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Journal Article
Safe and sound banking twenty years later: what was proposed and what has been adopted
This article assesses the extent to which changes in public policy regarding depository institutions have aligned with the recommendations made twenty years ago in Perspectives on Safe and Sound Banking (Benston et al. 1986). Several legislative initiatives and bank regulatory and supervisory changes during the past two decades have been in keeping with Benston and his coauthors' recommendations and analyses. But other recommendations in the book have not been followed, and some proposals the book rejected have been enacted through legislation or regulation. ; The article focuses in turn on ...
Journal Article
Mergers of publicly traded banking organizations revisited
In more than 3,844 mergers and acquisitions between 1989 and 1999, acquiring institutions purchased more than $3 trillion in assets. A number of reasons have been advanced for such a surge in acquisitions, including the need to consolidate to achieve cost savings and operational efficiencies, to be better able to compete in the global marketplace, or to provide for the controlled exit of inefficient firms from the financial services industry. ; This article explores the question of whether the various expected performance and earning benefits of mergers are in fact realized. It adds to the ...
Working Paper
The informativeness of stochastic frontier and programming frontier efficiency scores: Cost efficiency and other measures of bank holding company performance
This paper examines the properties of the X-inefficiencies in U.S. bank holding companies derived from both stochastic and linear programming frontiers. This examination allows the robustness of results across methods to be compared. While we find that calculated programming inefficiency scores are two to three times larger than those estimated using a stochastic frontier, the patterns of the scores across banks and time are similar, and there is a relatively high correlation of the rankings of banks' efficiencies under the two methods. However, when we examine the "informativeness" of the ...
Working Paper
The temporal relationship between individual stocks and individual bonds
This paper investigates the comovements of stocks and bonds at the individual firm level. Based on a sample of 702 corporate bonds, individual stock returns and bond yield changes are found to be negatively correlated, suggesting that the comovements of individual stocks and bonds are largely driven by information about the mean value of the firms' assets, rather than the variance of asset returns. Furthermore, lagged stock returns are found to have explanatory power for current bond yield changes, but current stock returns are unrelated to lagged bond yield changes, indicating that stocks ...
Working Paper
An analysis of inefficiencies in banking: a stochastic cost frontier approach
This paper examines the properties of X-inefficiencies in U.S. banking firms. We find that, after controlling for scale differences, the average small size banking firm is less efficient than the aerate large firm. Smaller firms also exhibit higher variation in X-inefficiencies than their larger counterparts. X-inefficiency on average appears to be declining over time. However, the rank ordering of X-inefficiency is significantly correlated with smaller banking firms' stock returns. ; Published in FRBSF Economic Review (1996 no. 2, p. 16-26)
Working Paper
The role of private placement debt issues in corporate finance
Private placement debt issues are more effective than public bonds in resolving information asymmetries and controlling moral hazard problems. Firms that issue only private placements (non-switchers) are found to have more information problems than firms that have access to the public bond market (switchers), and therefore are required to pay more for their private placements. Moreover, switchers switch to private placements when the financing situation involves material information asymmetry that is unsuitable for issuing public bonds. For general purposes financing, switchers switch to ...
Working Paper
Hidden cost reductions in bank mergers: accounting for more productive banks
Over the past decade, the banking industry has undergone rapid consolidation; indeed, on average, for the past three years there were more than two bank mergers every business day. Before the 1990s, most bank mergers involved banks with less than $1 billion in assets; more recently, even the very largest banks have merged with other banks and with nonbank financial firms. ; Globalization, technological advances, and regulatory retreat are often cited as factors that have stimulated and allowed more banks to merge. Mergers may reduce costs if they enable banks to close redundant branches or ...
Working Paper
Market evidence on the opaqueness of banking firms' assets.
We assess the market microstructure properties of U.S. banking firms' equity, to determine whether they exhibit more or less evidence of asset opaqueness than similar-sized nonbanking firms. The evidence strongly indicates that large banks (traded on NASDAQ) trade much less frequently despite microstructure characteristics. Problem (noncurrent) loans tend to raise the frequency with which the bank's equity trades, as well as the equity's return volatility. The implications for regulatory policy and future market microstructure research are discussed.
Working Paper
Securities activities by commercial banking firms' Section 20 subsidiaries: risk, return and diversification benefits
This paper studies the implications of securities activities on bank safety and soundness by comparing the ex-post returns between banking firms' Section 20 subsidiaries -- subsidiaries that were authorized by the Federal Reserve to conduct bank-ineligible securities activities -- and their commercial bank affiliates. I found that securities subsidiaries that are primary dealers of government securities, their higher risk partially comes from their higher leverage, whereas for those that are not primary dealers, despite having lower leverage, they tend to be riskier than their bank ...
Journal Article
Market Reactions to Tariff Announcements
Financial markets repriced assets across a wide range of sectors following the U.S. trade policy announcement on April 2, 2025. Analysis suggests that market participants interpreted tariffs to have direct effects not only on companies in the sectors involved but also indirect effects on overall demand. Investors expected declines in corporate profits to be persistent both in the United States and abroad. The U.S. dollar depreciated against other safe-haven currencies, which points to investors reallocating their portfolios away from the United States and toward other markets.