Search Results
Journal Article
Bank diversification, economic diversification?
Business cycle volatility has fallen in the United States during the past two decades. Trehan (2005) explains some of the possible mechanisms behind our now more stable economy. Some researchers have argued, for instance, that businesses manage inventory better today than in the past, or that innovations in financial markets have helped smooth out business fluctuations; others have emphasized better economic policy; still a third camp argues for nothing more than good luck. ; This Economic Letter explores in some detail one aspect of better finance. Changes in regulations during the 1980s and ...
Working Paper
The consolidation of the financial services industry: causes, consequences, and implications for the future
This article designs a framework for evaluating the causes, consequences, and future implications of financial consolidation, reviews the extant research literature within the context of this framework (over 250 references), and suggests fruitful avenues for future research. The evidence is consistent with increases in market power from some types of consolidation; improvements in profit efficiency and diversification of risks, but little or no cost efficiency improvements; relatively little effect on the availability of services to small customers; potential improvements in payments system ...
Journal Article
Historical patterns and recent changes in the relationship between bank holding company size and risk
What is the relationship between a bank holding company's size and the risk it takes? The authors find that although the level of risk at large and small bank holding companies has not differed significantly, important distinctions exist in the nature of that risk. Historically, large companies' diversification advantages were offset by lower capital ratios and the pursuit of risk-enhancing activities. More recently, however, differences between the capital ratios and activities of large and small companies have narrowed. As a result, an inverse relationship between risk and bank holding ...
Report
Entry restrictions, industry evolution, and dynamic efficiency: evidence from commercial banking
This paper shows that bank performance improves significantly after restrictions on bank expansion are lifted. We find that operating costs and loan losses decrease sharply after states permit statewide branching and, to a lesser extent, after states allow interstate banking. The improvements following branching deregulation appear to occur because better banks grow at the expense of their less-efficient rivals. By retarding the "natural" evolution of the industry, branching restrictions reduce the performance of the average banking asset. We also find that most of the reduction in banks' ...
Conference Paper
Bankers on boards: monitoring, financing, and lender liability
This paper investigates what factors determine whether a commercial banker joins the board of a non-financial firm and how a banker on the board affects the firm. We consider the trade off between the benefits of bank monitoring to the firm and the costs to the bank of becoming actively involved in firm management. On the one hand, smaller and more volatile firms with few tangible assets might benefit most from close bank ties. On the other, the U.S. legal doctrines "equitable subordination" and "lender liability" could generate high costs for banks which have a representative on the ...
Conference Paper
Board connections, conflicts, and bank lending behavior
Working Paper
Tracing Out Capital Flows: How Financially Integrated Banks Respond to Natural Disasters
Multimarket banks reallocate capital when local credit demand increases after natural disasters. Using property damage as an instrument for lending growth, we find credit in unaffected but connected markets declines by a little less than 50 cents per dollar of additional lending in shocked areas. However, banks shield their core markets because most of the decline comes from loans in areas where banks do not own branches. Moreover, banks increase sales of more-liquid loans and they bid up the prices of deposits in the connected markets. These actions help lessen the impact of the demand shock ...