Search Results
Journal Article
Scale Matters: Community Banks and Compliance Costs
Research shows that complying with government regulations is more burdensome for smaller community banks than larger community banks. Despite spending proportionately more resources on compliance, the smaller banks do not perform as well as the larger ones, at least in one key metric.
Working Paper
Did FDICIA enhance market discipline on community banks? a look at evidence from the jumbo-CD market
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) directed the FDIC to resolve bank failures in the least costly manner, shifting more of the failure-resolution burden to jumbo-CD holders. We examine the sensitivity of jumbo-CD yields and runoffs to failure risk before and after FDICIA. We also examine the economic significance of estimated risk sensitivities before and after the Act, looking at the implied impact of risk on bank funding costs and profits. The evidence indicates that yields and runoff were sensitive to risk before and after FDICIA, but that this ...
Working Paper
Can feedback from the jumbo-CD market improve bank surveillance?
We examine the value of jumbo certificate-of-deposit (CD) signals in bank surveillance. To do so, we first construct proxies for default premiums and deposit runoffs and then rank banks based on these risk proxies. Next, we rank banks based on the output of a logit model typical of the econometric models used in off-site surveillance. Finally, we compare jumbo-CD rankings and surveillance-model rankings as tools for predicting financial distress. Our comparisons include eight out-of-sample test windows during the 1990s. We find that rankings obtained from jumbo-CD data would not have improved ...
Working Paper
Do jumbo-CD holders care about anything?
Uninsured deposits represent a theoretically appealing but relatively untested alternative to subordinated debt for incorporating market discipline into banking supervision. To make the deposit market a useful supervisory tool, it is necessary to know what types of risk are priced by depositors and in what proportions. Using a clustering technique to select from among a large set of potential regressors, as well as a carefully chosen set of control variables, we attempt to determine the types of risk that cause uninsured depositors to react in both the price and quantity dimensions. As a ...
Journal Article
The future of community banks: lessons from banks that thrived during the recent financial crisis
The authors study the distinguishing features of community banks that maintained the highest supervisory ratings during the recent financial crisis (2006 to 2011). They identify balance sheet and income statement ratios that separate these thriving banks from other community banks and supplement that analysis with detailed interview evidence from a sample of thriving banks. They conclude that there is a strong future for well-run community banks and that the banks that prosper will be the ones with strong commitments to maintaining risk control standards in all economic environments. There is ...
Journal Article
Trends in community banks' net interest margins
Net interest margins are clearly under pressure at community banks, but this trend is not new. It is a product of a highly competitive banking industry and a direct result of today?s lower lending levels and abundant balance sheet liquidity. The net interest margin is the difference between interest income and interest expense. Interest income and interest expense fluctuated considerably through the business cycle, but the long-term trend indicates that asset yields are falling faster than deposit and other funding costs.
Journal Article
How healthy is the U.S. banking system? funneling financial data into failure probabilities
The diagnosis on banks is comforting, despite a few weak spots here and there and an economy that's slowing down.
The Rise of Cyber Branches in Banking
Banks are increasingly using online-only branches, or “cyber” branches, to gather deposits nationwide, leading to difficulties when measuring market concentration.
Journal Article
Should we ax the capital gains tax?
Journal Article
Jumbo CDs play tiny role in policing risky banks ... so far
Reforms enacted after the S&L crisis have yet to persuade holders of jumbo CDs to monitor their banks' risky practices.