Research

  • Job Market Paper: How Do the Minimum Capital Requirements Affect the Banking Competition and Profitability?
    This paper examines why U.S. banks hold significantly more equity capital than the minimum required by the government. The theoretical model shows that in the competitive market, banks choose the optimal capital ratios to trade off the cost and benefit to maximize their profits; the Minimum Capital Requirements (MCR) are likely to be an important factor on the bank’s optimal choice and the target ratios decrease with banks’ size. Using a sample of US banks from 2002 to 2015, the empirical works finds that the relation between capital and profitability is dynamic and nonlinear: it’s an inverted U shape. This paper also takes the Industrial Organization (IO) approach to analyze the collusive effects of MCR on the oligopolistic market. Banks may collude to hold even higher capital ratios in the oligopolistic market since the capacity constraints caused by MCR reduce the competition.

    Submitted Journal Publications: The impacts of local school quality on the housing price volatility. This paper studies the effects of local school quality on housing-price volatility under the impact of exogenous credit-supply shocks, using school-district-level data in California between 2000 and 2012. The analysis shows that school quality, as an important amenity and utility dividend, reduces the impact of the exogenous shocks and anchors local housing values. The empirical work verifies that better schools make housing prices less volatile. The findings match the analysis of previous research in financial markets, in which there is a similarly negative association between share prices volatility and dividend yields.
  • Working Paper: The Effects of Banking Capital Ratios on the Transmission of Conventional Monetary Policy.
    This project analyzes the competitive effects of bank minimum capital requirement on the monetary transmission mechanism. The model demonstrates that the monetary transmission is stronger (loan supplies are more sensitive to changes in the interest rates) if banks are well capitalized. The empirical works reaffirm that the bank lending channel of monetary transmission exist and the banks’ endogenous choices of capital levels play roles in the lending channel.