UC Berkeley

Credit markets and financial intermediation shape the macroeconomy through channels that can be hard to measure or fall outside standard frameworks. This dissertation contributes new evidence and tools in three such areas: informal bank supervisory pressure, the frictions that link credit access to from pricing, and the bilateral mechanics of direct lending. In the frst chapter, Official Arm-Twisting? Measuring the Federal Reserve’s Use of Moral Suasion, I use large language models to construct the first measure of the Federal Reserve’s efforts to encourage or pressure financial institutions outside formal policy. The measure, built from 45 years of financial industry newspaper coverage, peaks in 1980, 2005–08, and 2020. I find that moral suasion is deployed countercyclically, used most often to manage prudential risks or influence lending, and is most effective when backed by supervisory force and aligned with banks’ incentives. In the second chapter, Borrowing Constraints, Markups, and Misallocation (with Huiyu Li, Chen Lian, and Yueran Ma), we document that less constrained firms in an industry have higher markups. This connection lowers total factor productivity (TFP) losses from markup dispersion, because looser constraints help higher-markup firms move their market shares closer to the efficient level. The relationship is stronger in industries that rely more on earnings to borrow, where markup dispersion is also higher; we explain these patterns with a Kimball demand model augmented with borrowing against assets and earnings. In the third chapter, Modeling Distress in Private Credit Direct Lending (with Caio Ferreira and Dmitry Yakovlev), we develop a bottom-up framework for assessing direct lending borrowers’ vulnerability to macroeconomic shocks. We model the interplay of earnings before interest, taxes, depreciation, and amortization (EBITDA) dynamics, interest rate paths, origination standards, and the relief tools that absorb stress in bilateral lending, using simulated leveraged buyouts of U.S. small-cap firms as proxies. Even in severe downturns, distress concentrates in a vulnerable tail whose liquidity reserves are depleted. We illustrate with scenarios calibrated to the 2022–23 hiking cycle and the Global Financial Crisis.