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Working Paper
Estimating changes in supervisory standards and their economic effects
The disappointingly slow recovery in the U.S. from the recent recession and financial crisis has once again focused attention on the relationship between financial frictions and economic growth. With bank loans having only recently started growing and still sluggish, some bankers and borrowers have suggested that unnecessarily tight supervisory policies have been a constraint on new lending that is hindering recovery. This paper explores one specific aspect of supervisory policy: whether the standards used to assign commercial bank CAMELS ratings have changed materially over time (1991-2011). ...
Working Paper
Assessing Targeted Macroprudential Financial Regulation: The Case of the 2006 Commercial Real Estate Guidance for Banks
In January 2006, federal regulators issued guidance requiring banks with specific high concentrations of commercial real estate (CRE) loans to tighten managerial controls. This paper shows that banks with concentrations in excess of the thresholds set in the guidance subsequently experienced slower growth in their CRE portfolios than can be explained by changes in bank or economic conditions. Moreover, banks above the CRE thresholds tended to have slower commercial and industrial loan growth but faster household loan growth following issuance of the guidance. The results highlight the ...
Working Paper
Enhancing Stress Tests by Adding Macroprudential Elements
The use of stress testing for macroprudential objectives is advanced by modeling spillovers within the financial sector or between the real and financial sectors. In this chapter, we discuss several macroprudential elements that capture these spillovers and how they might be added to stress test frameworks. We show how funding spillovers can be modeled as an add-on, using a reduced-form relation between banks' funding cost, bank capital and economic activity. Using a calibration to US data, we project very modest funding spillovers conditional on the DFAST 2018 severely adverse scenario. ...
Journal Article
Recent developments in business lending by commercial banks
After growing rapidly during much of the 1990s, the real value of commercial and industrial (C&I) loans at domestic commercial banks and at U.S. branches and agencies of foreign banks has fallen 19 percent since the beginning of 2001. The recent contraction in business loans has been concentrated at large banking institutions and appears to stem from the combined effects of weak demand for credit and a tightening of lending standards and terms. The move toward a more-stringent lending posture, although partly cyclical, also reflects a reassessment of the risks and returns of C&I lending. This ...
Journal Article
The economic performance of small banks, 1985-2000
Several trends in the financial industry over the past decade and a half have potentially threatened the competitiveness of small banks. Among these developments are the numerous mergers that increased the size and scope of large banks and the increased competition from mutual funds and other nonbank financial institutions. This article examines the economic performance of small banks during the 1985-2000 period by focusing on their ability to attract and profitably intermediate insured and uninsured deposits. It finds that the expansion of deposits and assets at small banks, when adjusted to ...
Discussion Paper
Relation Between Levels and Changes in Lending Standards Reported by Banks in the Senior Loan Officer Opinion Survey on Bank Lending Practices
This note uses bank-level answers to the Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) to investigate the relation between levels and changes in lending standards reported by banks. We provide evidence that banks' responses about levels and changes in standards are positively correlated, although this relationship is not clear in summary statistics. These results suggest that banks’ responses to the quarterly SLOOS questions and their annual counterparts contain independent information about their lending practices.
Journal Article
Profits and balance sheet developments at U.S. commercial banks in 1999
The U.S. commercial banking industry posted record earnings in 1999. The industry's return on assets and return on equity both rose above the already high level of recent years. Profitability was concentrated at large banks--particularly among the 100 largest--and was driven upward by a surge in noninterest income and a significant slowdown in the growth of noninterest expense. Other sources of improved profitability were a stabilization of net interest income, which had been weakening in recent years, and lower loan loss provisioning permitted by generally good asset quality. The growth of ...
Report
How workers use 401(k) plans: the participation, contribution, and withdrawal decisions
This paper examines how workers use 401(k) plans by examining their participation, contribution, and withdrawal decisions. Sixty-five percent of eligible workers participate in 401(k) plans. Employee participation rises with income, age, job tenure, and education. While participation also rises if the employer matches contributions, 401(k) participation does not grow with the rate of matching. When pension plan assets are withdrawn in lump-sum distributions before retirement, just 28 percent of distribution recipients (representing 56 percent of distribution assets) roll over the withdrawn ...
Working Paper
What drives the persistent competitiveness of small banks?
Several trends in the financial industry could have weakened the competitiveness of small banks in recent years. Despite those challenges, small banks have grown more rapidly than larger banks over the period from 1985 to 2001, and their profitability has been sustained at high levels. However, small banks have needed to increase the interest rates offered on deposit accounts in order to attract progressively more deposit funding. In this paper, we provide empirical evidence that this increased interest cost primarily reflects the high rate of return that small banks were able to earn on ...
Journal Article
Risk management by structured derivative product companies
In the early 1990s, some U.S. securities firms and foreign banks began creating subsidiary vehicles--known as structured derivative product companies (DPCs)--whose special risk management approaches enabled them to obtain triple-A credit ratings with the least amount of capital. At first, market observers expected credit-sensitive customers to turn increasingly to these DPCs. However, the authors find that structured DPCs--despite their superior ratings--have failed to live up to their initial promise and have yet to gain a competitive edge as intermediaries in the derivatives markets.