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Author:Carlson, Mark A. 

Working Paper
Causes of bank suspensions in the panic of 1893

There are two competing theories explaining bank panics. One argues that panics are driven by real shocks, asymmetric information, and concerns about insolvency. The other theory argues that bank runs are self-fulfilling, driven by illiquidity and the beliefs of depositors. This paper tests predictions of these two theories using information uniquely available for the Crisis of 1893. The results suggest that real economic shocks were important determinants of the location of panics at the national level, however at the local level, both insolvency and illiquidity were important as triggers of ...
Finance and Economics Discussion Series , Paper 2002-11

Working Paper
Did the Founding of the Federal Reserve Affect the Vulnerability of the Interbank System to Congation Risk?

As a result of legal restrictions on branch banking, an extensive interbank system developed in the United States during the nineteenth century to facilitate interregional payments and flows of liquidity and credit. Vast sums moved through the interbank system to meet seasonal and other demands, but the system also transmitted shocks during banking panics. The Federal Reserve was established in 1914 to reduce reliance on the interbank system and to correct other defects that caused banking system instability. Drawing on recent theoretical work on interbank networks, we examine how the Fed?s ...
Working Papers , Paper 2016-12

Journal Article
Profits and balance sheet developments at U.S. commercial banks in 2002

Despite the lackluster performance of the U.S. economy, the profitability of the U.S. commercial banking industry was again high in 2002, and the return on bank assets reached its highest level in more than three decades. Profitability was spurred in considerable part by declines in market interest rates to extraordinarily low levels. Short-term interest rates were low throughout 2002 as a result of the Federal Reserve's aggressive easing the year before in response to economic weakness, and longer-term rates fell to multidecade lows by year-end. Nevertheless, the yield curve steepened on ...
Federal Reserve Bulletin , Volume 89 , Issue Jun , Pages 243-270

Working Paper
The Effect of the PPPLF on PPP Lending by Commercial Banks

We analyze whether the Federal Reserve's Paycheck Protection Program Liquidity Facility (PPPLF) was successful in bolstering the ability of commercial banks to provide credit to small businesses under the Small Business Administration's Paycheck Protection Program (PPP). Using an instrumental variables approach, we find a causal effect of the facility boosting PPP lending. On average, commercial banks that used the PPPLF extended over twice as many PPP loans, relative to their total assets, as banks that did not use the PPPLF. Our instrument is a measure of banks' familiarity with the ...
Finance and Economics Discussion Series , Paper 2021-030

Working Paper
Navigating constraints: the evolution of Federal Reserve monetary policy, 1935-59

The 1950s are often cited as a decade in which the Federal Reserve operated a particularly successful monetary policy. The present paper examines the evolution of Federal Reserve monetary policy from the mid-1930s through the 1950s in an effort to understand better the apparent success of policy in the 1950s. Whereas others have debated whether the Fed had a sophisticated understanding of how to implement policy, our focus is on how the constraints on the Fed changed over time. Roosevelt Administration gold policies and New Deal legislation limited the Fed?s ability to conduct an independent ...
Globalization Institute Working Papers , Paper 205

Working Paper
Can a Bank Run Be Stopped? Government Guarantees and the Run on Continental Illinois

This paper analyzes the run on Continental Illinois in 1984. We find that the run slowed but did not stop following an extraordinary government intervention, which included the guarantee of all liabilities of the bank and a commitment to provide ongoing liquidity support. Continental's outflows were driven by a broad set of US and foreign financial institutions. These were large, sophisticated creditors with holdings far in excess of the insurance limit. During the initial run, creditors with relatively liquid balance sheets nevertheless withdrew more than other creditors, likely reflecting ...
Finance and Economics Discussion Series , Paper 2016-3

Working Paper
Corporate Governance and Risk Management at Unprotected Banks: National Banks in the 1890s

Managers' incentives may conflict with those of shareholders or creditors, particularly at leveraged, opaque banks. Bankers may abuse their control rights to give themselves excessive salaries, favored access to credit, or to take excessive risks that benefit themselves at the expense of depositors. Banks must design contracting and governance structures that sufficiently resolve agency problems so that they can attract funding from outside shareholders and depositors. We examine banks from the 1890s, a period when there were no distortions from deposit insurance or government interventions ...
Finance and Economics Discussion Series , Paper 2014-08

Working Paper
Distress in the financial sector and economic activity

This paper explores the relationship between the health of the financial sector and the rest of the economy. We develop an index of financial sector health using a distance-to-default measure based on a Merton-style option pricing model. Our index spans over three decades and appears to capture periods when financial sector institutions were strong and when they were weak. We then use vector autoregressions to assess whether our index of financial-sector health affects the real economy, in particular non-residential investment. The results indicate that our index has a considerable impact. ...
Finance and Economics Discussion Series , Paper 2008-43

Working Paper
Using policy intervention to identify financial stress

This paper describes the construction of a financial stress index. This stress index differs from other indexes in that it incorporates the co-movement and volatility of financial series as well as the levels of the series. Our index also uses past experience more than others to guide the assessment about which characteristics of the data suggest financial stress exists. In addition to describing the construction of our financial stress index, we spend some time discussing issues relevant to the general construction of stress indexes.
Finance and Economics Discussion Series , Paper 2012-02

Working Paper
Are branch banks better survivors? Evidence from the Depression era

It is widely argued in the literature on the Great Depression that the prevalence of unit banks aggravated the problem of financial instability that afflicted the country. This paper tests the theory that more widespread branch banking would have reduced financial turbulence in the United States by examining the survival of individual branch and unit banks. Results indicate that instead of being more likely to survive, branch banks were more likely to fail. Further investigation suggests that this higher failure rate occurred because branch banks systematically held riskier portfolios than ...
Finance and Economics Discussion Series , Paper 2001-51

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