Essays on the Industrial Organization of Credit Markets

In the first chapter, I investigate the role of securitization in causing the boom in house prices between 1997 and 2006. I use an instrumental variables approach to identify the causal impact of securitization, using plausibly exogenous variation correlated with the costs of securitizing mortgages. My findings show that the expansion of securitization explains roughly 40 percent of the increase in real house prices between 1997 and 2006. The effects are concentrated in inelastically supplied housing markets and during the latter half of the period, when subprime lending grew the most. The impact on prices is substantially weaker in states with strong anti-predatory lending laws and mortgage broker licensing requirements. Estimates from prices after 2007 indicate that essentially all of the increase in house prices due to securitization was erased by 2010.;In the second chapter, I examine the impact of relaxing interstate branching restrictions on the adoption of private label mortgage securitization. In states that deregulate their banking systems, incumbent banks respond to increased competitive pressure by increasing their securitization rates. Using an econometric model of lending and securitization to identify the channels through which deregulation affects securitization adoption, I find that the bulk of the increase in securitization is related to a direct effect of deregulation on banks securitization. A smaller fraction of the impact, about ten percent, relates to increases in approval rates and loan volumes caused by deregulation, which in turn induce securitization.;In the final chapter, I explore the relationship between financial market development and innovation by studying bank deregulation in the United States. I find that patenting increases significantly after intrastate banking reforms. I also find that the effect is more pronounced among relatively less novel and less complex innovations, consistent with a model of a credit market in which innovators have asymmetric information about the riskiness of their projects. The evidence suggests that financial development both increases the rate of innovation and affects its direction.