Lecturer in Finance
Accounting and Finance Group
University of Liverpool Management School
Research Interests: Banking Regulation & Supervision, Banking Theory, and Financial Intermediation

Curriculum Vitae

References

Research

Banking on Resolution: Portfolio Effects of Bail-in vs. Bailout

Job market paper (CEMFI working paper Nr 2410) [Draft]

This paper investigates the impact of supervisory resolution tools-- bail-ins and bailouts-- on banks’ ex-ante portfolio choice and ex-post default probabilities in response to idiosyncratic and systematic shocks. Banks adjust their short-term and long-term risky investments based on anticipated resolution policies. I find that both types of shocks can create financial fragility, which the two resolution tools address differently. Creditor bailouts, i.e., extending deposit insurance coverage, eliminate the equilibrium with bank defaults. On the other hand, bail-ins lead to ex-ante portfolio reallocation: they reduce idiosyncratic risk but increase liquidity risk when both shocks are present, increasing the likelihood of systemic defaults.

presenting at: 13th MoFiR Workshop on Banking, Women in Banking and Finance EFiC Workshop, the 2024 Annual Meeting of the Central Bank Research Association (CEBRA), and 10th IWH-Fin-Fire Workshop on „Challenges to Financial Stability”.

The Effect of Bank Mergers on Lending and Risk-Taking [Draft]

This paper examines the trade-off between competition and the financial stability of bank consolidations. I consider an economy where banks engage in costly and unobservable monitoring to reduce borrower default risk, creating a moral hazard problem. When banks are funded solely by insured deposits, a merger that raises loan rates increases intermediation margins and monitoring intensity. Hence, a consolidation that weakens competition can enhance financial stability. When equity capital is introduced, it acts as a commitment device, signaling monitoring incentives, and boosting loan demand. However, if loan rates rise post-merger, banks may increase leverage as greater market power weakens the signaling value of capital. As a result, higher loan rates and leverage generate opposing effects on monitoring and default risk. Therefore, the financial stability benefit of bank consolidations becomes ambiguous.

presenting at: 32nd Finance Forum by the Spanish Finance Association (AEFIN), Banking Theory Brown Bag Seminar

Banking Supervision and Bank Risk-Taking

joint with Rafael Repullo

This paper presents a theoretical analysis of the effects of banking supervision on bank risk-taking. The model features a risk-neutral bank that raises one unit of insured deposits and invests them in a large portfolio of loans with a random return. The bank chooses the correlation in loan defaults, ranging from independent to perfectly correlated defaults. Meanwhile, the supervisor receives an imprecise signal regarding the proportion of loan defaults and intervenes by closing the bank early when the signal exceeds a threshold. The question is: will this combination of supervisory information and supervisory closure reduce risk-taking? The paper shows that a strict supervisor or a noisy signal reduces portfolio risk. Moreover, a supervisor aiming to close the bank when it is efficient to do so becomes more lenient when the signal noise increases.

Teaching

Teaching Assistant at CEMFI:

• Financial Economics, Enrique Sentana
  Spring 2023
• Economics of Banking, Javier Suarez
  Fall 2021
• Asset Pricing, Enrique Sentana
  Spring 2021