Regulatory Burden Rising
U.S. commercial banks face growing regulatory requirements and complexity, especially with the Dodd?Frank Wall Street Reform and Consumer Protection Act of 2010, which was intended to rein in excesses of the largest banks. The nation would be better served by a regulatory framework that more fully accounts for the operational differences between small and large banks.
AUTHORS: Koch, Christoffer
Liquidity mismatch helps predict bank failure and distress
Liquidity mismatch?the risk of a bank being unable to fund increases in assets or meet its obligations as they come due?increased in the U.S. banking sector during the run-up to the financial crisis, especially at the largest institutions, contributing to bank failure and distress.
AUTHORS: Murphy, Anthony; Cooke, J. B.; Koch, Christoffer
Bank Asset Concentration Not Necessarily Cause for Worry
U.S. banking assets have become substantially more concentrated within a few large institutions. However, decreasing relative rates of big-bank growth and of idiosyncratic volatility?an indicator of individual bank susceptibility to shocks and a resulting redistribution of assets?suggest a reduction in systemic financial system risk through contagion.
AUTHORS: Koch, Christoffer; Fernholz, Ricardo T.
Impact of Macroeconomic Surprises Changed After Zero Lower Bound
Macroeconomic surprises involving employment and inflation?reflecting the Fed?s attempts to achieve its dual mandate to promote full employment and price stability?increased in importance during the zero-lower-bound period. Also, market participants were more attentive to housing market indicators and final GDP revisions.
AUTHORS: Yung, Julieta; Koch, Christoffer
Weakly capitalized banks slowed lending recovery after recession
The reluctance to lend played out particularly among a subset of banks?often larger institutions with very low ratios of capital to assets.
AUTHORS: Koch, Christoffer; Cooke, J. B.
Too small to succeed?—community banks in a new regulatory environment
AUTHORS: Siems, Thomas F.; Koch, Christoffer; Ash, Preston
Blockchain Technology Disrupting Traditional Records Systems
AUTHORS: Koch, Christoffer; Pieters, Gina
Macroeconomic news and asset prices before and after the zero lower bound
With short-term policy interest rates constrained by their effective zero lower bound (ZLB), monetary policy relied on communicating the future path of policy conditional on incoming macroeconomic data. Motivated by this, we exploit intra-day prices to investigate how updates on the state of the U.S. economy affect interest rates and exchange rates before and after the ZLB. We find that releases reflecting the dual mandate of the Fed rose in importance and ? as an ex-post acknowledgement of the sources of the Great Recession ? additional housing market indicators and GDP revisions, that hitherto left markets unaffected, became market movers.
AUTHORS: Koch, Christoffer; Yung, Julieta
Why does the FDIC sue?
Cases the Federal Deposit Insurance Corporation (FDIC) pursues against the directors and officers of failed commercial banks for (gross) negligence are important for the corporate governance of U.S. commercial banks. These cases shape the kernel of bank corporate governance, as they guide expectations of bankers and regulators in defining the limits of acceptable behavior under financial distress. We examine the differences in behavior of all 408 U.S. commercial banks that were taken into receivership between 2007?2012. Sued banks had different balance sheet dynamics in the three years prior to failure. These banks were generally larger, faster growing, obtained riskier funding and were more ?optimistic?. We find evidence that the behavior of bank boards adjusts in an out-of-sample set of banks. Our results suggest the FDIC does not only pursue ?deep pockets?, but sets corporate governance standards for all banks by suing negligent directors and officers.
AUTHORS: Koch, Christoffer; Okamura, Ken
Heterogeneous bank lending responses to monetary policy: new evidence from a real-time identification
We present new evidence on how heterogeneity in banks interacts with monetary policy changes to impact bank lending, at both the bank and U.S. state levels. Using an exogenous policy measure identified from narratives on FOMC intentions and real-time economic forecasts, we find much stronger dynamic effects and greater heterogeneity in U.S. bank lending responses than that found in previous research based on realized federal funds rate changes. Our findings suggest that studies using realized monetary policy changes confound monetary policy?s effects with those of changes in expected macrofundamentals. In fact, estimates from identified monetary policy changes lead to a reversal of U.S. states? ranking by credit?s sensitivity to policy. We also extend Romer and Romer (2004)?s identification scheme, and expand the time and balance sheet coverage of the U.S. banking sample.
AUTHORS: Koch, Christoffer; Bluedorn, John C.; Bowdler, Christopher