Search Results
Report
Living Wills: A Tool for Curbing 'Too Big to Fail'
Economist Arantxa Jarque and senior editor David A. Price explore an innovation of the Dodd-Frank Act of 2010, which requires the largest and most complex financial institutions to create resolution plans to follow if the institutions fall into severe financial distress. In these plans, or "living wills," the institutions must give regulators a roadmap for resolving them via the bankruptcy process ? without disrupting the financial system or resorting to public bailouts. Jarque and Price argue that living wills are a tool that regulators can use to curb the "too big to fail" problem ...
Briefing
Assessing the Risks of Mortgage REITs
Regulators have expressed concern about the growth of a category of real estate investment trusts (REITs) that today invest primarily in mortgage-backed securities (MBS). These companies, known as mortgage REITs, or mREITs, have increased both in number and in asset size since the financial crisis, benefiting from federal guarantees and other support for MBS and from favorable regulatory treatment that allows high levels of leverage. While mREIT investors face significant risks, the level of risk that mREITs present to the financial system as a whole is unclear.
Briefing
Why Do Debit Card Networks Charge Percentage Fees?
Why do debit card networks base their fees on a percentage of transaction amounts when the marginal cost of executing a transaction does not vary by amount? Research suggests that this type of fee structure, a linear ad valorem fee, maximizes profits for card networks by allowing price discrimination. Also, because percentage fees make card usage more economical for lower-value transactions, such a fee structure tends to increase social welfare.
Briefing
Recoveries from recessions associated with banking crises : how does this one compare?
Recessions associated with banking crises tend to differ from other recessions in that the weakness of the financial sector, particularly the limited supply of credit, encumbers the subsequent recovery. The recovery from the 2007-09 recession, compared to past recoveries from recessions associated with banking crises, is within the historical range in terms of its level of GDP growth. In terms of unemployment, however, the recovery from the 2007-09 recession is markedly weaker than the historical norm.>
Briefing
Identifying systemically important financial institutions
The Dodd-Frank Act, in addressing systemic risks to the financial system, requires federal regulators to extend a variety of requirements to nonbank financial institutions that are deemed "systemically important." But how can regulators, and the institutions themselves, best determine whether an institution is systemically important? Research in this area has generated a number of potential approaches.
Briefing
The Richmond Fed Manufacturing and Service Sector Surveys: A User's Guide
The Richmond Fed conducts monthly surveys of business conditions in the manufacturing and service sectors of the Fifth Federal Reserve District. This article provides background information on these surveys and on other manufacturing and service sector surveys.The Richmond Fed conducts monthly surveys of business conditions in the manufacturing and service sectors of the Fifth Federal Reserve District. This article provides background information on these surveys and on other manufacturing and service sector surveys.
Briefing
Measuring CEO Compensation
Compensation packages for CEOs of large public companies often include grants of restricted stock and stock options, the value of which to the CEO depends on the future performance of the firm, as well as on the terms of the grants. This value, which is key to evaluating the CEO's incentives, can be estimated in a number of ways. The authors use measures based on the expected values and the realized values of pay to compare the compensation of CEOs in a sample of large public U.S. firms and a subset of financial firms before and after the 2007-08 financial crisis.
Briefing
Discount Window Lending: Policy Trade-offs and the 1985 BoNY Computer Failure
On November 21, 1985, the Bank of New York (BoNY) suffered a software failure that left it unable to redeliver securities it had received from other institutions as an intermediary. The result of the failure was that the bank sought and received $22.6 billion in discount window lending from the New York Fed, a record-setting amount. The episode presents a case study for considering when discount window lending and similar interventions are justified as a matter of efficiency, as well as the need for policymakers to take account of possible moral hazard that may lead to inadequate safeguards ...
Briefing
Basel III and the continuing evolution of bank capital regulation
Adopted in part as a response to the 2007-08 financial crisis, the Basel III accord is the most recent revision to international capital standards for banks. Basel III primarily relies on methods similar to those of Basel II for assessing the relative risks of different types of assets. The main focus of the changes in Basel III, rather, is to increase banks' equity capital requirements. This emphasis is a reflection of the conclusions drawn from the crisis: that bank fragility is more prevalent than previously thought and that the motivation for governments to assist banks in poor financial ...
Briefing
Implications of Risks and Rewards in College Decisions
Despite a large and growing earnings premium for college graduates, growth in college enrollment and especially college attainment in the United States has been quite slow. The labor market's apparent lack of responsiveness to the earnings premium may be driven in part by the risks that marginally prepared students face when they go to college. Failing or dropping out could leave them with low wealth, high debt, and low earnings. Recent research indicates that neither further increases in the earnings premium nor reductions in college costs are likely to produce large increases in the college ...