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Journal Article
Do capital markets predict problems in large commercial banks?
In the present climate of intense debate over deposit insurance reform, the nature and limits of market discipline become especially important. The widely accepted argument for greater reliance on market discipline is that it will restrain managerial risk-taking and reduce potential losses to the deposit insurance fund. Opponents of this view favor the traditional reliance on supervision by the bank regulatory agencies as the primary method to maintain the safety and soundness of the banking system and the integrity of the deposit insurance fund. ; This article attempts to shed some empirical ...
Journal Article
Mutual-to-stock-conversions by New England savings banks: where has all the money gone?
In the aftermath of the real estate slump and the attendant financial troubles of the New England banks, it is natural to look for causes and contributing factors. One phenomenon that has received its share of the blame is the rush of conversions by thrifts in the mid 1980s from mutual to stock form of ownership. Conversions were hailed initially as a way to fortify the eroded capital of thrifts and increase their safety and soundness. ; This article compares the behavior of converted thrifts with that of the mutuals. It finds that converted institutions took greater risks, suffered bigger ...
Working Paper
Failed bank resolution and the collateral crunch: the advantages of adopting transferable puts
Current methods of failed bank resolution are unnecessarily expensive for taxpayers and impose substantial costs on borrowers at failed banks. This situation is due to distorted incentives imbedded in the standard contract between the government and acquirers of failed banks, which result in more loan foreclosures than if the loan were held by a well-capitalized bank. This paper proposes a modification to the standard contract in the form of a transferable put, which would introduce market-based incentives to the disposition of failed bank assets.
Journal Article
Measuring credit risk in interest rate swaps
Journal Article
Use of value at risk by institutional investors
In recent years, risk management has been of growing interest to institutional investors, including pension funds, insurance companies, endowments, and foundations, as well as the asset management firms that manage funds on their behalf. Traditionally, institutional investors, and particularly pension funds, have emphasized measuring and rewarding investment performance by their portfolio managers. In the past decade, however, many U.S. pension funds have significantly increased the complexity of their portfolios by broadening the menu of acceptable investments. At the same time, ...
Journal Article
Has antitrust policy in banking become obsolete?
The authors analyze the effect of bank mergers on deposit interest rates, using data on banks responding to the Federal Reserve's Monthly Survey of Selected Deposits over an 11-year period. Their results suggest that banks exercise market power in pricing money market deposits and CD's in their local markets.
Journal Article
Risk-adjusted performance of mutual funds
Mutual funds are now the preferred way for individual investors and many institutions to participate in capital markets, and their popularity has increased demand for evaluations of fund performance. Many business publications now rank mutual funds according to their performance, and information services exist specifically for this purpose. There is no general agreement, however, about how best to measure and compare fund performance and on what information funds should disclose to investors. ; Risk and performance measurement is an active area for academic research and continues to be of ...
Journal Article
New England banks and the Texas experience
New England banks are currently suffering from problems similar to those that caused the demise of many Texas banks. In both cases, a boom in the real-estate sector was followed by a sharp contraction caused by weakness in the leading sectors of the economy. In both cases, banks had greatly expanded their real-estate lending, and the declining real-estate prices produced substantial loan losses. ; This study suggests, however, that these similarities do not imply that New England will go on to repeat the Texas experience. The author finds that New England does not suffer from construction ...
Journal Article
The advantages of \"transferrable puts\" for loans at failed banks
In testimony on February 3, 1992 before the Committee on Banking, Housing, and Urban Affairs of the United States Senate, Richard F. Syron, President of the Federal Reserve Bank of Boston, proposed a mechanism to help relieve current credit availability problems by making existing FDIC guarantees of loans transferable throughout the private financial system. This article examines Mr. Syrons rationale for the proposal and how it might work. ; Under this scheme, when performing nonperforming loans are placed in the equivalent of "bad banks" by the FDIC, the borrower could transfer the loan to ...
Working Paper
Reverse mortgages and the liquidity of housing wealth
The article is organized as follows: Section I briefly describes the features of various types of reverse mortgages offered in the private and public sectors. Section II surveys the ~elevant literature that has focused on the savings patterns of the elderly and their demand for reverse mortgage products. Section III describes the sample of the elderly drawn from the Survey of Income and Program Participation (SIPP). Section IV analyzes the potential demand for reverse mortgages on the basis of age, fertility history, income, housing wealth, liquid wealth, and debt. Section V discusses the ...