【Topic】Bank Credit Cycles

【Speaker】He Ping

【Time】2:30 pm.,Friday, 2007-4-27

【Venue】508 Weilun Building Tsinghua SEM.

【Language】English/Chinese

【Organizer】Department of Finance

【Target Audience】Faculty and students in Finance and Economics

【Background Information】*

（Speaker's bio, etc.）

Assistant Professor of Finance inUniversityofIllinoisatChicago, 2004-

Ph.D. in Economics,UniversityofPennsylvania,Philadelphia,USA2004

Master of Arts in Economics,UniversityofPennsylvania,Philadelphia,USA2002

Bachelor of Economics,TsinghuaUniversity,Beijing,China1997

Prof. He’s research interest includes Financial Intermediation, Monetary Economics, Decision Theory.

About the lecture

Private information about prospective borrowers produced by a bank can affect rival lenders due to a "winner's curse" effect. Strategic interaction between banks with respect to the intensity of costly information production results in endogenous credit cycles, periodic "credit crunches." Empirical tests of this repeated lending game are constructed based on parameterizing public information about relative bank performance that is at the root of banks' beliefs about rival banks' behavior. Consistent with the theory, we find that the relative performance of rival banks has predictive power for subsequent lending in the credit card market, where we can identify the main competitors. At the macroeconomic level, we show that the relative bank performance of commercial and industrial loans is an autonomous source of macroeconomic fluctuations. In an asset pricing context, we find that the relative bank performance is a priced risk factor for both banks and nonfinancial firms. The factor-coefficients for non-financial firms are decreasing with size, consistent with smaller firms being more bank-dependent.

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