Research Papers, Authors and Key Findings
Research Paper Session 1
Deposit Franchise Value and Market Power
The Decline of Branch Banking
Author: Rajesh Narayanan, Louisiana State University
Key Findings: The authors examine the drivers of bank branch opening and closure decisions during the industry restructuring period from 2001 to 2024. They show that measures of local financial sophistication strongly predict both outcomes, as depositors in these areas exhibit greater interest-rate sensitivity, and, as result, lower deposit franchise value. They find that incumbents retain branches where depositors are less sensitive to rates because they can attract deposit spreads; entrants avoid such markets because sticky customers are difficult to attract. The pandemic accelerated closures by increasing digital reliance.
Poverty Spreads in Deposit Markets
Authors: Arkodipta Sarkar, National University of Singapore; Emilio Bisetti, Hong Kong University of Science and Technology
Key Findings: The authors document significant deposit interest rate differentials along the income distribution; moving from the bottom to the top income decile increases deposit rates by 55% of the sample median rate. They find these spreads persist independent of banking competition, and instead appear to arise from banks internalizing households’ participation in nondeposit markets. Deposit quantities are more volatile and sensitive to the performance of nondeposit assets in high-income than in low-income areas. The results suggest potentially large price differences in more complex products such as pension plans and credit cards.
Banks’ Images: Evidence from Financial Advertising
Authors: Xugan Chen, Yale School of Management ; Allen Hu, University of British Columbia
Key Findings: The authors conduct the first systematic study of financial advertising, examining how banks strategically develop their brand images, and how these image-building efforts influence both franchise value and the transmission of monetary policy. They find substantial heterogeneity in advertising strategies across banks, reflecting differences in market share, productivity, deposit rates, service quality, and customer demographics. These strategic choices amplify differences in market power and financial stability across institutions, potentially shaping how banks respond to macroeconomic shocks and participate in the transmission of monetary policy.
Research Paper Session 2
Failed Banks
Supervising Failing Banks
Author: Stephan Luck, Federal Reserve Bank of New York
Key Findings: The authors examine the role of supervision in failing banks to understand how it contributes to financial stability. They document that supervisors tend to be well informed about failing banks’ financial trouble well ahead of failure; bank closures are almost always a supervisory decision and are conducted in an orderly fashion with low losses for uninsured depositors. They find that heightened supervisory scrutiny increases the accuracy of financial reporting, the frequency of public enforcement actions, and the likelihood of bank closures. Supervision also affects bank capitalization and the size of surviving banks.
When Banks Fail: Depositor Attention and the Cost of Funding for Survivors
Author: Brian Jonghwan Lee, Emory University
Key Findings: The authors document a novel channel through which bank failures affect the economy by increasing the funding costs of surviving banks. They find that competitor banks significantly raise deposit rates following a nearby bank failure, even when controlling for local economic conditions and bank fundamentals. The effect is persistent, lasting up to three years, and is stronger following highly publicized failures. Their findings highlight how banking crises propagate indirectly by making funding more expensive, even if remaining banks are safe, thereby constraining credit supply and amplifying economic downturns. Depositors play a central role in this propagation mechanism.
Bad Bank, Bad Luck? Evidence from 1 Million Firm-Bank Relationships
Author: Yannick Schindler, Oxford
Key Findings: The authors examine the effects of bank failure on firm performance. Their headline finding is that firms with pre-existing relationships to banks that later failed typically experience large and lasting negative consequences, including lower employment growth and firm failure. These impacts of bank failure on firm performance persist for more than 10 years, are present for bank failures both during and outside the U.S. financial crisis period and are strongest for smaller enterprises. Their findings suggest that bank failures exert a substantially larger influence on the real economy than previously recognized, possibly requiring a re-evaluation of current regulatory approaches to managing such events.
Research Paper Session 3
Innovation and Technology in Small Business Lending
U.S. Banks’ Artificial Intelligence and Small Business Lending: Evidence from the Census Bureau’s Technology Survey
Authors: Zhenhao (Jeffery) Piao, Trulaske College of Business, University of Missouri; K. Philip Wang, University of Florida
Key Findings: The authors examine the use of artificial intelligence (AI) by U.S. banks and its effect on their small business lending. They find that banks with greater AI usage lend significantly more to distant borrowers, about whom they have less soft information. They show that AI’s effect on distant lending is more pronounced in poorer areas and areas with less bank presence. They also find that banks that are heavy AI users experience lower default rates among distant borrowers and charge these borrowers lower interest rates, suggesting that AI helps banks identify creditworthy borrowers at loan origination. Their evidence suggests that AI helps banks reduce information asymmetry with borrowers.
Regulation Meets Technology: Evolution of Small Business Lending in Underserved Areas Since 2007
Author: J. Christina Wang, Federal Reserve Bank of Boston
Key Findings: The authors study how lending to small businesses has evolved since just before the global financial crisis (GFC), paying special attention to underserved borrowers and to nonbank lenders, whose technological advantages are amplified by the enhanced regulation of the largest banks following the GFC. They document that new lenders, led by fintechs, have gained substantial market share in small business lending since 2007 at the expense of banks, especially the largest banks. They also show that prior relationships with community banks enable small businesses to receive Paycheck Protection Program loans notably sooner than prior relationships with any other types of lenders, especially fintechs.
Data as Collateral: Open Banking for Small Business Lending
Author: Tong Yu, Tsinghua University School
Key Findings:
The author examines the impact of open banking on loan collateralization; collateral restraints can be a major impediment to obtaining business loans. Open banking data serves as a form of “digital collateral” because it can mitigate both ex ante and ex post asymmetric information problems in credit markets. The author finds that open banking eases the pledge of assets such as accounts receivable and inventory; firms eligible to share data are more likely to pledge such assets as collateral, thereby improving their access to credit. Firms facing greater informational asymmetries—such as young firms and firms without prior bank loans—are more significantly affected by open banking.