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Working Paper
Executive compensation at Fannie Mae and Freddie Mac
Corporate governance-and executive-compensation arrangements in particular-should be an important component of the agenda to reform the housing GSEs. The GSEs' safety-and-soundness regulator-who is essentially the debtholders' and taxpayers' representative-must be admitted to the GSEs' boardroom in a way that is atypical of an ordinary publicly held company. This intrusion into the board's oversight of executive-compensation plans is justified given the GSEs' public purposes and their large potential cost to taxpayers. Prudent public policy requires greater supervisory control over executive ...
Working Paper
A unified analysis of executive pay: the case of the banking industry
This study examines executive compensation determinants in the U.S. banking industry. Multiple theories of executive pay are discussed and tested using a relatively homogenous sample. We perform an in-depth look at the corporate governance and ownership structure of the companies selected. We explore the simultaneous relationship between compensation, firm performance, and board strength, exploiting variables unique to the banking industry. Our primary finding is that after controlling for both regulatory oversight and external market discipline, a strong board is associated with higher firm ...
Working Paper
Relationship loans and regulatory capital: why fair-value accounting is inappropriate for bank loans
Banks have been required to report many securities and all derivatives at fair values under U.S. GAAP rules for many years. Soon, International Accounting Standards will provide some banks with a ?fair-value option? for loans, also. A similar movement toward applying fair values to loans may occur in the U.S. in the near future, too. ; This paper argues that fair-value accounting is inappropriate for banks? relationship loans from the standpoint of safety-and-soundness supervision?that is, for the purposes of calculating a bank?s regulatory capital. The argument is straightforward, although ...
Journal Article
What does the Federal Reserve's economic value model tell us about interest rate risk at U.S. community banks?
The savings and loan crisis of the 1980s revealed the vulnerability of some depository institutions to changes in interest rates. Since that episode, U.S. bank supervisors have placed more emphasis on monitoring the interest rate risk of commercial banks. Economists at the Board of Governors of the Federal Reserve System developed a duration-based economic value model (EVM) designed to estimate the interest rate sensitivity of banks. The authors test whether measures derived from the Fed?s EVM are correlated with the interest rate sensitivity of U.S. community banks. The answer to this ...
Working Paper
Financial condition of community banks
This article examines the condition of the banking industry in the United States, with an emphasis on community banks. In spite of the recent recession, the condition of the banking industry is substantially better than during the recession of 1990-91. There has been an increase in problem loans at both large and small banks during recent quarters, and nonperforming loans have risen relative to the allowance for loan and lease losses. Among the banks in each of the size groups in this article, however, ratios of equity to total assets in recent quarters are at about their highest levels since ...
Journal Article
The financial condition of U.S. banks: how different are community banks?
This article examines the condition of the banking industry in the United States, with an emphasis on community banks. In spite of the recent recession, the condition of the banking industry is substantially better than during the recession of 1990-91. There has been an increase in problem loans at both large and small banks during recent quarters, and nonperforming loans have risen relative to the allowance for loan and lease losses. Among the banks in each of the size groups in this article, however, ratios of equity to total assets in recent quarters are at about their highest levels since ...
Working Paper
What does the Federal Reserve’s economic value model tell us about interest rate risk at U.S. community banks?
The savings and loan crisis of the 1980s revealed the vulnerability of some depository institutions to changes in interest rates. Since that episode, U.S. bank supervisors have placed more emphasis on monitoring the interest rate risk of commercial banks. One outcome developed by economists at the Federal Reserve Board of Governors was a duration-based Economic Value Model (EVM) designed to estimate the interest rate sensitivity of banks. ; We test whether measures derived from the Fed?s EVM are correlated with the interest rate sensitivity of U.S. community banks. The answer to this question ...