Search Results
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 ...
Journal Article
Are small rural banks vulnerable to local economic downturns?
A potentially troubling characteristic of the U.S. banking industry is the geographic concentration of many banks? offices and operations. Historically, banking laws have prevented U.S. banks from branching into other counties and states. A potential adverse consequence of these regulations was to leave banks?especially small rural banks?vulnerable to local economic downturns. If geographic concentration of bank offices leaves banks vulnerable to local economic downturns, we should observe a significant correlation between bank performance and the local economy. Looking at Eighth District ...
Working Paper
Can feedback from the jumbo-CD market improve off-site surveillance of community banks?
We examine the value of feedback from the jumbo-certificate-of-deposit (CD) market in the off-site surveillance of community banks. Using accounting data, we construct proxies for default premiums on jumbo CDs. Then, we produce rank orderings of community banks -- defined as institutions holding less than $500 million in assets (constant 1999 dollars) -- based on these proxies. Next, we use an econometric surveillance model to generate rank orderings based on the probability of encountering financial distress. Finally, we compare these rank orderings as tools for flagging emerging problems. ...
Journal Article
How Fast Will Banks Adopt New Technology This Time?
We offer insight into this question of what might happen with respect to the introduction of new technologies by looking back at what did happen following introduction of an earlier technology: bank websites. If the past is prologue, this may foretell how technological innovations in banking will be diffused in the future.
Journal Article
Are district banks losing their profit edge?
After decades of beating out their peers in the return on average assets race, Eighth District banks now trail the pack.
Journal Article
Should we ax the capital gains tax?
Journal Article
Why Are More Credit Unions Buying Community Banks?
This trend is growing but remains small because of regulatory and business-model challenges.
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.
Journal Article
The role of supervisory screens and econometric models in off-site surveillance
Off-site surveillance involves using financial ratios to identify banks likely to develop safety-and-soundness problems. Bank supervisors use two tools to flag developing problems: supervisory screens and econometric models. Despite the statistical dominance of models, supervisors continue to rely heavily on screens. We use data from the 1980s and 1990s to compare, once again, the performance of the two approaches to off-site surveillance. Our study explicitly addresses supervisors' criticisms of econometric models. In particular, we offer a new econometric model - one designed to forecast ...