Dampening the financial accelerator? Direct lenders and monetary policy
by Ryan Niladri Banerjee and José María Serena GarraldaIn this paper we investigate the role they play in the monetary policy transmission mechanism, using syndicated loan data covering the 2000-2018 period.
Financial crises and political radicalization: How failing banks paved Hitler's path to power
by Sebastian Doerr, Stefan Gissler, Jose-Luis Peydro and Hans-Joachim VothDo financial crises radicalize voters? We study Germany’s 1931 banking crisis, collecting new data on bank branches and firm-bank connections.
Non-bank financial institutions and the functioning of government bond markets
The structure of market making in government bond markets has shifted from a bank-centric model to a hybrid one in which non-bank financial institutions, notably principal trading firms and hedge funds, play an important role alongside banks. This shift has occurred in several countries and, while farthest advanced in liquid segments, is also evident in less liquid segments.
Credit scoring: Improve or eliminate?
Your credit score plays a major role in your life, impacting your ability to rent an apartment, buy a house, get a credit card, and even how much you pay for auto insurance. These three-digit numbers, graded on a scale that resembles the SAT, have become more accessible to consumers due to recent changes in law, technology, and business. Credit scores are clearly impactful in the lives of Americans, but are they being created accurately, fairly, and with proper regulatory oversight? Is there a better way?
Credit scores are built on credit reports, files kept on most Americans by several large credit reporting bureaus. What are these reports and scores made of? How accurate are they? Who ensures they are fair and accurate?
On December 7, the Center on Regulation and Markets will convene a group of experts to discuss these questions and get to the core of the issue: Are credit scores and credit reports the right method for society to allocate credit? If so, how can they be improved? If not, what should replace them?
Viewers can submit questions for speakers by emailing events@brookings.edu or via Twitter using #CreditScore.
Does gender diversity in the workplace mitigate climate change?
by Yener Altunbas, Leonardo Gambacorta, Alessio Reghezza and Giulio VelliscigDoes having more women in managerial positions improve firm environmental performance? We match firm-corporate governance characteristics with firm-level carbon dioxide (CO2) emissions over the period 2009-2019 to study the relationship between gender diversity in the workplace and firm carbon emissions.
Bottlenecks: Causes and macroeconomic implications
by Daniel Rees and Phurichai RungcharoenkitkulBottlenecks in the supply of commodities, intermediate goods and freight transport have given rise to volatile prices and delivery delays. Bottlenecks started out as pandemic-related supply disruptions amid strong demand from the global economic recovery. But they have been aggravated by the attempts of supply chain participants to build buffers in already lean production networks – so-called bullwhip effects. Bottlenecks have been particularly severe in upstream industries – ie those that supply inputs used in many other products. These constraints have led to large international spillovers through global value chains. The direct inflationary effect of bottlenecks will likely be limited after relative prices have adjusted. However, sustained inflationary pressures could emerge if bottlenecks persist long enough to trigger an upward shift in wage growth and inflation expectations.
How Fintech Companies Can Mitigate the Racial Wealth Gap
On November 2, 2021, Brookings Metro Fellow Kristen Broady testified to the U.S. House Financial Services Committee’s Task Force on Financial Technology, during a hearing titled Buy Now, Pay More Later? Investigating Risks and Benefits of BNPL and Other Emerging Fintech Cash Flow Products.
Broady’s research, as detailed in her written testimony, shows how fintech companies can mitigate racial financial health and wealth gaps that hamper Black and Hispanic families’ financial security through product offerings and policies they put in place. Through technology and automation, they can reduce costs and prices, speed up delivery and increase convenience for underserved populations (Saunders, 2019). Over the past 20 years, fintech companies have provided new ways to capture data, reach broader audiences, and expand access to credit (Strochak, 2017). These companies also have the potential to think differently about policies and programming that can amplify opportunities for Black and minority communities. These private sector innovations can be paired with public policy interventions as well as to address some of the systemic issues that have contributed to the financial health and wealth gaps.
Broady provides several steps that public policymakers can take to increase financial health, including:
Increase investments in the CDFI Fund and make any relevant programs that sunset (like NMTC) permanent.
Create a mandatory financial health curriculum for middle and high schoolers.
Enhance broadband deployment.
Raise minimum wage for companies with over 500 employees.
Foster utilization of the CFPB Special Purpose Credit Program (SPCP).
Revise and revive the SBIC program under the SBA to incentivize private sector investments in BIPOC founders.
Revise SBA 7(a) program to enable fintechs to more easily engage with the program.
The ongoing COVID-19 pandemic has disproportionately impacted the Black community in terms of health and economic effects and shined a light on historical racial wealth and financial health gaps in America. Closing these gaps will require that structural, systemic, and historical economic disparities are addressed through significant public policy changes.
To read Broady’s full testimony, click here. To watch the testimony video, click here.
Related Content
Low-cost and shrinking: Hamilton County, Ohio
Navigation
November 4, 2021
Hamilton County is a declining population, low-cost county located in a low-to-moderate cost, slow-growth metropolitan area (Cincinnati, OH-IN-KY). Seven of the 16 metro area counties saw population decline from 2009 to 2019, and half of the counties fall into the lowest cost category (housing value-to-income ratios below 2.5). Hamilton had the largest population decline in the metro area (-0.046).
To develop a more complete picture of housing market conditions in Hamilton County, we draw on a broader set of metrics that capture demand, affordability of both owner-occupied and rental housing, and housing quality (Table 1).
Hamilton County’s population change rate, -0.05, is below that of the average county in the Cincinnati metro area and far below the national average. Sustained population losses often lead to high housing vacancy rates.The typical household in the Cincinnati metro area would have to pay 2.4 times their annual income to purchase the median home in Hamilton County. Home value-to-income ratios between 2.5-3.5 are considered healthy.Households earning less than $32,400 (or 50% of the metro area median income) would have difficulty paying rent for the median rental home in Hamilton County, while spending no more than 30% of their income on rent. While middle-income households in the metro area can afford median rent in Hamilton, low-income households in the region will fall below this threshold.24.5% of renters in Hamilton County are severely cost burdened, meaning they spend more than half their income on rent. That is above the severely cost-burdened share for the entire Cincinnati metro area and above the national average.The vacancy rate, 9.9%, is slightly high. Vacancy rates of 6-10% are considered healthy. High vacancy rates are an indication of declining demand, often reflecting population losses.The housing stock is old relative to the region and country: 25% of homes were built prior to 1940, while 15% were built after 1990. Older housing tends to be lower quality than newer homes and having higher ongoing maintenance costs, although purchase prices and rents are typically lower.
Recommended policy solutions:
Housing market conditions in declining, low-cost counties are a symptom of larger economic issues, rather than the cause. Housing policies alone cannot fix underlying problems in the county or metro area, such as a lack of well-paying jobs. While housing policies can mitigate specific concerns, changing the larger economic trajectory will require these counties to also invest in robust economic development policies, which are not the focus of this tool.
About the Authors
Jenny Schuetz
Senior Fellow – Metropolitan Policy Program, Future of the Middle Class Initiative
Tim Shaw
Associate Director of Policy – Aspen Institute
Local governments will need state and federal financial assistance. Most of the policy tools that can assist declining population, low-cost counties require some amount of direct subsidy. Yet those counties typically have limited resources and cannot easily raise revenues on a shrinking tax base. Meaningful investments in housing quality and household financial stability will require support from state or federal governments.
Expand vouchers or income supports for low-income renters. Even in communities where enough housing is built to accommodate increased demand, market-rate housing remains unaffordable to many low-income households. The poorest 20% of households everywhere in the U.S. spend more than half their income on housing, well above the threshold HUD defines as affordable. Only one in four eligible households receives federal rental assistance, including vouchers and public housing. Local governments that have sufficient resources can supplement these programs through locally funded rental vouchers or direct income supports. These programs require an ongoing funding source; high-income counties may be able to finance local vouchers from general tax revenues such as property or sales taxes, while lower-income counties will require support from state or federal governments.
An alternative to household-based subsidies for low-income households is to provide land or financial support for acquisition or construction of affordable housing. Local jurisdictions often own or have significant control over physical assets—such as publicly owned land or airspace—that can be leveraged to increase the availability of affordable housing in the community. Affordable housing trust funds are a flexible financing vehicle to support these activities.
Provide subsidies for improving housing quality. Older homes are prone to health hazards, such as unabated lead paint and asbestos, require more energy to heat and cool, and have higher maintenance costs for their owners. The federal government and some state governments offer low-interest loans or grants for weatherization and related energy-efficient upgrades that can improve housing quality and reduce operating costs. Local governments can expand access to these for low-income homeowners and landlords of low-cost rental properties, including easy-to-understand assistance in navigating the application process.
Adopt strategies to reduce vacant housing. Vacant housing can be a source of blight for the surrounding community, creating health and safety hazards for neighbors and leading to higher crime rates. Land banks are an effective strategy to acquire and demolish vacant homes, then hold the land until it can be transferred to a permanent owner for redevelopment or alternative uses. Land banks can also be used to boost the supply of permanently affordable housing.
Housing market conditions can vary across submarkets within counties. These policy recommendations are based on an assessment of overall county-level housing metrics. Larger counties often have multiple distinct submarkets with varying affordability, physical quality, infrastructure availability, and development regulations. Cities, towns, and neighborhoods that offer the best economic opportunity—proximity to well-paid jobs, transportation, good schools, and other amenities—often have housing that is too expensive for moderate-income households in the county. Lower-cost communities tend to have older, poorer quality housing. Addressing within-county disparities in housing costs, availability, and quality may require coordinating between independent political entities (e.g., separate cities and towns) in counties with more fragmented local government.
Expensive and growing: Loudoun County, Va.
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November 4, 2021
Loudoun County is rapidly growing, high-priced county located in a growing, high-priced metropolitan area (Washington, D.C.). All but one of the metro area’s 25 jurisdictions saw positive population growth from 2009 to 2019, and eight jurisdictions fall into the highest cost category (housing value-to-income ratios over 4). Loudoun had the second highest population growth rate in the metro area (0.25).
To develop a more complete picture of housing market conditions in Loudoun County, we draw on a broader set of measures that capture demand, affordability of both owner-occupied and rental housing, and housing quality (Table 1).
Key findings from this comparison are:
Loudoun County’s population growth rate, 0.35, is more than double that of the average county in the D.C. metro area, and well above the national average. Fast population growth drives the demand for additional housing.The typical household in the Washington D.C. metro area would have to pay 4.9 times their annual income to purchase the median home in Loudoun County. Home value-to-income ratios between 2.5-3.5 are considered healthy.Households earning less than $74,800 (or 78% of the metro area median income) would have difficulty paying rent for the median rental home in Loudoun County, while spending no more than 30% of their income on rent. While most middle-income households in the metro area can afford median rent in Loudoun, most low- and moderate-income households in the region will fall below this threshold.20.2% of renters in Loudoun County are severely cost burdened, meaning they spend more than half their income on rent. That is slightly below the severely cost-burdened share for the entire D.C. metro area and below the national average.The vacancy rate, 3.3%, is very low. Vacancy rates of 6-10% are considered healthy. Low vacancy rates are an indication that supply is not keeping up with demand.The housing stock is quite new relative to the region and country: only 2.8% of homes were built prior to 1940, while 72.6% were built after 1990. New housing is generally higher quality than older homes and more expensive to buy or rent, while having lower maintenance costs.
Recommended policy solutions
Increase housing supply. Housing is expensive because supply has not kept up with demand. High prices and rents, combined with low vacancy rates, indicate that there is unmet demand for housing. It is important to realize that no single county can produce enough housing to meet demand for the entire metro area. Reducing housing costs in expensive, supply-constrained metro areas will require sustained periods of increased housing production across multiple jurisdictions. All high-cost counties within a metro area adopting the strategies described below will have better results than actions by a single county, and county officials can play a leading role in coordinating across jurisdictions and sectors to achieve those goals.
About the Authors
Jenny Schuetz
Senior Fellow – Metropolitan Policy Program, Future of the Middle Class Initiative
Tim Shaw
Associate Director of Policy – Aspen Institute
Make it easier to build small, moderately-priced homes. In expensive metro areas, the size of homes and the amount of land used per home are major factors in the price of individual homes. Single-family detached homes on large lots are the most expensive structure type. Rowhouses, townhomes, two-to-four family homes, and low-rise apartment buildings have lower per-unit development costs than detached homes. These structures are also well suited for rental housing, which is more affordable to moderate-income households, and as “starter homes” for prospective first-time buyers who are currently priced out of the market. Zoning changes that enable smaller, less land-intensive structures to be built as-of-right in more parts of the county will increase the diversity of housing choices and widen the price range of available homes. Companion zoning reforms include relaxing dimensional requirements, such as minimum lot sizes, setbacks, lot coverage, or floor-to-area ratios. Reducing minimum parking requirements and allowing flexibility in design standards can also result in cost savings for newly built homes.
Developing a specific menu of zoning reforms will require an assessment of the county’s current housing types, density, and land availability. Exactly what types of zoning reform will yield the largest supply increases and cost reductions will vary across high-cost counties. A locality that has predominantly detached homes on one-acre lots—typical of many outer suburbs—could realize substantial cost savings by allowing rowhouses on 4,000 square foot lots. For urban counties and inner-ring suburbs that currently have many small-lot homes and little undeveloped land, increasing housing supply may require zoning reforms that allow redeveloping single-family homes, parking lots, or commercial buildings as low- or mid-rise apartments. High-rise construction has the highest per-square-foot costs, and will typically only occur in places with very expensive land and high rents.
Make the development process simpler and shorter. The length of time required to complete development projects, combined with the complexity of the process, are significant factors in the price of newly built housing. Local development processes that make decisions on a case-by-case basis, rather than following consistent, transparent rules, increase the uncertainty and risk of development, which translates into higher costs. Discretionary processes include requiring special permits (also called conditional use permits), site plan reviews, environmental impact reviews, and negotiations over impact fees all add to development costs. Policy changes that reduce development time and complexity include allowing more development as-of-right; integrating approvals for multiple parts of the development process through a one-stop-shopping approach; setting a clear and transparent impact fee schedule; and setting deadlines that require decisions to be made within a set period of time.
Expand vouchers or income supports for low-income renters. Even in communities where enough housing is built to accommodate increased demand, market-rate housing remains unaffordable to many low-income households. The poorest 20% of households everywhere in the U.S. spend more than half their income on housing, well above the threshold HUD defines as affordable. Only one in four eligible households receives federal rental assistance, including vouchers and public housing. Local governments that have sufficient resources can supplement these programs through locally funded rental vouchers or direct income supports. These programs require an ongoing funding source; high-income counties may be able to finance local vouchers from general tax revenues such as property or sales taxes, while lower-income counties will require support from state or federal governments.
An alternative to household-based subsidies for low-income households is to provide land or financial support for acquisition or construction of affordable housing. Local jurisdictions often own or have significant control over physical assets—such as publicly owned land or airspace—that can be leveraged to increase the availability of affordable housing in the community. Affordable housing trust funds are a flexible financing vehicle to support these activities.
Housing market conditions can vary across submarkets within counties. These policy recommendations are based on an assessment of overall county-level housing metrics. Larger counties often have multiple distinct submarkets with varying affordability, physical quality, infrastructure availability, and development regulations. Cities, towns, and neighborhoods that offer the best economic opportunity—proximity to well-paid jobs, transportation, good schools, and other amenities—often have housing that is too expensive for moderate-income households in the county. Lower-cost communities tend to have older, poorer quality housing. Addressing within-county disparities in housing costs, availability, and quality may require coordinating between independent political entities (e.g., separate cities and towns) in counties with more fragmented local government.
Central bank digital currencies: motives, economic implications and the research frontier
by Raphael Auer, Jon Frost, Leonardo Gambacorta, Cyril Monnet, Tara Rice and Hyun Song ShinThe paper gives a guided tour of the growing literature on the operational architectures for CBDCs, focusing on the technologies and the implications for privacy.