New paper on shadow banks on main street: “Mapping America's Financial Architecture from the Yellow Pages of the 20th Century” (with Taylor Begley and Virginia Traweek).

It was a long project: took 3 years for careful data collection! Happy to see the first draft.

A thread: We have a rich literature on the growth and evolution of the financial system and its impact on the real economy. The literature, however, quickly becomes a study of regulated banking sector, often leaving the unregulated sector un/under-explored.

This was so refreshing to see a meaningful debate on the economics of the farmer bill by @rahulkanwal with two leading economists holding opposite views.

I see broad agreements between @APanagariya and Abhijit Banerjee on the need for the reform. That's good. 1/n

https://twitter.com/IndiaToday/status/1344650952104497152

Abhijit's primary objections to the bill come from: (a) timing of the reform is wrong (why do it during the pandemic), (b) why expose farmers to price risk, and (c) speculation about private buyer becoming a monopolist eventually. 2/n

Our new WP on returns earned by taxpayers on TARP bailout. TARP invested billions of dollars in the U.S. banks via preferred equity in 2008, right after the Lehman collapse.

"Banks paid back TARP money with return" is a common refrain. But was the return enough?
NO

1/6 Investments were made in a bad state (right after the collapse of Lehman), but the repayments came in good state: soon after the stock market began to recover.

Market participants require higher compensation to bear this risk. Was TARP's return "fair" given the risk?

2/6

Will/should @YESBANK AT1 bonds be converted into equity? If at all, bailout retail investors, not MFs. As per the terms of contract, AT1 bonds are of the "write-off" type. Hence they should just be written off, as per the original @RBI plan.
@dugalira @andymukherjee70
1/n Sophisticated MFs bought AT1 & earned higher yield precisely for the risk that it had. If they get bailed out, what incentive do they have to monitor banks that issue bonds in the future (AT1 or otherwise)?Death of market discipline.
But retail investors are different.
2/n

Long thread on AT1 Bonds given Yes Bank's collapse. Basel III introduced 3 types of capital:
1. Common Equity Tier 1, CET1
2. Additional Tier 1, AT1 Bonds
3. Additional Tier 2, AT2 Bonds

AT1 is a "contingent" equity capital: it's bond now, equity later if a trigger occurs.

1/n AT1 is a perpetual bond providing promised coupons if the trigger has not happened. When the bank's equity falls below the trigger one of two things happens: write-off or conversion into common equity as laid out in the contract terms. Bonds are priced to reflect this risk.
2/n

Opaque foreign investors in Indian Banks make me a bit nervous. Our paper "Why Banks Hide Losses", looks at reasons behind NPA divergence (hidden losses) in Indian Banks after the asset quality review by the RBI.
@dugalira @FinMinIndia @SubramanianKri @RBI
#YesBank
1/n

https://twitter.com/dugalira/status/1201155167028072449

Two factors stand out: (i) higher the foreign institutional investors in a bank, higher the hiding,
(ii) higher the managerial comp, especially linked to reported NPA/profits number, higher the hiding.
Here is the paper: papers.ssrn.com/sol3/papers.cf…

2/n