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Newsletter
Flooding and Finances: Hurricane Harvey’s Impact on Consumer Credit
This article examines consumers? borrowing behavior and debt levels in the wake of Hurricane Harvey. We find that high levels of flooding from Harvey were associated with modest increases in auto loan balances, but moderate decreases in mortgage balances. In general, the storm did not hurt consumers? credit access according to the limited measures we investigate. These results are influenced by a number of factors, including federal disaster assistance, insurance payouts, and creditors permitting temporary postponements in loan payments, with such delays not being reported to credit bureaus.
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 ...
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 ...
Report
Money, credit, monetary policy, and the business cycle in the euro area: what has changed since the crisis?
This paper studies the relationship between the business cycle and financial intermediation in the euro area. We establish stylized facts and study their stability during the global financial crisis and the European sovereign debt crisis. Long-term interest rates have been exceptionally high and long-term loans and deposits exceptionally low since the Lehman collapse. Instead, short-term interest rates and short-term loans and deposits did not show abnormal dynamics in the course of the financial and sovereign debt crisis.
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 ...
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 ...
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.
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
Alternative Refund Settlement Products May Compromise Asset-Building Goals
High-cost, short-term loans such as the refund anticipation loan (RAL) have historically been popular with low-income filers. RALs are based on the taxpayer's expected refund and are issued at the time of filing. They allow the taxpayer to receive an anticipated refund earlier, in the form of a loan. These products have often been associated with high prices and extra filing costs. Nationwide, 7.2 million taxpayers received RALs in 2009, and 87 percent of those were low income.
Journal Article
Recent Borrowing from the U.S. Discount Window: Some Cases
The Fed's discount window makes loans to depository institutions on a regular basis. Recent publicly available transaction-level data permit a closer look at the particular circumstances under which some of those loans happened. The analysis of nine specific cases produces some general insights that can be useful in evaluating whether the discount window should be open to making loans during periods of relatively calm financial conditions.