I study how payment technology reshapes deposit competition. I exploit quasi-exogenous variation in the usage of Pix, Brazil’s instant payment system, from two independent sources – the easing of COVID restrictions and counterparty timeouts – to show that instant payments increase deposit competition. Small bank deposits rise relative to large banks as Pix narrows the payment convenience gap. As small banks become more competitive in providing payment services, they reduce deposit rates relative to large banks. I show that the affected margins of convenience are transfer and retail payment costs. These findings suggest that universally available payment systems can increase competition among banks.

Presented at: American Finance Association, Annual Conference of the Banco Central do Brasil, Armenian Economic Association, Bank of Canada Payments and Securities Settlement Workshop, Conference on the Economics of CBDC, Economics of Payments Conference, Financial Intermediation Research Society (FIRS), Georgia Tech - Atlanta Fed Household Finance Conference, NBER Summer Institute (Macro, Money, and Financial Frictions), Northern Finance Association, Princeton Conference on Resilience, SFS Cavalcade North America, University of Western Australia Blockchain and Cryptocurrency Conference, Wharton-INSEAD Doctoral Consortium, Bank of Israel, Boston College Carroll, Central Bank of Armenia, Columbia Business School, Federal Reserve Board of Governors, INSEAD, New York University Stern, Ohio State University Fisher, Peking University NSD, Rice University Jones, Stanford GSB, University of British Columbia Sauder, University of Chicago Booth, University of Illinois Gies, University of Virginia Darden

Mentioned by: American Banker, The Banker, The Economist, Vox

Mentioned by the World Bank’s Digital Public Infrastructure Report

Should monetary policy respond to corporate credit spreads? We develop and estimate a Bayesian dynamic general equilibrium model with long-term defaultable nominal corporate debt and constrained financial intermediaries. Corporate credit spreads are equilibrium asset prices that summarize firms' financing wedge and market cost of external finance. Because debt is long-term and nominal, monetary policy affects debt valuation, default risk, required returns, and investment. Estimating the model using U.S. macroeconomic and corporate debt-market data, we show that a spread-augmented Taylor rule improves welfare by stabilizing firms' financing costs and substantially reduces the need for aggressive inflation targeting.

Presented at: Vanderbilt University*, Society for Economic Dynamics, Central Bank Research Association, China International Conference in Finance, European Finance Association, American Finance Association

*denotes presentation by co-author

Mentioned by: Knowledge@Wharton

We examine the impact of digital payments on the transmission of monetary policy by leveraging administrative data on Brazil’s Pix, a digital payment system. We find that Pix adoption reduces banks' market power, making them respond more to changes in policy rates. We estimate a dynamic banking model in which digital payments amplify deposit demand elasticity. Our counterfactual results reveal that digital payments intensify the monetary transmission by reducing banks' market power – banks respond more to policy rate changes, and loans decrease more after monetary policy hikes. We find that digital payments impact monetary transmission primarily through deposit market power.

Presented at: SFS Cavalcade, HEC Banking in the Age of Challenges, European Finance Association, Global Poverty Research at Kellogg Conference, Northern Finance Association*, CAFRAL, Peking University NSD, Philadelphia Fed Fintech and Financial Institutions Research Conference, Annual Conference of the Banco Central do Brasil*, Bank of Italy, Bank of Canada Payments and Securities Settlement Workshop, Banco Central do Brasil, Swiss Finance Institute, Bocconi, CFEA at Michigan State University, Day-Ahead Conference at Philadelphia Fed, BPI/Columbia Bank Regulation Conference

*denotes presentation by co-author

Mentioned by: Valor Economico

The role of deposits in the payment system creates both a liquidity constraint and a liquidity recycling mechanism for the banking system. When financing illiquid loans with deposits, a bank must rely on its liquid assets to cover depositors’ outgoing payments. Therefore, the “money multiplier”—the ratio of loans funded by deposits to liquid assets (i.e., the bank’s liquidity transformation relative to its liquidity base)—cannot be over-stretched. However, depositors’ incoming payments relax this liquidity constraint. We develop a structural model to estimate the overall impact of payments (money velocity) on money multiplier using confidential payment data from Fedwire. The network topology of interbank payment flows plays an important role and determines banks’ systemic importance for the equilibrium outcome.

Presented at: Boston College*, Boston Fed*, Chicago Fed*, Federal Reserve Board*, Frankfurt School of Finance & Management*, Hong Kong University*, INSEAD*, Imperial College London*, Nanyang Technological University*, National University of Singapore*, NYU Stern/Econ (joint)*, Philadelphia Fed*, Singapore Management University*, Stanford GSB*, Swiss National Bank*, Tilburg University*, UCLA Anderson*, University of Zurich*, UPenn Wharton*, Wharton Macro Seminar*, Advances in Micro-Finance and CMU*, American Finance Association*, Bank of Canada Conference on Networks in Modern Financial & Payments Systems*, Barcelona School of Economics Summer Forum*, CEPR ESSFM Gerzensee*, CESifo Conference on Money Macro and International Finance*, European Banking Center Network Conference*, European Finance Association*, Federal Reserve Board Conference on the Interconnectedness of Financial Systems*, Financial Intermediation Research Society*, Pacific Northwest Finance Conference*, U Minnesota Finance Junior Conference*, UNC Finance Junior Conference*, U Toronto Econ Junior Conference*

*denotes presentation by co-author

We study how digital payments affect consumer credit through the information they generate. Using Brazilian credit registry and transaction-level data on Pix, credit and debit cards, we show that Pix users are more likely to receive credit cards, higher limits, and lower interest rates from the bank observing their payments. Pix data improve banks’ predictions of future default and expand credit within their customer base. Digital payment expansion is also associated with greater credit-card borrowing. Interchange fees and rewards remain unchanged, ruling out pricing and competition explanations. Finally, we estimate a structural model quantifying information acquisition, payment demand, pricing incentives, and counterfactual market designs.

Presented at: Central Bank of Colombia, National University of Singapore (scheduled), Nanyang Technological University (scheduled), University of Southern California Marshall (scheduled), PUC-Chile (scheduled), Banco Central de Chile (scheduled)

*denotes presentation by co-author