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Working Paper
A Price-Differentiation Model of the Interbank Market and Its Application to a Financial Crisis
Kim, Kyungmin (2017-06-16)
Rate curves for overnight loans between bank pairs, as functions of loan values, can be used to infer valuation of reserves by banks. The inferred valuation can be used to interpret shifts in rate curves between bank pairs, for example, in response to a financial crisis. This paper proposes a model of lending by a small bank to a large monopolistic bank to generate a tractable rate curve. An explicit calibration procedure for model parameters is developed and applied to a dataset from Mexico around the 2008 financial crisis. During the crisis, relatively small banks were lending to large ...
Finance and Economics Discussion Series , Paper 2017-065

Working Paper
The Effect of Common Ownership on Profits : Evidence From the U.S. Banking Industry
Gramlich, Jacob P.; Grundl, Serafin J. (2018-10-03)
Theory predicts that "common ownership" (ownership of rivals by a common shareholder) can be anticompetitive because it reduces the weight firms place on their own profits and shifts weight toward rival firms held by common shareholders. In this paper we use accounting data from the banking industry to examine empirically whether shifts in the profit weights are associated with shifts in profits. We present the distribution of a wide range of estimates that vary the specification, sample restrictions, and assumptions used to calculate the profit weights. The distribution of estimates is ...
Finance and Economics Discussion Series , Paper 2018-069

Working Paper
Unexpected Effects of Bank Bailouts: Depositors Need Not Apply and Need Not Run
Schoors, Koen; Lamers, Martien; Berger, Allen N.; Roman, Raluca (2020-03-05)
A key policy issue is whether bank bailouts weaken or strengthen market discipline. We address this by analyzing how bank bailouts influence deposit quantities and prices of recipients versus other banks. Using the Troubled Asset Relief Program (TARP) bailouts, we find both deposit quantities and prices decline, consistent with substantially reduced demand for deposits by bailed-out banks that dominate market discipline supply effects. Main findings are robust to numerous checks and endogeneity tests. However, diving deeper into depositor heterogeneity suggests nuances. Increases in uninsured ...
Working Papers , Paper 21-10

Does Homeownership Provide an Escape from High Rent Burdens?
Tracy, Joseph; Gerardi, Kristopher S.; Frame, W. Scott; Dannels, Sam (2021-01-05)
Many first-time homebuyers—often with little savings and vulnerable to economic shocks—obtain their mortgages through the Federal Housing Authority (FHA) loan program. Often, these borrowers are moving from apartments and have presumably weighed the costs of renting versus owning.
Dallas Fed Economics

Working Paper
The Fed's Discount Window in "Normal" Times
Ennis, Huberto M.; Klee, Elizabeth C. (2024-12-20)
We study transaction-level data of bank borrowings at the Federal Reserve’s discount window from 2010 to 2019. We merge these data with quarterly information on bank balance sheets and income statements. To aid in the interpretation of our empirical analysis, we also develop a detailed model of the decision of banks to borrow from various sources, including the discount window. The objective is to contribute to a better understanding of the reasons why banks use the discount window during “normal” times—periods of relative calm in financial markets. Consistent with our model, we find ...
Finance and Economics Discussion Series , Paper 2021-016r1

Commodity Financing Markets Shaken by Russian Invasion; Monitoring for U.S. Financial Stress
Cetina, Jill; McCormick, Matthew; Sagnanert, Pon (2022-04-14)
While volatility in commodity markets is not unusual, rapid and correlated price increases across many different types of commodities at once is much rarer.
Dallas Fed Economics

Working Paper
Banking Regulation with Risk of Sovereign Default
Schoors, Koen; Livshits, Igor; D'Erasmo, Pablo (2019-02-22)
Banking regulation routinely designates some assets as safe and thus does not require banks to hold any additional capital to protect against losses from these assets. A typical such safe asset is domestic government debt. There are numerous examples of banking regulation treating domestic government bonds as ?safe,? even when there is clear risk of default on these bonds. We show, in a parsimonious model, that this failure to recognize the riskiness of government debt allows (and induces) domestic banks to ?gamble? with depositors? funds by purchasing risky government bonds (and assets ...
Working Papers , Paper 19-15

Working Paper
A Tale of Two Bailouts: Effects of TARP and PPP on Subprime Consumer Debt
Berger, Allen N.; Roman, Raluca; Epouhe, Onesime (2021-09-23)
High levels of subprime consumer debt can create social problems. We test the effects of the Troubled Asset Relief Program (TARP) and Paycheck Protection Program (PPP) bailouts during the Global Financial Crisis and COVID-19 crisis, respectively, on this debt. We use over 11 million credit bureau observations of individual consumer debt combined with banking, bailout, and local market data. We find that subprime consumers with more TARP institutions in their markets had significantly increased debt burdens following these bailouts. In contrast, PPP bailouts were associated with reduced ...
Working Papers , Paper 21-32

Working Paper
The Reversal Interest Rate
Brunnermeier, Markus K.; Abadi, Joseph; Koby, Yann (2022-09-01)
The reversal interest rate is the rate at which accommodative monetary policy reverses andbecomes contractionary for lending. We theoretically demonstrate its existence in a macroeconomic model featuring imperfectly competitive banks that face financial frictions. When interest rates are cut too low, further monetary stimulus cuts into banks’ profit margins, depressing their net worth and curtailing their credit supply. Similarly, when interest rates are low for too long, the persistent drag on bank profitability eventually outweighs banks’ initial capital gains, also stifling credit ...
Working Papers , Paper 22-28

Discussion Paper
Selection in Banking
Cetorelli, Nicola; Leonard, Douglas (2019-12-16)
Over the past thirty years, more than 2,900 U.S. banks have transformed from pure depository institutions into conglomerates involved in a broad range of business activities. What type of banks choose to become conglomerate organizations? In this post, we document that, from 1986 to 2018, such institutions had, on average, a higher return on equity in the three years prior to their decision to expand, as well as a lower level of risk overall. However, this superior pre-expansion performance diminishes over time, and all but disappears by the end of the 1990s.
Liberty Street Economics , Paper 20191216

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