Henry Kaufman Initiative in Financial History | Events

Department of Finance seminar with Stephan Luck
Monday, December 11, 2023 
12pm - 1:20pm 

Topic: Failing Banks (with Sergio Correia and Emil Verner)

What causes bank failures? We create a panel covering most commercial banks from 1863 through 2023 and study the history of failing banks in the United States. We document that failing banks are characterized by rising losses, often resulting from realized credit risk. Credit losses are typically preceded by rapid lending growth, financed by non-core funding. These systematic patterns in failing banks imply that bank failures are highly predictable, even in the absence of deposit insurance, a central bank, and a wider safety net. We construct a new measure of elevated systemic risk using micro-data on bank-level fundamentals and show that it forecasts the major waves of banking failures in U.S. history. Altogether, our evidence suggests that the ultimate cause of bank failures is almost always and everywhere related to a deterioration of bank fundamentals.

Stern Political Economy Exchange Club hosts Peter Koudijs
Tuesday, November 7th, 2023
12:30pm - 1:45pm

Topic: Markets under Siege: How Political Beliefs Move Financial Markets (with Saumitra Jha and Marcos Salgado)

Can beliefs about politics, particularly the benefits of war and peace, move thick financial markets?  During and after the Siege of Paris by the Prussian army (1870-71) we document that the prices of the French 3% sovereign bond (rente) differed persistently between the Bourse in Paris and elsewhere, despite being the most actively traded financial asset in continental Europe. Further, these differences were large, equivalent to almost 1% of French GDP in overall value. We show these differences manifested themselves during the period of limited arbitrage induced by the Siege and persisted until the peace terms were revealed. We show that as long as French military resistance continued, the rente price remained higher in Paris than the outside markets. However, when the parties ceased fire and started negotiating peace terms, this pattern was reversed. Further, while the price in Paris responded more negatively (positively) to defeats (victories), the price responded more to peace events elsewhere. These specific patterns are difficult to reconcile with other potential mechanisms, including differential information sets, need for liquidity, or relative market thickness. Instead, we argue that these results are consistent with prices reflecting the updating of different prevailing political beliefs in Paris and elsewhere about the benefits of war versus peace.

Department of Finance seminar with Peter Koudijs
Wednesday, November 8th, 2023
12pm -1:20pm 

Topic: Going for Broke: Bank Reputation and the Performance of Opaque Securities

Do banks’ reputational concerns improve the quality of opaque, off-balance sheet securities? We study this question in a unique setting with few confounding factors. In the 1760s, Dutch banking partnerships securitized West-Indian plantation-mortgages that were both risky and opaque. High reputation underwriters made better mortgages that, on average, retained at least 17.5 percent more of their value during a subsequent market bust. Effects are attenuated when the managing partner(s) were married into wealth or faced future claims on the partnership. This highlights the importance of the expected fallout from reputational damage and the value of retaining reputation for the future.

School-wide faculty seminar with Peter Koudijs
Thursday, November 9th, 2023
12pm - 1pm

Topic: Holding bankers liable

Before WWII, bankers faced personal liability if their bank got into trouble. In an overview of his existing and ongoing work, Prof. Koudijs discusses whether this made banks safer or not. The evidence suggests that enhancing bankers’ incentives can be as effective in improving financial stability as directly regulating banks’ balance sheets.