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Author:Kovner, Anna 

Journal Article
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 ...
Economic Policy Review , Issue 23-1 , Pages 57-77

Journal Article
Do big banks have lower operating costs?

This study examines the relationship between bank holding company (BHC) size and components of noninterest expense (NIE) in order to shed light on the sources of scale economies in banking. Drawing on detailed expense information provided by U.S. banking firms in the memoranda of their regulatory filings, the authors find a robust negative relationship between size and normalized measures of NIE. The relationship is strongest for employee compensation expenses and components of ?other? noninterest expense such as information technology and corporate overhead expenses. In addition, the authors ...
Economic Policy Review , Issue Dec , Pages 1-27

Discussion Paper
Banking System Vulnerability: Annual Update

A key part of understanding the stability of the U.S. financial system is to monitor leverage and funding risks in the financial sector and the way in which these vulnerabilities interact to amplify negative shocks. In this post, we provide an update of four analytical models, introduced in a Liberty Street Economics post last year, that aim to capture different aspects of banking system vulnerability. Since their introduction, vulnerabilities as indicated by these models have increased moderately, continuing the slow but steady upward trend that started around 2016. Despite the recent ...
Liberty Street Economics , Paper 20191218

Discussion Paper
The Private Premium in Public Bonds?

In a 2012 New York Fed study, Chenyang Wei and I find that interest rate spreads on publicly traded bonds issued by companies with privately traded equity are about 31 basis points higher on average than spreads on bonds issued by companies with publicly traded equity, even after controlling for risk and other factors. These differences are economically and statistically significant and they persist in the secondary market. We control for many factors associated with bond pricing, including risk, liquidity, and covenants. Although these controls account for some of the absolute pricing ...
Liberty Street Economics , Paper 20120516

Discussion Paper
Doing Well by Doing Good? Community Development Venture Capital

In a new working paper, Josh Lerner and I explore how the venture capital (VC) model can be harnessed to achieve socially targeted ends by examining the investment record of community development venture capital (CDVC) firms. Our results are mixed. Investments made by CDVC firms are less likely to succeed than are investments made by traditional VC firms. This lower probability of success persists even after controlling for the fact that CDVC firms invest in industries and geographies that have, on average, lower success rates. However, we do find that CDVC firms have the benefit of bringing ...
Liberty Street Economics , Paper 20121121

Discussion Paper
Data Link Helps Shed Light on Banks and Public Equity

In this post, we offer comparisons between banks with and without publicly traded equity. Our post uses the link produced by the New York Fed containing regulatory identification numbers (RSSD ID) from the National Information Center (NIC) to the permanent company number (PERMCO) used by the Center for Research in Security Prices (CRSP). The list available via the data link allows researchers to match regulatory information on U.S. bank holding companies (BHCs) with equity market information, including security prices. The link can be used to assist academic papers that conduct event studies ...
Liberty Street Economics , Paper 20130603

Discussion Paper
Comparing Bank and Supervisory Stress Testing Projections

Stress tests are important tools for assessing whether financial institutions have enough capital to operate in bad economic conditions. In addition to being useful for understanding capital weaknesses at individual firms, coordinated stress tests can also provide insight into the vulnerabilities facing the banking industry as a whole. In this post, we look at 2013 stress test projections made by eighteen large U.S. bank holding companies under the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act and compare them with supervisory projections made by the Federal ...
Liberty Street Economics , Paper 20140108

Discussion Paper
Do Big Banks Have Lower Operating Costs?

Despite recent financial reforms, there is still widespread concern that large banking firms remain ?too big to fail.? As a solution, some reformers advocate capping the size of the largest banking firms. One consideration, however, is that while early literature found limited evidence for economies of scale, recent academic research has found evidence of scale economies in banking, even for the largest banking firms, implying that such caps could impose real costs on the economy. In our contribution to the volume on large and complex banks, we extend this line of research by studying the ...
Liberty Street Economics , Paper 201404325a

Discussion Paper
The CLASS Model: A Top-Down Assessment of the U.S. Banking System

Central banks and bank supervisors have increasingly relied on capital stress testing as a supervisory and macroprudential tool. Stress tests have been used by central banks and supervisors to assess the resilience of individual banking companies to adverse macroeconomic and financial market conditions as a way of gauging additional capital needs at individual firms and as a means of assessing the overall capital strength of the banking system. In this post, we describe a framework for assessing the impact of various macroeconomic scenarios on the capital and performance of the U.S. banking ...
Liberty Street Economics , Paper 20140604

Discussion Paper
Becoming More Alike? Comparing Bank and Federal Reserve Stress Test Results

Stress tests have become an important method of assessing whether financial institutions have enough capital to operate in bad economic conditions. Under the provisions of the Dodd-Frank Act, both the Federal Reserve and large U.S. bank holding companies (BHCs) are required to do annual stress tests and to disclose these results to the public. While the BHCs? and the Federal Reserve?s projections are made under the same macroeconomic scenario, the results differ, primarily because of differences in the models used to make the projections. In this post, we look at the 2014 stress test ...
Liberty Street Economics , Paper 20140721

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