Browsing by Author "Adelino, Manuel"

This dissertation investigates the role of the secondary market in the enforcement of a creditor's security interest. In the first chapter, I examine how creditors respond to ex-post higher foreclosure costs. I find that when repossessing collateral becomes costly, creditors choose to sell their delinquent debt on the secondary market rather than renegotiate with borrowers. Only when repossession becomes prohibitively expensive, thus impeding sale, do creditors offer forbearance. These results highlight a novel channel to explain the lack of mortgage renegotiation, namely, the very presence of a robust secondary market. Subsequent chapters further explore this relationship. In the second chapter, I study how banks respond to riskier collateral enforcement ex-ante. I find that banks exposed to enforcement risk reduce lending for portfolio loans, which are precisely those loans that banks are liable to enforce. In the third chapter, I study how creditors respond to the delayed sale of delinquent debt. I find that suspending the early sale of delinquent debt reduces the incidence of forbearance, increases foreclosures, and limits creditor incentives to cure loans.

I study local shocks to consumer credit supply arising from the opening

of bank-related retail stores. Bank-related store openings coincide with

sharp increases in credit card placements in the neighborhood of the

store, in the months surrounding the store opening, and with the bank

that owns the store. I exploit this relationship to instrument for new

credit cards at the individual level, and find that obtaining a new

credit card sharply increases total borrowing as well as default risk,

particularly for risky and opaque borrowers. In line with theories of

default externality, I observe that existing lenders react to the

increased consumer borrowing and associated riskiness by contracting

their own supply. In particular, in the year following the issuance of a

new credit card, banks without links to stores reduce credit card limits

by 24-51%, offsetting most of the initial increase in total credit

limits.