Search Results
Journal Article
Glass-Steagall and the regulatory dialectic
An explanation of how the Glass-Steagall Act, passed to prohibit U.S. commercial banks from engaging in investment banking activities, has led to the same costly cat-and-mouse game between banks and their regulators as did the prohibition against interstate banking, and an argument that lawmakers should consider banks' incentives when crafting new regulations.
Journal Article
The dark side of liquidity
A look at the disadvantages of a firm's having too much liquidity, explaining that when a company has a great deal of its worth tied up in liquid assets, it has a harder time attracting investors, who must be convinced that the firm's managers will not "take the money and run."
Journal Article
The risk effects of bank acquisitions
An examination of the risk effects of bank acquisitions that occurred between the first quarter of 1984 and the last quarter of 1993. Its findings -- that banks are not using acquisitions to increase their risk exposure and that acquisitions increase profitability over time -- cast doubt on the importance of risk diversification as a motive for bank acquisitions.
Journal Article
Banking and commerce: how does the United States compare to other countries?
Historically, U.S. banks have not been permitted to invest in nonfinancial firms. Restrictions on firms' investments in banks, however, are a recent phenomenon. A comparison of U.S. and foreign regulation of affiliations between banks and nonfinancial firms shows that foreign banking laws are much more liberal. Nonetheless, data on banks' investment in shares and participations shows that they represent only a small fraction of banks' assets.
Working Paper
The importance of bank seniority for relationship lending
The authors examine two aspects of a bank's interaction with its borrowers--the relative priority of bank debt and the role of banks as "relationship lenders." They show that making the bank senior improves its incentives to build a relationship with the firm, thereby fulfilling an important function of intermediated debt.
Working Paper
Commercial banks in the securities business: a review
An analysis of the potential effects of commercial banks' expansion into the securities business, focusing on gains, such as information advantages and economies of scope, as well as on potential costs, including conflicts of interest and risk considerations.
Working Paper
Bank capital and equity investment regulations
An intermediation model that examines the efficiency and welfare implications of banks' required capital-asset ratio and of the regulations that limit - and in some countries forbid - banks' investments in equity to a certain proportion of each firm's capital. ; A look at how episodes of competing currencies can provide insight on 1) the qualities of a commodity that lead to its becoming a dominant currency, 2) the route by which a nationally mandated paper currency becomes acceptable as a medium of exchange, and 3) the way in which competition between currencies sustains the exchange value ...
Working Paper
Securities activities in banking conglomerates: should their location be regulated?
A review of the arguments as to whether the location of the securities unit in a banking conglomerate should be subject to regulation. The author contends that correcting the safety nets distortions and allowing banks to choose where to locate their securities units is better than retaining such distortions and relying on corporate separateness to limit the problems they may create.
Working Paper
Debt and equity as optimal contracts
Using a principal-agent model in which an entrepreneur has an investment project whose returns depend on his effort, which is not observable by the financier, the author shows that the optimal contract used to finance such a project can be replicated by a unique combination of debt and equity, proving the optimality of these financial instruments. ; A look at the evolution of the collection, clearinghouse, and regulatory provisions of the Federal Reserve Act. The Reserve Banks? check collection service was designed in 1913 to serve as "glue," attaching the new central bank to the commercial ...
Working Paper
Banking and commerce: a liquidity approach
This paper looks at the advantages and disadvantages of mixing banking and commerce, using the "liquidity" approach to financial intermediation. Adding a commercial firm makes it easier for a bank to dispose of assets seized in a loan default. This "internal market" increases the liquidity of such assets and improves the bank's ability to perform financial intermediation. More generally, owning a commercial firm may act either as a substitute or a complement to commercial lending. In some cases, a bank will voluntarily refrain from making loans, choosing to become a nonbank bank in an ...