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Author:Simons, Katerina 

Journal Article
New England banks and the Texas experience

New England banks are currently suffering from problems similar to those that caused the demise of many Texas banks. In both cases, a boom in the real-estate sector was followed by a sharp contraction caused by weakness in the leading sectors of the economy. In both cases, banks had greatly expanded their real-estate lending, and the declining real-estate prices produced substantial loan losses. ; This study suggests, however, that these similarities do not imply that New England will go on to repeat the Texas experience. The author finds that New England does not suffer from construction ...
New England Economic Review , Issue Sep , Pages 55-62

Journal Article
Do capital markets predict problems in large commercial banks?

In the present climate of intense debate over deposit insurance reform, the nature and limits of market discipline become especially important. The widely accepted argument for greater reliance on market discipline is that it will restrain managerial risk-taking and reduce potential losses to the deposit insurance fund. Opponents of this view favor the traditional reliance on supervision by the bank regulatory agencies as the primary method to maintain the safety and soundness of the banking system and the integrity of the deposit insurance fund. ; This article attempts to shed some empirical ...
New England Economic Review , Issue May , Pages 51-56

Journal Article
Why do banks syndicate loans?

Loan syndication, where a group of banks makes a loan jointly to a single borrower, offers several benefits. Syndication allows banks to diversify, expanding their lending to broader geographic areas and industries. Second, syndication allows banks that are constrained by their capital-asset ratios to participate in loans to larger borrowers. ; Despite these benefits, loan syndication could pose additional risks for the banking system, if the originating or lead banks withhold information about the borrower from participating banks, misleading them into making loans that are riskier than they ...
New England Economic Review , Issue Jan , Pages 45-52

Journal Article
Interest rate structure and the credit risk of swaps

Swap contracts have grown tremendously in the last decade. Most are interest-rate swaps, the simplest being an exchange of one partys fixed-rate interest payments for anothers floating-rate payments. Swaps can lower borrowing costs for both parties as well as provide a tool for managing interest-rate risk. As the market for swaps grows and matures, understanding and measuring the accompanying credit risk remains a concern of bankers, regulators, and corporate users ; The credit risk of swaps arises when one party defaults and interest rates have changed in such a way that the other party can ...
New England Economic Review , Issue Jul , Pages 23-34

Journal Article
The advantages of \\"transferrable puts\\" for loans at failed banks

In testimony on February 3, 1992 before the Committee on Banking, Housing, and Urban Affairs of the United States Senate, Richard F. Syron, President of the Federal Reserve Bank of Boston, proposed a mechanism to help relieve current credit availability problems by making existing FDIC guarantees of loans transferable throughout the private financial system. This article examines Mr. Syrons rationale for the proposal and how it might work. ; Under this scheme, when performing nonperforming loans are placed in the equivalent of "bad banks" by the FDIC, the borrower could transfer the loan ...
New England Economic Review , Issue Mar , Pages 3-11

Journal Article
Mutual-to-stock-conversions by New England savings banks: where has all the money gone?

In the aftermath of the real estate slump and the attendant financial troubles of the New England banks, it is natural to look for causes and contributing factors. One phenomenon that has received its share of the blame is the rush of conversions by thrifts in the mid 1980s from mutual to stock form of ownership. Conversions were hailed initially as a way to fortify the eroded capital of thrifts and increase their safety and soundness. ; This article compares the behavior of converted thrifts with that of the mutuals. It finds that converted institutions took greater risks, suffered bigger ...
New England Economic Review , Issue Mar , Pages 45-53

Journal Article
Value at risk: new approaches to risk management

Managing risk has always been an integral part of banking. In the past two years an approach to risk management called "Value at Risk" has been accepted by both practitioners and regulators as the "right" way to measure risk, becoming a de facto industry standard. Yet, the danger is that overreliance on value at risk can give risk managers a false sense of security or lull them into complacency. Value at risk is only one of many tools of managing risk, and it is based on a number of unrealistic assumptions. There is no generally accepted way to calculate it, and various methods can ...
New England Economic Review , Issue Sep , Pages 3-13

Journal Article
Model error

Modern finance would not have been possible without models. Increasingly complex quantitative models drive financial innovation and the growth of derivatives markets. Models are necessary to value financial instruments and to measure the risks of individual positions and portfolios. Yet when used inappropriately, the models themselves can become an important source of risk. Recently, several well-publicized instances occurred of institutions suffering significant losses attributed to model error. This has sharpened the interest in model risk among financial institutions and their regulators.> ...
New England Economic Review , Issue Nov , Pages 17-28

Journal Article
Managing risk in the 90's: what should you be asking about derivatives?

Derivatives are the fastest-growing financial instruments of our time. When used strategically, they can be very effective tools to mitigate risks. When used to speculate, that is, to bet on the inefficiency of financial markets, they can be trouble, especially if you are unaware that you are betting.> On April 28,1995 the Federal Reserve Bank of Boston held an educational forum entitled "Managing Risk in the '90s: What Should You Be Asking about Derivatives?" The daylong forum, presented by experts from nonfinancial corporations, investment and commercial banks, pension funds, issuers of ...
New England Economic Review , Issue Sep , Pages 3-25

Journal Article
Interest rate derivatives and asset-liability management by commercial banks

Bank participation in derivative markets has risen sharply in recent years. The total amount of interest rate, currency, commodity, and equity contracts at U.S. commercial and savings banks soared from $6.8 trillion in 1990 to $11.9 trillion in 1993, an increase of 75 percent. A major concern facing policymakers and bank regulators today is the possibility that the rising use of derivatives has increased the riskiness of individual banks and of the banking system as a whole.> This study uses quarterly Call Report data to shed some light on the pattern of derivative use by U.S. commercial ...
New England Economic Review , Issue Jan , Pages 17-28

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