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Working Papers

Privacy, Payments and Financial Stability 


I study how lenders’ access to the information contained in borrowers’ payments data affects financial stability and welfare. When lenders can infer more about borrower quality, they are able to discontinue investment projects with low pledgeable returns. Doing so harms borrowers whose projects have high non-pledgeable returns. By offering privacy, a central bank digital currency (CBDC) would facilitate risk-sharing between borrowers and lenders. At the same time, however, a private means of payment like CBDC will affect equilibrium interest rates and banks’ portfolio choices. I show that privacy leads banks to hold more liquid asset portfolios and thereby increases financial stability. In equilibrium, borrowers with non-pledgeable returns benefit from privacy in payments but depositors are worse off. The central bank can offset some of these effects by providing payments information back to lenders.

Revisiting Banking Competition and Fragility: A “Too Big to Save” Perspective 


I study the relationship between competition in the banking sector and financial fragility. I identify a new bailout channel through which competition amplifies the banking system's fragility. In equilibrium, a more competitive banking system will be larger in the sense that more total liabilities are issued to depositors. In the event of a run, a government with limited resources will choose bailouts that are smaller as a fraction of banks’ liabilities. Depositors anticipate these smaller bailouts, which gives them stronger incentives to run on their banks. In other words, increased competition can make the banking system “too big to save”.

Political trust, Marketization Reforms and Government Guarantees (with Bin Huang)


We study the role of households’ perception of government guarantee, which serves as both the outcome and determinant of China’s marketization reforms. We find the historical State-owned Enterprise (SOE) Reform led to a decrease in households’ belief in government guarantees. Then we identified the existence of households’ guarantee perception in the banking system, relying on the recent banking reform. There is a significant yield discrepancy between the state and non-state banks’ financial products. Households’ perception of implicit government guarantees serves as a critical channel that links the reforms: In prefectures that experienced more severe SOE Reform shock, households with lower beliefs are less likely to hold guarantee perception and the discrepancy is smaller.

  • Slides

  • Presented at Quantitative China Studies Seminar, NYU, 2021

Other Work in Progress

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Government Guarantees and Shadow Banking

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Shadow Banking, Competition and Banking Reform: Evidence from the Wealth Management Product Market (with Jidong Yang and Bin Huang)

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