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Working Paper
Diamond-Dybvig and Beyond: On the Instability of Banking
Gu, Chao; Monnet, Cyril; Nosal, Ed; Wright, Randall (2023-02-13)
Are financial intermediaries—in particular, banks—inherently unstable or fragile, and if so, why? We address this question theoretically by analyzing whether model economies with financial intermediation are more prone than those without it to multiple, cyclic, or stochastic equilibria. We consider several formalizations: insurance-based banking, models with reputational considerations, those with fixed costs and delegated investment, and those where bank liabilities serve as payment instruments. Importantly for the issue at hand, in each case banking arrangements arise endogenously. ...
FRB Atlanta Working Paper , Paper 2023-02

Speech
Central Banking and Its Discontents? Athenaeum of Philadelphia Philadelphia, PA
Harker, Patrick T. (2016-11-17)
The value of the U.S. central bank's structure in strengthening local and national economies was underscored by Federal Reserve Bank of Philadelphia President Patrick T. Harker during a speech today at the Athenaeum of Philadelphia.
Speech , Paper 126

Working Paper
Banking on Deforestation: The Cost of Nonenforcement
Berger, Allen N.; Ortega, Cristina; Ossandon Busch, Matias; Roman, Raluca (2024-12-05)
Despite surging environmental laws, how their enforcement influences banks’ management of climate risks remains underexplored. Using the Brazilian Amazon as a laboratory, we examine the impact of a shock to environmental law enforcement capacity on bank management of risks arising from deforestation — a significant but understudied climate risk. After enforcement declined, Brazilian banks significantly altered their priorities to more short-term profitability over longer-term risk concerns. Banks greatly increased lending to agribusinesses engaged in deforestation and actively shifted ...
Working Papers , Paper 24-21

Mexican peso strength noteworthy among emerging markets during Fed tightening
Sagnanert, Pon; Cañas, Jesus; Torres, Luis (2023-09-26)
Many emerging-market currencies have depreciated modestly during the Federal Reserve’s tightening cycle that began in March 2022. The Mexican peso, however, outperformed the group during the period.
Dallas Fed Economics

Discussion Paper
Can I Speak to Your Supervisor? The Importance of Bank Supervision
Hirtle, Beverly; Kovner, Anna (2024-04-15)
In March of 2023, the U.S. banking industry experienced a period of significant turmoil involving runs on several banks and heightened concerns about contagion. While many factors contributed to these events—including poor risk management, lapses in firm governance, outsized exposures to interest rate risk, and unrecognized vulnerabilities from interconnected depositor bases, the role of bank supervisors came under particular scrutiny. Questions were raised about why supervisors did not intervene more forcefully before problems arose. In response, supervisory agencies, including the Federal ...
Liberty Street Economics , Paper 20240415

Anticipatory discount window stigma
Schulhofer-Wohl, Sam (2024-09-06)
Observers often assert that stigma—a perception that depositors, investors or others will penalize an institution for borrowing from the discount window—keeps banks from borrowing when they should, making the facilities less effective. Dallas Fed Senior Vice President Sam Schulhofer-Wohl argues that some harms of discount window stigma can be mitigated regardless of whether stigma itself persists.
Dallas Fed Economics

Working Paper
Audit Partners and Loan Loss Provisioning: Evidence from U.S. Bank Holding Companies
Bhat, Gauri; Desai, Hemang; Koch, Christoffer; Mayer, Erik J.; Tzur-Ilan, Nitzan (2024-11-20)
This paper uses confidential data on audit engagement partner names from regulatory filings of bank holding companies (BHC) to investigate whether partners display individual style that affects the financial reporting of the BHCs. We focus on loan loss provisioning. We construct an audit partner-BHC matched panel data set that enables us to track different partners across different BHCs over time. We employ two empirical approaches to investigate partner style. The first approach tests whether partner fixed effects are statistically significant in loan loss provisioning models. The second ...
Working Papers , Paper 2209

Journal Article
Is the Era of Overdraft Fees Over?
Neely, Michelle Clark (2023-03-08)
Some U.S. banks are cutting back overdraft fees and offering lower-cost alternatives in response to pressure from consumers, competitors and regulators.
The Regional Economist

Working Paper
The Impact of Regulatory Stress Tests on Bank Lending and Its Macroeconomic Consequences
Bräuning, Falk; Fillat, Jose (2020-10-01)
We use an expansive regulatory loan-level data set to analyze how the portfolios of the largest US banks have changed in response to the Dodd-Frank Act Stress Test (DFAST) requirements. We find that the portfolios of the largest banks, which are subject to stress-testing, have become more similar to each other since DFAST was implemented in 2011. We also find that banks with poor stress-test results tend to adjust their portfolios in a way that makes them more similar to the portfolios of banks that performed well in the stress-testing. In general, stress-testing has resulted in more ...
Working Papers , Paper 20-12

Journal Article
When the Fed Raises Rates, Are Banks Less Profitable?
Paul, Pascal (2022-12-20)
Banks limit their interest rate risk exposure by issuing adjustable-rate loans and protect their funding costs by slowly adjusting deposit rates. These actions allow banks to maintain largely stable profit margins even if monetary policy tightens unexpectedly. Evidence from the pre-pandemic tightening cycle suggests that bank profit margins could increase rather than decline over the coming months. However, the slow adjustment of rates that banks pay on deposits may result in people moving their savings, leading to a reallocation of assets away from the regulated banking system.
FRBSF Economic Letter , Volume 2022 , Issue 35 , Pages 06

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