Search Results
Journal Article
Bank corporate governance: a proposal for the post-crisis world
The corporate governance problems of banks are qualitatively and quantitatively different from those of other firms. The authors argue that a key factor contributing to this difference is the growing opacity and complexity of bank activities, a trend that has increased the difficulty of managing risk in financial firms. They also cite the governance challenges posed by the holding company organization of banks, in which two boards of directors?the bank?s own board and the board of the holding company that owns the bank?monitor the bank. This paradigm results in significant confusion about the ...
Discussion Paper
Bank Regulation and Bank Complexity
U.S. Bank Holding Companies (BHCs) currently control about 3,000 subsidiaries that provide community housing services?such as building low-income housing units, maintaining shelters, and providing housing services to the elderly and disabled. This aspect of U.S. BHC activity is intriguing because it departs from the traditional deposit-taking and loan-making operations typically associated with banks. But perhaps most importantly, the sheer number of these subsidiaries makes one think about the organizational complexity of U.S. BHCs. This is an issue that has generated much discussion in ...
Working Paper
Business complexity and risk management: evidence from operational risk events in U. S. bank holding companies
How does business complexity affect risk management in financial institutions? The commonly used risk measures rely on either balance-sheet or market-based information, both of which may suffer from identification problems when it comes to answering this question. Balance-sheet measures, such as return on assets, capture the risk when it is realized, while empirical identification requires knowledge of the risk when it is actually taken. Market-based measures, such as bond yields, not only ignore the problem that investors are not fully aware of all the risks taken by management due to ...
Discussion Paper
Peeling the Onion: A Structural View of U.S. Bank Holding Companies
When market observers talk about a “bank,” they are generally not referring to a single legal entity. Instead, large domestic banking organizations are almost always organized according to a bank holding company (BHC) structure, in which a U.S. parent holding company controls up to several thousand separate subsidiaries. This hierarchy of controlled entities generally includes domestic commercial banks primarily focused on lending and deposit-taking as well as a range of nonbanking and foreign firms engaged in a diverse set of business activities, such as securities dealing and ...
Discussion Paper
Tracking the U.S. Banking Industry
The New York Fed has recently published the first edition of a new quarterly report tracking the aggregate financial condition of consolidated U.S. banking organizations. In this post, we describe the methodology used to construct the statistics in the report as well as present and briefly discuss some of the findings.
Recent Trends in Banks’ Commercial Real Estate Exposure
U.S. bank holding companies that have the largest exposure to commercial real estate share some common characteristics. Our blog post explains.
Working Paper
Foreign Investment, Regulatory Arbitrage, and the Risk of U.S. Banking Organizations
This study investigates the implications of cross-country differences in banking regulation and supervision for the international subsidiary locations and risk of U.S. bank holding companies (BHCs). We find that U.S. BHCs are more likely to operate subsidiaries in countries with weaker regulation and supervision and that such location decisions are associated with elevated BHC risk and higher contribution to systemic risk. The quality of BHCs? internal controls and risk management play an important role in these location choices and risk outcomes. Overall, our study suggests that U.S. banking ...
Discussion Paper
U.S. Banks Have Developed a Significant Nonbank Footprint
In light of the rapid growth of nonbank financial institutions (NBFIs), many have argued that bank-led financial intermediation is on the decline, based on the traditional notion that banks operate to take in deposits and make loans. However, we argue that deposit-taking and loan-making have not accurately characterized U.S. banking operations in recent decades. Instead, as we propose in this post, absent regulatory restrictions, banks naturally expand their boundaries to include NBFI subsidiaries. A significant component of the growth of NBFIs has in fact taken place inside the boundaries of ...
Report
The Nonbank Footprint of Banks
U.S. bank holding companies (BHCs) have developed a significant nonbank footprint over the last five decades, accounting for a sizable share of both BHC assets and the broader nonbank financial sector. We argue that this structure is partly explained by internal capital markets: when affiliates face imperfectly correlated liquidity outflows, internal transfers reduce the need for precautionary buffers. Using unique data on BHC structure and intracompany funding balances, we find evidence that affiliates provide implicit liquidity insurance through internal transfers, and that the BHC ...