Search Results
Report
Bank leverage limits and regulatory arbitrage: new evidence on a recurring question
Banks are regulated more than most firms, making them good subjects to study regulatory arbitrage (avoidance). Their latest arbitrage opportunity may be the new leverage rule covering the largest U.S. banks; leverage rules require equal capital against assets with unequal risks, so banks can effectively relax the leverage constraint by increasing asset risk. Consistent with that conjecture, we find that banks covered by the new rule shifted to riskier, higher yielding securities relative to control banks. The shift began almost precisely when the rule was finalized in 2014, well before it ...
Working Paper
Realized Bank Risk during the Great Recession
In the years preceding the 2007-2009 financial crisis, forward-looking indicators of bank risk concentrated and suggested unusually low expectations of bank default. We assess whether the ex-ante (i.e. prior to the crisis) cross-sectional variability in bank characteristics is related to the ex-post (i.e. during the crisis) materialization of bank risk. Our tailor-made dataset crucially accounts for the different dimensions of realized bank risk including access to central bank liquidity during the crisis. We consistently find that less reliance on deposit funding, more aggressive credit ...
Working Paper
Organizational Form and Thrift Risk During the US Housing Boom and Bust
We compare the performance of community-bank-sized mutual and stock thrifts during the housing boom of 2001-06 and the housing bust of 2007-13. During the housing bust, mutuals failed at a much lower rate than stock thrifts. To investigate this difference, we first estimate a probit model of thrift failure over the housing bust and show that this difference holds even when controlling for local economic shocks and differences in thrift characteristics. Furthermore, we find that a concentration in construction and land development loans is the only type of loan concentration that is predictive ...
What Are the Characteristics of Banks with Large Unrealized Losses?
An analysis suggests banks with significant exposure to unrealized bond losses rely more on deposits, hold less-liquid assets and have smaller capital buffers.
Working Paper
Insider bank runs: community bank fragility and the financial crisis of 2007
From 2007 to 2010, more than 200 community banks in the United States failed. Many of these failed community banking organizations (CBOs) held less than $1 billion in total assets. As economic conditions worsen, banking organizations are expected to preserve capital to withstand unexpected losses. This study examines CBOs prior to failure or becoming problem institutions to understand if, on average, a run on capital by insiders via dividend payouts led to greater financial fragility at the onset of the crisis. We use a control group of similar-sized banks that did not fail or become problem ...
Working Paper
Interbank Lending and Distress: Observables, Unobservables, and Network Structure
We provide empirical evidence on the relevance of systemic risk through the interbank lending channel. We adapt a spatial probit model that allows for correlated error terms in the cross-sectional variation that depend on the measured network connections of the banks. The latter are in our application observed interbank exposures among German bank holding companies during 2001 and 2006. The results clearly indicate significant spillover effects between banks? probabilities of distress and the financial profiles of connected peers. Better capitalized and managed connections reduce the banks ...
Working Paper
Climate Change and Double Materiality in a Micro- and Macroprudential Context
This paper presents a stylized framework of bank risk-taking to help clarify the concept of "double materiality," the idea that supervisory authorities should consider both the risks that banks face from climate change and the impact of a bank’s actions on climate change. The paper shows that the concept of double materiality can be coherently embedded in a microprudential framework, but the practical implications could be quite similar to the implications of a single materiality perspective. The importance of a double materiality perspective becomes larger when one considers ...