The Long and Short of U.S. Bank Regulations:
From the Great Depression to the 2023 Bank Failures

Job Market Paper

Presentations (* scheduled):  Frontier Risks, Financial Innovation and Prudential Regulation of Banks (J. Fin. Intermediation-CFAR-UNC-Gothenburg Conference), RiskLab/Bank of Finland/ESRB Conference on  AI and Systemic Risk Analytics, FDIC 23rd Annual Bank Research Conference (Poster Session), Eastern Finance Association, Southwestern Finance Association, Issues in Financial Markets and Banking (IFMB) Conference, Five-star Asia Pacific Workshop in Finance, MoFiR Workshop on Banking, European Finance Association (Cancelled), Asian Finance Association,  * RMI 18th Annual Risk Conference, * Financial Management Association - Emerging Scholars Initiative 

Seminars: Louisiana State University (E. J. Ourso College of Business), Monash University (Monash Business School), Université du Québec à Montréal (ESG UQAM), University of Technology Sydney (UTS Business School),  Southeast Missouri State University (Harrison College of Business & Computing), University of Florida (Warrington College of Business), National University of Singapore (NUS Business School)

Abstract: This paper introduces a novel text-based measure of banking regulation intensity, the Bank Regulation Index (BRI), constructed from historical newspaper coverage spanning nearly a century of U.S. banking history. While periods of deregulation correspond with immediate improvements in bank performance, these periods are followed by weaker fundamentals and increased instability over longer horizons. The BRI is decomposed into distinct regulatory topics using Latent Dirichlet Allocation (LDA), and the credit-related topic exhibits the strongest association with subsequent banking sector distress. This predictive relationship remains robust when controlled for established indicators such as credit growth and financial liberalization measures. These findings demonstrate the value of text-based approaches in quantifying topic-level regulatory intensity and tracking its relationship with banking sector stability across different time horizons.

The Glass-Steagall Act and Bank Stock Market Speculation

with Gustavo Cortes & Marc Weidenmier

Presentations (* co-author presentations): Federal Reserve Monetary and Financial History Workshop  (Federal Reserve Bank of St. Louis), International Macro History Online Seminar (Centre for Economic Policy Research),  Midwest Macroeconomics Meeting*, Rutgers University*, Utah State University (Huntsman)*, University of Calgary

Abstract: The Glass-Steagall Act of 1933 is one of the most influential and controversial pieces of financial regulation in U.S. history. Enforced for 66 years, the legislation was designed to restrict commercial banks from speculating in the stock market. The Act required banks to dissolve security affiliates and cap investment portfolios at 10 percent of liabilities. We test the bank speculation hypothesis by measuring bank risk using hand-collected daily stock prices and balance sheet data. The regulation significantly reduced banks' idiosyncratic volatility by one-fourth relative to the median. Banks impacted by the Act improved their stability, as shown by equity ratios and distance-to-default measures. These banks also paid higher dividend yields and extended more bank credit, possibly mitigating the credit crunch of the Great Depression. Our findings demonstrate that the Act reduced risk for commercial banks by limiting their ability to speculate in risky assets. 

Partisanship in Mutual Fund Portfolios

Presentation(s):  University of Florida (Warrington College of Business), Financial Management Association 2021, American Finance Association 2022 (Poster Session)

Abstract: Partisan bias in fund portfolios is the effect of fund manager’s political affiliation on portfolio allocation decisions. I study two potential manifestations of this bias: biased expectations where managers become optimistic (pessimistic) when their party comes in (goes out of) the government, and in-group favoritism where managers choose higher holdings of politically aligned firms. I find strong evidence for the biased expectations channel, using recent data that includes the effects of the 2020 Presidential election. However, contrary to past literature, I find no evidence for in-group favoritism. I also document a partisan bias in holdings of stocks exposed to politicized topics (COVID-19 and Brexit). The COVID-19 result does not carry over to earlier pandemics (H1N1, Ebola and Zika).