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Journal Article
Are small rural banks vulnerable to local economic downturns?
A potentially troubling characteristic of the U.S. banking industry is the geographic concentration of many banks? offices and operations. Historically, banking laws have prevented U.S. banks from branching into other counties and states. A potential adverse consequence of these regulations was to leave banks?especially small rural banks?vulnerable to local economic downturns. If geographic concentration of bank offices leaves banks vulnerable to local economic downturns, we should observe a significant correlation between bank performance and the local economy. Looking at Eighth District ...
Journal Article
The housing giants in plain view
These government-sponsored enterprises continue to make headlines because of their explosive growth and resulting heavyweight status within the nation's financial system.
Working Paper
Should the FDIC worry about the FHLB? The impact of Federal Home Loan Bank advances on the Bank Insurance Fund
Does growing commercial-bank reliance on Federal Home Loan Bank (FHLBank) advances increase expected losses to the Bank Insurance Fund (BIF)? Our approach to this question begins by modeling the link between advances and expected losses. We then quantify the effect of advances on default probability with a CAMELS-downgrade model. Finally, we assess the impact on loss-given-default by estimating resolution costs in two scenarios: the liquidation of all banks with failure probabilities above two percent and the liquidation of all banks with advance-to-asset ratios above 15 percent. The evidence ...
Journal Article
Is federal home loan bank funding a risky business for the FDIC?
Easy access to FHLB funds has helped community banks stay afloat in today's competitive markets, but could pose a risk to the FDIC's insurance fund.
Journal Article
Community ties: does \\"relationship lending\\" protect small banks when the local economy stumbles?
The cover story examines why small banks aren't usually thrown for a loop when the local economy has a rough ride
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 ...
Working Paper
Scale economies and geographic diversification as forces driving community bank mergers
Mergers of community banks across economic market areas potentially reduce both idiosyncratic and local market risk. Idiosyncratic risk may be reduced because the larger post merger bank has a larger customer base. Negative credit and liquidity shocks from individual customers would have smaller effects on the portfolio of the merged entity than on the individual community banks involved in the merger. Geographic dispersion of banking activities across economic market areas may reduce local market risk because an adverse economic development that is unique to one market area will not affect a ...
Journal Article
The door is open, but banks are slow to enter insurance and investment arenas
Congress opened the door five years ago for banks to enter the insurance and investment arenas, but the expected rush has yet to occur. That's probably fine with critics, who feared that the return of universal banks would bring back Depression-like instability.
Journal Article
The foreclosure crisis in 2008: predatory lending or household overreaching?
At least early in the financial crisis, the high rate of foreclosures seemed to be due more to households' overreaching than to predatory lending. A disproportionate number of those being foreclosed on were well-educated, well-off and relatively young people.