Bank holding company capital ratios and shareholder payouts
Last year's sharp drop in the capital ratios of bank holding companies could cast doubt on the companies' future capital strength, especially if credit quality eroded significantly or if profitability weakened. However, an analysis linking the drop in ratios to bank efforts to increase shareholder payouts in a period of strong profitability suggests that these concerns are premature.
The evolution of U.S. bank branch networks: growth, consolidation, and strategy
Bank branches have become steadily more concentrated within large and midsized branch networks over the past decade. A look at branching trends between 2001 and 2003 reveals that banks with large networks grew slowly and strategically during this period as they adjusted their branch holdings within existing markets, while institutions with midsized branch networks expanded more aggressively.
Using credit risk models for regulatory capital: issues and options
The authors describe the issues and options that would be associated with the development of regulatory minimum capital standards for credit risk based on banks' internal risk measurement models. Their goal is to provide a sense of the features that an internal-models (IM) approach to regulatory capital would likely incorporate, and to stimulate discussion among financial institutions, supervisors, and other interested parties about the many practical and conceptual issues involved in structuring a workable IM regulatory capital regime for credit risk. The authors focus on three main areas: ...
Bank capital requirements for market risk: the internal models approach
The increases prominence of trading activities at many large banking companies has highlighted bank exposure to market risk-the risk of loss from adverse movements in financial market rates and prices. In response, bank supervisors in the United States and abroad have developed a new set of capital requirements to ensure that banks have adequate capital resources to address market risk. This paper offers an overview of the new requirements, giving particular attention to their most innovative feature: a capital charge calculated for each bank using the output of that bank's internal risk ...
The challenges of risk management in diversified financial companies
In recent years, financial institutions and their supervisors have placed increased emphasis on the importance of measuring and managing risk on a firmwide basis?a coordinated process referred to as consolidated risk management. Although the benefits of this type of risk management are widely acknowledged, few if any financial firms have fully developed systems in place today, suggesting that significant obstacles have led them to manage risk in a more segmented fashion. In this article, the authors examine the economic rationale behind consolidated risk management. Their goal is to detail ...
Trends in financial market concentration and their implications for market stability
The link between financial market concentration and stability is a topic of great interest to policymakers and other market participants. Are concentrated markets - those where a relatively small number of firms hold large market shares - inherently more prone to disruption? This article considers that question by drawing on academic studies as well as introducing new analysis. Like other researchers, the authors find an ambiguous relationship between concentration and instability when a large firm in a concentrated market fails. In a complementary review of concentration trends across a ...
The role of retail banking in the U.S. banking industry: risk, return, and industry structure
The U.S. banking industry is experiencing a renewed interest in retail banking, broadly defined as the range of products and services provided to consumers and small businesses. This article documents the ?return to retail? in the U.S. banking industry and offers some insight into why the shift has occurred. At the bank level, the principal attraction of retail banking seems to be the belief that its revenues are stable and thus can offset volatility in nonretail businesses. At the industry level, the authors show that interest in retail activities fluctuates in rather predictable ways with ...
Supervising large, complex financial institutions: what do supervisors do?
The supervision of large, complex financial institutions is one of the most important, but least understood, activities of the Federal Reserve. Supervision entails monitoring and oversight to assess whether firms are engaged in unsafe or unsound practices, and to ensure that firms take appropriate action to correct such practices. It is distinct from regulation, which involves the development and promulgation of the rules under which firms operate. This article brings greater transparency to the Federal Reserve?s supervisory activities by considering how they are structured, staffed, and ...