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Showing results 1 to 9 of approximately 9.
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Journal Article
Bank consolidation and merger activity following the crisis.
Michal Kowalik, Troy Davig, Charles S. Morris, and Kristen Regehr analyze the financial characteristics of acquired community banks from 2011 to 2014.
Working Paper
Entrepreneurial risk choice and credit market equilibria
We analyze under what condiitons credit markets are efficient in providing loans to entrepreneurs who can start a new project after previous failure. An entrepreneur of uncertain talent chooses the riskiness of her project. If banks cannot perfectly observe the risk of previous projects, two equilibria may coexist: (1) an inefficient equilibrium in which the entrepreneur undertakes a low-risk project and has no access to finance after failure; and (2) a more efficient equilibrium in which the entrepreneur undertakes high-risk projects and gets financed even after an endogenously determined ...
Journal Article
Basel liquidity regulation: was it improved with the 2013 revisions?
The Basel III Accord of December 2010, aiming to reduce the chances of systemic financial crises, included provisions regulating the liquid assets held by financial institutions. The Accord included provisions requiring financial institutions to maintain liquidity buffers: stocks of liquid assets sufficient to cover 30 days of cash outflow in a financial "stress event." ; The Accord was revised in January 2013, with new provisions regarding the size, composition and availability of liquidity buffers. ; Kowalik finds that while the revised liquidity provisions of 2013 improved on the ...
Journal Article
Countercyclical capital regulation: should bank regulators use rules or discretion?
One of the key features of the U.S. economy?s slow recovery from the 2007-09 recession has been abnormally low bank lending to households and corporate businesses. While demand for loans may be sluggish, much of the slowdown may stem from banks? reluctance to lend. Before resuming normal lending activity, banks must first replenish capital levels that were depleted during the financial crisis. ; Many analysts have pointed out that existing bank capital regulation can contribute to banks? reluctance to lend during recessions and into recoveries. That is, the capital requirements have a ...
Working Paper
The creditworthiness of the poor: a model of the Grameen Bank
This paper analyzes the role of expected income in entrepreneurial borrowing. We claim that poorer individuals are safer borrowers because they place more value on the relationship with the bank. We study the dynamics of a monopolistic bank granting loans and taking deposits from overlapping generations of entrepreneurs with different levels of expected income. Matching the evidence of the Grameen Bank we show that a bank will focus on individuals with lower expected income, and will not disburse dividends until it reaches all the potential borrowers. We find empirical support for our ...
Working Paper
The Conundrum of Zero APR: An Analytical Framework
We document the prevalence of promotional pricing of credit card debt in the U.S. and develop an analytic framework to study how interest rates on multiperiod credit line contracts should be set when debt is unsecured and defaultable. We show that according to the basic theory of unsecured credit — suitably extended to allow for promotions — interest rates should price in the expected default risk on a period-by-period basis. The inspection of our model’s mechanism implies that time-consistent consumption behavior is crucial for this result; accordingly, modeling time-inconsistent ...
Working Paper
Bank capital regulation and secondary markets for bank assets
The paper derives optimal capital requirements, when the bank?s quality is private information. The supervisor can inspect the bank and punish the undercapitalized one with recapitalization and downsizing. The cost of bank?s capital and its ability to sell its assets are crucial for the bank?s incentive to reveal its quality truthfully. The paper provides following policy implications. First, sensitivity of capital requirements to the bank?s quality should be low in good times and high in bad times. Second, a leverage ratio should be accompanied by a requirement that the bank selling its ...