FSLIC forbearances to stockholders and the value of savings and loan shares
An investigation of the value of FSLIC forbearances to the stockholders of insolvent stock-chartered thrift institutions, concluding that these forbearances increase the stock-market value of thrift institutions.
Commercial banks’ borrowing from the Federal Home Loan Bank
Since 1990, when commercial banks were first eligible to join the Federal Home Loan Bank System, they have become an important constituency of the FHLBs. Currently, seven out of 10 banks are members, and nearly half of all banks have advances outstanding. Given the wide range of activities that commercial banks can engage in, this Commentary asks whether FHLB lending to them is consistent with their traditional housing finance mission, with the Gramm-Leach-Bliley extension of their mission to provide liquidity support to community banks, or with both.
Federal Home Loan Bank lending to community banks: are targeted subsidies necessary?
The Gramm-Leach-Bliley Act of 1999 extended the lending authority of Federal Home Loan Banks to include advances secured by small-enterprise loans of community financial institutions. The authors examine three possible reasons for the extension of this selective credit subsidy to community banks and thrifts, including the need to subsidize community depository institutions, stabilize the Federal Home Loan Banks, and address a market failure for small enterprise loans in rural banking markets. They use two empirical models to investigate whether funding constraints affect small-business ...
Unitary thrifts: a performance analysis
Title IV of the Gramm-Leach-Bliley Act of 1999 closed the unitary thrift holding company loophole, which allowed a limited commingling of banking and commerce. This article examines whether eliminating this loophole was beneficial by empirically comparing the performance of thrifts in holding companies owned by nondepository institutions (UTHC thrifts) with other thrifts. Important differences between these two types of thrifts are found. UTHC thrifts tend to outperform the others during the period studied and appear to be less risky-possibly because UTHC thrifts seem to have more diversified ...
On systemically important financial institutions and progressive systemic mitigation
One of the most important issues in the regulatory reform debate is that of systemically important financial institutions. This paper proposes a framework for identifying and supervising such institutions; the framework is designed to remove the advantages they derive from becoming systemically important and to give them more time-consistent incentives. It defines criteria for classifying firms as systemically important: size (the classic doctrine of too big to let fail) and the four Cs of systemic importance (contagion, concentration, correlation, and conditions); it also discusses the ...
Workshop on entrepreneurial finance: a summary
This Policy Discussion Paper summarizes papers that were presented at the Workshop on Entrepreneurial Finance, which was held March 12?13, 2009, at the Federal Reserve Bank of Cleveland. Researchers presented new empirical research that exploits data sets on entrepreneurial activity that are based on broad and representative data samples. Papers in the workshop focused primarily on analyses of the sources and structure of start-up finance, including the importance of bank lending, venture capital, angel investors, and owner equity.
Are SBA loan guarantees desirable?
Over the last 10 years, the Small Business Administration has been responsible for well over $100 billion in small business credit extensions, more than any single private lender. This Commentary explores the motivations for such a large investment of taxpayer dollars.
Loan sales, implicit contracts, and bank structure
A documentation of some recent changes in the market for loan sales, using a tobit model to relate quantities of loans bought and sold to bank size, capital, risk, and funding mode.
An analysis of bank failures: 1984 to 1989
A study that models the regulatory decision to close a bank as a call option. A two-equation model of bank failure that treats closings as regulatorily timed events is compared with two single-equation models for accuracy.
Resolving large, complex financial firms
How to best manage the failure of systemically important financial firms was the theme of a recent conference at which the latest research on the issue was presented. Here we summarize that research, the discussions that it sparked, and the areas where considerable work remains.