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Title: Essays in financial intermediation
Author: Savic, Una
ISNI:       0000 0004 7228 9173
Awarding Body: London School of Economics and Political Science (LSE)
Current Institution: London School of Economics and Political Science (University of London)
Date of Award: 2017
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In the first chapter, “Money markets and borrower transparency: Evidence from the Dodd-Frank Act stress testing policy”, I investigate the effect of increased public information disclosure on lending outcomes in money markets. Introduction of the Dodd-Frank Act Stress Testing policy and its mandatory results’ disclosure is used as a shock to the availability of information on banks subject to the policy. Using micro data on fund portfolio holdings, I show that funds increase their lending more to transparent relative to non-transparent banks after disclosures. Based on the relationship lending literature, I use the strength of the lending relationships to distinguish between more and less informed funds. Overall, my results are consistent with more information disclosure alleviating information asymmetries between borrowers and less informed lenders in the money markets, allowing banks to expand their borrowing. However, increase in borrowing after the disclosure is conditional on disclosure revealing positive information on the bank, which is in line with the disciplining role that disclosures are to play. In the second chapter, “Where did the money go? Evidence from money market funds on the portfolio balance channel of QE,” I aim to identify the portfolio balance channel as a transmission mechanism of Quantitative Easing (QE). I use micro data on money market fund portfolio holdings to investigate changes in MMF lending decisions and portfolio composition once the third wave of QE3 resulted in the withdrawal of Agency repo securities. My results suggest that QE3 did not induce outflows from the money market industry, but resulted in the increase in uncollateralized lending on behalf of funds with above-median QE3 exposure. My results indicate that this increase in uncollateralized lending remains concentrated within former repo issuing banks. The third chapter, “If fail, fail less: banks decision on systematic vs. idiosyncratic risk”, takes the theoretical approach to investigate the influence of bailout policy, contingent on the aggregate state and a bank’s individual characteristics, on the banks’ choice between systematic and idiosyncratic risk. The regulator who implements the ’fail less’ bailout policy i.e. prefers to bail out the banks with higher asset values in failure is introduced in the ’too many to fail’ paradigm. Results imply that once the bank’s bailout probability, conditional on the regulator’s intervention, depends on its value in failure, banks invest in the uncorrelated project more often. Therefore, this reduces the herding pressure of the ’too many to fail’ guarantees as well as the occurence of the systemic banking crises.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
Keywords: HG Finance