speaker Dayin Zhang, UC Berkeley time Monday, 13 January, 10:00-11:30
place Room 217, Guanghua Building 2

Finance Seminar2020-02)

Topic: Government-Sponsored Wholesale Funding and the Industrial Organization of Bank Lending

Speaker: Dayin Zhang, UC Berkeley

Time: Monday, 13 January, 10:00-11:30

Location: Room 217, Guanghua Building 2


Several wholesale funding markets are dominated by government agencies such as the Federal Home Loan Bank (FHLB), which collectively channel hundreds of billions of dollars into the banking sector every year. Proponents of this intervention argue that it lowers retail borrowing costs significantly. This paper exploits quasi-experimental variation in access to low-cost wholesale funding from the FHLB arising from banks mergers, and shows that access to this funding source is associated with an 18-basis-point reduction in a bank's mortgage rates and a 16.3% increase in mortgage lending. This effect is 25% stronger for small community banks. At the market level, a census tract experiences an increase in local competition after a local bank joins the FHLB, with the market concentration index (HHI) falling by 1.5 percentage points. This intensified local competition pushes other lenders to lower their mortgage rates by 7.4 basis points, and overall market lending grows by 5%. Estimates of a structural model of the US mortgage market imply that the FHLB increases annual mortgage lending in the US by $50 billion, and saves borrowers $4.7 billion in interest payments every year, mainly through changing the competitive landscape of the mortgage market.


Dayin Zhang is a Ph.D. candidate in Finance and Real Estate at the Haas School of Business, UC Berkeley. His research interests broadly lie in the intersection between financial intermediation and household finance. His job market paper evaluates and quantifies the impact of government intervention in banks’ wholesale funding on the industrial organization of the lending market.

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