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Journal Article
Listening to loan officers: the impact of commercial credit standards on lending and output
Rohatgi, Sonali; Lown, Cara S.; Morgan, Donald P. (2000-07)
Over most of the last thirty-three years, the Federal Reserve has polled a small number of bank loan officers about their moves to tighten or ease commercial credit standards. Although the Senior Loan Officer Opinion Survey uses a small sample and gathers only qualitative information, it proves to be a useful tool in predicting changes in commercial lending and output. The authors find a strong correlation between tighter credit standards and slower loan growth and output, even after controlling for credit demand and other predictors of lending and output. The analysis also shows that the ...
Economic Policy Review , Issue Jul , Pages 1-16

Report
Judging the risk of banks: what makes banks opaque?
Morgan, Donald P. (1998)
We argue that the risk of banks is hard for outsiders to judge because the risk of their mostly financial assets is either hard to measure (opaque) or easy to change. We report evidence that bond rating agencies seem to disagree more over banks than over other types of firms. Among banks, bond raters disagree more over opaque assets, like loans, and easily substitutable assets, like cash and trading assets. Fixed assets, like premises, reduce disagreement. Capital also reduces disagreement, but only at trading banks, where the risk of asset shifting may be most severe.
Research Paper , Paper 9805

Discussion Paper
Leverage Rule Arbitrage
Morgan, Donald P.; Holcomb, Michael R.; Choi, Dong Beom (2018-10-12)
Classic arbitrage involves the same asset selling at different prices; the leverage rule arbitrage we study here involves assets of different risk levels requiring the same amount of capital. The supplementary leverage ratio (SLR) rule, finalized by U.S. regulators in September 2014, requires a minimum ratio of capital to assets at the largest U.S. banks. The floor is higher for more systemically important banks, but not for banks with riskier assets. That non-risk-based aspect of SLR was intentional, since the leverage limit was meant to backstop (?supplement?) risk-based capital rules in ...
Liberty Street Economics , Paper 20181012

Journal Article
Conference overview and summary of papers
Morgan, Donald P.; Mishkin, Frederic S. (2004-09)
Conference was entitled "Beyond Pillar 3 in International Banking Regulation: Disclosure and Market Discipline of Financial Firms," Proceedings of a Conference Cosponsored by the Federal Reserve Bank of New York and the Jerome A. Chazen Institute of International Business at Columbia Business School, October 2-3, 2003.
Economic Policy Review , Issue Sep , Pages 3-6

Report
Too big to fail after all these years
Morgan, Donald P.; Stiroh, Kevin J. (2005)
The naming of eleven banks as "too big to fail (TBTF)" in 1984 led bond raters to raise their ratings on new bond issues of TBTF banks about a notch relative to those of other, unnamed banks. The relationship between bond spreads and ratings for the TBTF banks tended to flatten after that event, suggesting that investors were even more optimistic than raters about the probability of support for those banks. The spread-rating relationship in the 1990s remained flatter for TBTF banks (or their descendants) even after the passage of the Federal Deposit Insurance Corporation Improvement Act ...
Staff Reports , Paper 220

Discussion Paper
Piggy Banks
Samolyk, Katherine A.; Morgan, Donald P. (2013-05-29)
What do banks do? Ask an economist and you’ll get a variety of answers. Banks play a vital role in allocating capital by linking savers and borrowers; they produce information by screening and monitoring borrowers; they create liquidity; they share and distribute risk; they engage in maturity transformation by borrowing short and lending long. What you won’t usually hear is that banks may help people stick to an optimal savings plan that they might not be able to stick to if they invested their money themselves. In other words, banks may serve as piggy banks by preventing people from ...
Liberty Street Economics , Paper 20130529

Report
Bank leverage limits and regulatory arbitrage: new evidence on a recurring question
Morgan, Donald P.; Holcomb, Michael R.; Choi, Dong Beom (2018-06-01)
Banks are regulated more than most firms, making them good subjects to study regulatory arbitrage (avoidance). Their latest arbitrage opportunity may be the new leverage rule covering the largest U.S. banks; leverage rules require equal capital against assets with unequal risks, so banks can effectively relax the leverage constraint by increasing asset risk. Consistent with that conjecture, we find that banks covered by the new rule shifted to riskier, higher yielding securities relative to control banks. The shift began almost precisely when the rule was finalized in 2014, well before it ...
Staff Reports , Paper 856

Journal Article
What makes large bank failures so messy and what should be done about it?
Morgan, Donald P.; Yorulmazer, Tanju; Santos, Joao A. C.; McAndrews, James J. (2014-12)
This study argues that the defining feature of large and complex banks that makes their failures messy is their reliance on runnable financial liabilities. These liabilities confer liquidity or money-like services that may be impaired or destroyed in bankruptcy. To make large bank failures more orderly, the authors recommend that systemically important bank holding companies be required to issue ?bail-in-able? long-term debt that converts to equity in resolution. This reassures holders of uninsured liabilities that their claims will be honored in resolution, making them less likely to run. In ...
Economic Policy Review , Issue Dec , Pages 229-244

Conference Paper
Is bank lending special?
Himmelberg, Charles P.; Morgan, Donald P. (1995)
Conference Series ; [Proceedings] , Volume 39 , Pages 15-44

Journal Article
The Role of bank credit enhancements in securitization
Wei, Chenyang; Morgan, Donald P.; Mandel, Benjamin H. (2012)
This article looks at enhancements provided by banks in the securitization market. We start with a set of new facts on the evolution of enhancement volume provided by U.S. bank holding companies (BHCs). We highlight the importance of bank-provided enhancements in the securitization market by comparing their market share with that of financial guaranties sold by insurance companies, one of the main sellers of credit protection in the securitization market. Contrary to the notion that banks were being eclipsed by other institutions in the shadow banking system, we find that banks have held ...
Economic Policy Review , Issue 07 , Pages 35-46

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