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Working Paper
“Don’t Know What You Got Till It’s Gone”—The Community Reinvestment Act in a Changing Financial Landscape
Nakamura, Leonard I.; Ding, Lei (2020-02-20)
This study provides new evidence on the impact of the Community Reinvestment Act (CRA) on mortgage lending by taking advantage of an exogenous policy shock in 2014, which caused significant changes in neighborhoods’ CRA eligibility in the Philadelphia market. The loss of CRA coverage leads to an over 10 percent decrease in purchase originations by CRA-regulated lenders. While nondepository institutions replace approximately half, but not all, of the decreased lending, their increased market share was accompanied by a greater involvement in riskier and more costly FHA lending. This study ...
Working Papers , Paper 20-08

Working Paper
Did bank borrowers benefit from the TARP program : the effects of TARP on loan contract terms
Makaew, Tanakorn; Berger, Allen N.; Roman, Raluca (2015-09-01)
We study the effects of the Troubled Asset Relief Program (TARP) on loan contract terms to businesses borrowing from recipient banks. Using a difference-in-difference analysis, we find that TARP led to more favorable terms to these borrowers in all five contract terms studied ? loan amounts, spreads, maturities, collateral, and covenants. This suggests recipient banks' borrowers benefited from TARP. These findings are statistically and economically significant, and are robust to dealing with potential endogeneity issues and other checks. {{p}} The contract term improvements are concentrated ...
Research Working Paper , Paper RWP 15-11

Working Paper
Considerations regarding the use of the discount window to support economic activity through a funding for lending program
Carlson, Mark A.; Zarutskie, Rebecca (2022-10)
This paper considers the use of the Federal Reserve's ability to provide loans to depository institutions under its discount window lending authority in support of achieving its monetary policy objectives through a funding for lending program. Broadly, a funding for lending program could be structured as one in which the Federal Reserve makes ample low-cost funding available to banks or a program in which the Federal Reserve only provides low-cost funding conditional on the banks meeting certain lending targets. We provide a general description of how a funding for lending program could be ...
Finance and Economics Discussion Series , Paper 2022-070

Working Paper
Prudential Policies and Their Impact on Credit in the United States
Lee, Seung Jung; Calem, Paul S.; Correa, Ricardo (2016-12-13)
We analyze how two types of recently used prudential policies affected the supply of credit in the United States. First, we test whether the U.S. bank stress tests had any impact on the supply of mortgage credit. We find that the first Comprehensive Capital Analysis and Review (CCAR) stress test in 2011 had a negative effect on the share of jumbo mortgage originations and approval rates at stress-tested banks?banks with worse capital positions were impacted more negatively. Second, we analyze the impact of the 2013 Supervisory Guidance on Leveraged Lending and subsequent 2014 FAQ notice, ...
International Finance Discussion Papers , Paper 1186

Journal Article
Recent developments in the credit card market and the financial obligations ratio
Johnson, Kathleen W. (2005-10)
This article argues that three important developments in the credit card market over the period account for most of the rise in credit card payments relative to income and played a strong role in the rise of the total financial obligations ratio (FOR). First, improvements in credit scoring technology and the advent of risk based pricing of credit card debt have increased the share of households particularly lower income households with a credit card. Second, in the 1990s, credit card interest rates began to vary with changes in broader market interest rates, which in turn led to an especially ...
Federal Reserve Bulletin , Volume 91 , Issue Aut

Report
Resolving “Too Big to Fail”
Cetorelli, Nicola; Traina, James (2018-06-01)
Using a synthetic control research design, we find that ?living will? regulation increases a bank?s annual cost of capital by 22 basis points, or 10 percent of total funding costs. This effect is stronger in banks that were measured as systemically important before the regulation?s announcement. We interpret our findings as a reduction in ?too big to fail? subsidies. The size of this effect is large: a back-of-the-envelope calculation implies a subsidy reduction of $42 billion annually. The impact on equity costs drives the main effect. The impact on deposit costs is statistically ...
Staff Reports , Paper 859

Working Paper
The Impact of Fintech Lending on Credit Access for U.S. Small Businesses
Cornelli, Giulio; Frost, Jon; Gambacorta, Leonardo; Jagtiani, Julapa (2022-04-25)
Small business lending (SBL) plays an important role in funding productive investment and fostering local economic growth. Recently, nonbank lenders have gained market share in the SBL market in the United States, especially relative to community banks. Among nonbanks, fintech lenders have become particularly active, leveraging alternative data for their own internal credit scoring. We use proprietary loan-level data from two fintech SBL platforms (Funding Circle and LendingClub) to explore the characteristics of loans originated pre-pandemic (2016‒2019). Our results show that fintech SBL ...
Working Papers , Paper 22-14

Working Paper
Quantitative Easing and Bank Risk Taking: Evidence from Lending
Kandrac, John; Schlusche, Bernd (2017-10-12)
We empirically assess the effect of reserve accumulation as a result of quantitative easing (QE) on bank-level lending and risk taking activity. To overcome the endogeneity of bank-level reserve holdings to banks' other portfolio decisions, we employ instruments made available by a regulatory change that strongly influenced the distribution of reserves in the banking system. Consistent with theories of the portfolio substitution channel in which the transmission of QE depends in part on reserve creation itself, we document that reserves created in two distinct QE programs led to higher total ...
Finance and Economics Discussion Series , Paper 2017-125

Working Paper
Bank Liquidity and Capital Regulation in General Equilibrium
Driscoll, John C.; Covas, Francisco (2014-09-12)
We develop a nonlinear dynamic general equilibrium model with a banking sector and use it to study the macroeconomic impact of introducing a minimum liquidity standard for banks on top of existing capital adequacy requirements. The model generates a distribution of bank sizes arising from differences in banks' ability to generate revenue from loans and from occasionally binding capital and liquidity constraints. Under our baseline calibration, imposing a liquidity requirement would lead to a steady-state decrease of about 3 percent in the amount of loans made, an increase in banks' holdings ...
Finance and Economics Discussion Series , Paper 2014-85

Newsletter
Interest-only mortgages and speculation in hot housing markets
Barlevy, Gadi; Fisher, Jonas D. M. (2020-05-28)
Even as housing markets have temporarily shut down across the U.S. during the Covid-19 pandemic, housing remains a key sector that contributes disproportionately to fluctuations in overall economic activity and that will likely play an important role as the economy reopens. Interest in this market among research economists and policymakers intensified after the exceptional boom and bust in housing between 2003 and 2008. In this Chicago Fed Letter, we describe research in Barlevy and Fisher (2020)1 that examined patterns in the kinds of mortgages homebuyers took out in different cities during ...
Chicago Fed Letter , Issue 439 , Pages 6

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