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Working Paper
Short Selling and Bank Deposit Flows
Some observers have argued that the short selling of bank stock contributes to bank runs and bank failures. Previously, no evidence has been available. We find no evidence that more short selling of bank stock is associated with materially larger outflows of bank deposits. We believe this means that proposals to restrict the short selling of bank stock should be supported by other arguments.
Working Paper
A guide to choosing absolute bank capital requirements
Resampling implementation of a stress-scenario approach to estimating portfolio default loss distributions is proposed as the basis for estimates of the appropriate absolute level of economic capital allocations for portfolio credit risk. Estimates are presented for stress scenarios of varying severity. Implications of use of different analysis time horizons are analyzed. Results for a numeraire portfolio are quite sensitive to such variations. Although the analysis is framed in terms of recent proposals to revise regulatory capital requirements for banks, the arguments and results are also ...
Conference Paper
Which banks sponsored ABCP vehicles and why?
Journal Article
Credit risk rating at large U.S. banks
Large banks use internally developed credit rating systems to differentiate the riskiness of their commercial loans. Internal ratings are an essential ingredient of effective credit risk management for such banks, whose commercial borrowers may number in the tens of thousands. This article describes these rating systems, how their design varies across institutions, and how they are used in risk management. The article also outlines conceptual and practical difficulties currently faced by banks in achieving accurate and consistent ratings and describes ways in which some institutions have ...
Working Paper
The Bank as Grim Reaper : Debt Composition and Bankruptcy Thresholds
We offer a model and evidence that private debtholders play a key role in setting the endogenous asset value threshold below which corporations declare bankruptcy. The model, in the spirit of Black and Cox (1976), implies that the recovery rate at emergence from bankruptcy on all of the firm's debt taken together is increasing in the pre-bankruptcy share of private debt in all debt. Empirical evidence supports this and other implications of the model. Indeed, debt composition has a more economically material empirical influence on recovery than all other variables we try taken together.
Conference Paper
Does lending by banks and finance companies differ?