Search Results
Journal Article
The Rise in Loan-to-Deposit Ratios: Is 80 the New 60?
Liquidity ratios at small banks have climbed in recent decades. Why has this happened? Should regulators be concerned? A traditional signal that a bank may not have enough liquid assets to cover a sudden loss of funding has increased dramatically at small banks in recent decades. Small banks? median ratio of the value of their loans outstanding to the value of their deposits has risen from around 60 percent in the second half of the 1980s to around 80 percent today. Meanwhile, the same measure of liquidity has increased about 5 percentage points at large banks. How can we explain this big ...
Working Paper
An Empirical Analysis of the Cost of Borrowing
We examine borrowing costs for firms using a security-level database with bank loans and corporate bonds issued by U.S. companies. We find significant within-firm dispersion in borrowing rates, even after controlling for security and firm observable characteristics. Obtaining a bank loan is 132 basis points cheaper than issuing a bond, after accounting for observable factors. Changes in borrowing costs have persistent negative impacts on firm-level outcomes, such as investment and borrowing, and these effects vary across sectors. These findings contribute to our understanding of borrowing ...
Discussion Paper
Did Banks Subject to LCR Reduce Liquidity Creation?
Banks traditionally provide loans that are funded mostly by deposits and thereby create liquidity, which benefits the economy. However, since the loans are typically long-term and illiquid, whereas the deposits are short-term and liquid, this creation of liquidity entails risk for the bank because of the possibility that depositors may ?run? (that is, withdraw their deposits on short notice). To mitigate this risk, regulators implemented the liquidity coverage ratio (LCR) following the financial crisis of 2007-08, mandating banks to hold a buffer of liquid assets. A side effect ofthe ...
Journal Article
The Rise in Loan-to-Deposit Ratios: Is 80 the New 60?
Liquidity ratios at small banks have climbed in recent decades. Why has this happened? Should regulators be concerned? A traditional signal that a bank may not have enough liquid assets to cover a sudden loss of funding has increased dramatically at small banks in recent decades. Small banks? median ratio of the value of their loans outstanding to the value of their deposits has risen from around 60 percent in the second half of the 1980s to around 80 percent today. Meanwhile, the same measure of liquidity has increased about 5 percentage points at large banks. How can we explain this big ...
Working Paper
An Empirical Analysis of the Cost of Borrowing
We empirically study firm financing costs using a comprehensive dataset of corporate bonds and bank loans. We construct a measure of the cost of financing, the ExcessDebt Premium, which controls for observable debt characteristics. We document two key findings: first, bank loans are about 97 basis points cheaper than corporate bonds when controlling for observable characteristics. Second, there is significant dispersion in borrowing costs, even within the same firm and quarter. The analysis reveals that this within firm variation persists after accounting for instrument type, maturity, ...
Discussion Paper
The Rise of the Originate-to-Distribute Model and the Role of Banks in Financial Intermediation
In yesterday’s post, Nicola Cetorelli argued that while financial intermediation has changed dramatically over the last two decades, banks have adapted and remained key players in the process of channeling funds between lenders and borrowers. In today’s post, we focus on an important change in the way banks provide credit to corporations—the substitution of the so-called originate-to-distribute model for the originate-to-hold model. Historically, banks originated loans and kept them on their balance sheets until maturity. Over time, however, banks began increasingly to distribute the ...
Discussion Paper
Partnerships between Community Development Financial Institutions and Workforce Development Organizations
Inability to secure capital to improve worker skills or expand training programs can prevent growth in a local economy. This paper presents the role CDFIs can play to fill a need for financing in the workforce development sector. While the transactions presented in this paper are unique, they highlight the importance of partnerships between the two industries. Shared missions and an overlapping client base between CDFIs and workforce development practitioners creates a natural pairing for collaboration. In addition, CDFIs are uniquely able to serve as test beds for innovation because of their ...
Working Paper
An Empirical Analysis of the Cost of Borrowing
We empirically study firm financing costs using a comprehensive dataset of corporate bonds and bank loans. We construct a measure of the cost of financing, the Excess Debt Premium, which controls for observable debt characteristics. We document two key findings: first, bank loans are about 97 basis points cheaper than corporate bonds when controlling for observable characteristics. Second, there is significant dispersion in borrowing costs, even within the same firm and quarter. The analysis reveals that this within firm variation persists after accounting for instrument type, maturity, ...
Report
Benefits and Challenges of the “CECL” Approach
This note provides an overview of the Current Expected Credit Loss ("CECL") accounting approach for credit losses. It also discusses the potential benefits and challenges of the CECL approach to financial institutions and users of their financial statements.
Journal Article
Turbulent Years for U.S. Banks: 2000-20
The first 20 years of the twenty-first century have presented U.S. banks with three recessions, long periods of very low interest rates, and increased regulation. The number of commercial banks operating in the United States declined by 51 percent during this period. This article examines the performance of U.S. commercial banks from 2000 through 2020. An overall picture is provided by examining the evolution of assets, deposits, loans, and other financial characteristics over the period. In addition, new estimates of technical inefficiency are provided, offering additional insight into ...