- 03 Oct 2013
- Views on News
Is the US financial system in better shape today than it was five years ago? Finance professors Victoria Ivashina, David Scharfstein, and Arthur Segel see real progress—but also missed opportunities and more challenges. Closed for comment; 2 Comment(s) posted.
- 01 Feb 2013
- Working Paper Summaries
A striking fact about international financial markets is the large share of dollar-denominated intermediation done by non-US banks. The large footprint of global banks in dollar funding and lending markets raises several important questions. This paper takes the presence of global banks in dollar loan markets as a given, and explores the consequences of this arrangement for cyclical variation in credit supply across countries. In particular, the authors show how shocks to the ability of a foreign bank to raise dollar funding translate into changes in its lending behavior, both in the US and in its home market. Overall, the authors identify a channel through which shocks outside the US can affect the ability of American firms to borrow. Although dollar lending by foreign banks increases the supply of credit to US firms during normal times, it may also prove to be a more fragile source of funding that transmits overseas shocks to the US economy. Key concepts include: Findings show Eurozone banks adjust to strains in wholesale dollar funding markets by borrowing more in euros, but also by cutting back their dollar lending relative to euro lending. Eurozone banks rely on less stable wholesale dollar funding sources to finance their dollar lending whereas a good deal of their euro lending is financed with stickier euro deposits. Frictions in the foreign exchange swap market limit the extent to which Eurozone banks can use euro deposits to fund their dollar lending. As swap demand from Eurozone banks rises, there is only limited arbitrage capital available to take the other side of the trade, which increases the cost of engaging in this synthetic dollar borrowing. Closed for comment; 0 Comment(s) posted.
- 24 Feb 2011
The Obama administration recently proposed housing finance reforms to wind down Fannie Mae and Freddie Mac and bring private capital back to the mortgage markets. HBS professor David Scharfstein and doctoral student Adi Sunderam put forth a proposal to replace Fannie and Freddie and ensure a more stable supply of housing finance. Key concepts include: The two leading types of housing finance reform proposals are 1.) broad-based, explicit, properly priced government guarantees of mortgage-backed securities, and 2.) privatization. Properly priced guarantees would have little effect on mortgage interest rates relative to unguaranteed mortgage credit during normal times, and would expose taxpayers to moral-hazard risk with little benefit. Privatization reduces, but does not eliminate, the government's exposure to mortgage credit risk. It also leaves the economy and financial system exposed to destabilizing boom and bust cycles in mortgage credit. The main goal of housing finance reform should be financial stability, not the reduction of mortgage interest rates. The private market should be the main supplier of mortgage credit, but it should be carefully monitored using new approaches to regulating mortgage securitization. Moreover, the government should play a role of "guarantor of last resort" in periods of crisis. Closed for comment; 0 Comment(s) posted.
- 02 Feb 2009
- Research & Ideas
Want to be a successful entrepreneur? Your best bet might be to partner with entrepreneurs who have a track record of success, suggests new research by Paul A. Gompers, Josh Lerner, David S. Scharfstein, and Anna Kovner. Key concepts include: Previously successful entrepreneurs are significantly more likely to lead successful new ventures than first-timers or those who previously failed. Successful entrepreneurs are adept at selecting the right industry and time to start new ventures. Suppliers and customers are more likely to back a person with previous successes. Closed for comment; 0 Comment(s) posted.
- 03 Dec 2008
- Working Paper Summaries
All else equal, a venture-capital-backed entrepreneur who starts a company that goes public has a 30 percent chance of succeeding in his or her next venture. First-time entrepreneurs, on the other hand, have only an 18 percent chance of succeeding, and entrepreneurs who previously failed have a 20 percent chance of succeeding. But why do these contrasts exist? Such performance persistence, as in the first example, is usually taken as evidence of skill. However, in the context of entrepreneurship, the belief that successful entrepreneurs are more skilled than unsuccessful ones can induce real performance persistence. In this way, success breeds success even if successful entrepreneurs were just lucky. Success breeds even more success if entrepreneurs have some skill. Key concepts include: There is evidence for the role of skill as well as the perception of skill in inducing performance persistence. Closed for comment; 0 Comment(s) posted.