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Discussion Paper
The Effects of Post-Crisis Banking Reforms
Crump, Richard K.; Santos, Joao A. C. (2018-10-01)
The financial crisis of 2007-08 exposed many limitations of the regulatory architecture of the U.S. financial system. In an attempt to mitigate these limitations, there has been a wave of regulatory reforms in the post-crisis period, especially in the banking sector. These include tighter bank capital and liquidity rules; new resolution procedures for failed banks; the creation of a stand-alone consumer protection agency; greater transparency in money market funds; and a move to central clearing of derivatives, among other measures. As these reforms have been finalized and implemented, a ...
Liberty Street Economics , Paper 20181001b

Report
The Theory of Financial Stability Meets Reality
Boyarchenko, Nina; Hachem, Kinda; Kleymenova, Anya V. (2025-06-01)
A large literature at the intersection of economics and finance offers prescriptions for regulating banks to increase financial stability. This literature abstracts from the discretion that accounting standards give banks over financial reporting, creating a gap between the information assumed to be available to regulators in models of optimal regulation and the information available to regulators in reality. We bridge insights from the economics, finance, and accounting literatures to synthesize knowledge about the design and implementation of bank regulation and identify areas where more ...
Staff Reports , Paper 1155

Working Paper
The Effect of Possible EU Diversification Requirements on the Risk of Banks’ Sovereign Bond Portfolios
Giuzio, Margherita; Paterlini, Sandra; Craig, Ben R. (2019-05-28)
Recent policy discussion includes the introduction of diversification requirements for sovereign bond portfolios of European banks. In this paper, we evaluate the possible effects of these constraints on risk and diversification in the sovereign bond portfolios of the major European banks. First, we capture the dependence structure of European countries? sovereign risks and identify the common factors driving European sovereign CDS spreads by means of an independent component analysis. We then analyze the risk and diversification in the sovereign bond portfolios of the largest European banks ...
Working Papers , Paper 19-12

Newsletter
A New Era of Community Banking
Perry, Wade; Eckblad, Marshall; Wright, Mark L. J.; Murray, Jacqunette; Markovich, Courtney; Strok, Nick; Austin, Michael (2017)
The 11th annual Community Bankers Symposium, cosponsored by the Federal Reserve Bank of Chicago, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC), was held at the Chicago Fed on November 18, 2016. This article summarizes key presentations and discussions at the event.
Chicago Fed Letter

Working Paper
Are Basel's Capital Surcharges for Global Systemically Important Banks Too Small?
von Hafften, Alexander H.; Passmore, Wayne (2017-02-21)
The Basel Committee promulgates bank regulatory standards that many major economies enact to a significant extent. One element of the Basel III capital standards is a system of capital surcharges for global systemically important banks (G-SIBs). If the purpose of the surcharges is to ensure the survival of G-SIBs through serious crises (like the 2007-09 financial crisis) without extraordinary public assistance, our analysis suggests that current surcharges are too low because of three shortcomings: (1) the Basel system underestimates the probability that a G-SIB can fail, (2) the Basel system ...
Finance and Economics Discussion Series , Paper 2017-021

Working Paper
Bank Regulation and the Rise of Nonbank Intermediation
Brunetti, Celso; Frei, Christoph (2026-05-11)
We study the rise of nonbank financial intermediation and its implications for systemic risk. We develop a structural network model of banks and nonbank financial institutions (NBFIs) that decomposes intermediation into a capacity channel, driven by bank balance-sheet constraints, and a reliance channel, reflecting NBFI funding reliance. Using U.S. banking confidential supervisory data, we estimate key structural parameters and quantify both channels. We find that fluctuations in bank-NBFI intermediation are primarily explained by the reliance channel, with variation in NBFI fragility ...
Finance and Economics Discussion Series , Paper 2026-030

Discussion Paper
Fear of $10 Billion
Yang, Bryan; Morgan, Donald P. (2016-10-03)
Ten billion has become a big number in banking since the Dodd-Frank Act of 2010. When banks’ assets exceed that threshold, they face considerably heightened supervision and regulation, including exams by the Consumer Financial Protection Bureau, caps on interchange fees, and annual stress tests. There are plenty of anecdotes about banks avoiding the $10 billion threshold or waiting to cross with a big merger, but we’ve seen no systematic evidence of this avoidance behavior. We provide some supporting evidence below and then discuss the implications for size-based bank regulation—where ...
Liberty Street Economics , Paper 20161003

Working Paper
A Field Guide to Monetary Policy Implementation Issues in a New World with CBDC, Stablecoin, and Narrow Banks
Clouse, James A. (2024-01-16)
This paper develops an analytical framework aimed at shedding light on the implications of the evolution of financial market structure for monetary policy implementation and transmission. The basic model builds on that developed in Chen et. al. (2014) which, in turn, draws inspiration from the pioneering work of Tobin (1969) and Gurley and Shaw (1960). The paper focuses, in particular, on the implications of introducing new types of fixed-rate financial assets in the financial system including retail and wholesale central bank digital currency (CBDC), stablecoins issued by narrow nonbanks, ...
Finance and Economics Discussion Series , Paper 2024-001

Report
Where Do Banks End and NBFIs Begin?
Acharya, Viral V.; Cetorelli, Nicola; Tuckman, Bruce (2024-09-01)
In recent years, assets of nonbank financial intermediaries (NBFIs) have grown significantly relative to those of banks. These two sectors are commonly viewed either as operating in parallel, performing different activities, or as substitutes, performing substantially similar activities, with banks inside and NBFIs outside the perimeter of banking regulation. We argue instead that NBFI and bank businesses and risks are so interwoven that they are better described as having transformed over time, rather than as having migrated from banks to NBFIs. These transformations are at least in part a ...
Staff Reports , Paper 1119

Discussion Paper
Banks and Nonbanks Are Not Separate, but Interwoven
Acharya, Viral V.; Cetorelli, Nicola; Tuckman, Bruce (2024-06-18)
In our previous post, we documented the significant growth of nonbank financial institutions (NBFIs) over the past decade, but also argued for and showed evidence of NBFIs’ dependence on banks for funding and liquidity support. In this post, we explain that the observed growth of NBFIs reflects banks optimally changing their business models in response to factors such as regulation, rather than banks stepping away from lending and risky activities and being substituted by NBFIs. The enduring bank-NBFI nexus is best understood as an ever-evolving transformation of risks that were hitherto ...
Liberty Street Economics , Paper 20240618

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