economic behavior. This paper exploits, through a regression discontinuity design, the income thresholds that prevent some households from filing for Chapter 7 protection introduced by the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). I find that Chapter 7 bankruptcy protection increases the probability that the filer creates a new business by 10.30 percentage points, become a first time homeowner by 14.9 percentage points and obtain secured lending by 10.2 percentage points. In addition, Chapter 7 reduces the probability of home foreclosure by 49.7 percentage points and default on tax and non-tax obligations by 39.1 percentage points, relative to filers that did not have access to Chapter 7. In addition, I find that the improvement of debtor's balance sheet following Chapter 7 is responsible for most of the findings. These results provide direct evidence that BAPCPA generated negative consequences on those debtors for whom access to Chapter 7 was restricted. The second paper explores the impact of deposit shocks on bank's balance sheet. The empirical strategy exploits as a natural experiment the lottery jackpot winners of Powerball and Mega Millions. Using hand-collected data, I find that the banks that receive the jackpot winner shock experience a large increase in deposits and total lending. The estimate of the elasticity of small business lending with respect to deposits is 0.876. Consistent with frictions that originate from adverse selection, the set of small and medium-sized banks and those with the most illiquid balance sheets significantly increase loan origination after the winners' shocks.