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Report
Resolving “Too Big to Fail”
Using a synthetic control research design, we find that ?living will? regulation increases a bank?s annual cost of capital by 22 basis points, or 10 percent of total funding costs. This effect is stronger in banks that were measured as systemically important before the regulation?s announcement. We interpret our findings as a reduction in ?too big to fail? subsidies. The size of this effect is large: a back-of-the-envelope calculation implies a subsidy reduction of $42 billion annually. The impact on equity costs drives the main effect. The impact on deposit costs is statistically ...
Discussion Paper
Introducing a Series on Large and Complex Banks
The chorus of criticism levied against mega-banks has, in some cases, outrun the research needed to back the criticism. To help the research catch up with the rhetoric, financial economists here at the New York Fed have engaged in a systematic study of the economics of large and complex banks and their resolution in the event of failure. The result of those efforts is a collection of eleven papers, each of which was subject to review (internal and external). The papers are now online in our Economic Policy Review. Today, we begin a two-week series of posts that present the key findings of ...
Working Paper
Explaining the Life Cycle of Bank-Sponsored Money Market Funds: An Application of the Regulatory Dialectic
In this paper, we present empirical evidence of the regulatory dialectic in the prime institutional money market fund (PI-MMF) industry. The “regulatory dialectic”, developed by Kane (1977, 1981), describes how banks and regulators react to each other. For decades, a cap on commercial deposit interest rates fueled dramatic growth in bank-sponsored PI-MMFs as a form of shadow banking. During the growth period, banks with more commercial deposits were more likely to enter the PI-MMF industry in an effort to keep their commercial customers in affiliated subsidiaries. However, the 2008 crisis ...
Speech
Panel remarks at the Clearing House annual conference
Remarks at The Clearing House Annual Conference, New York City.
Speech
Global financial stability - the road ahead
Remarks at the Tenth Asia-Pacific High Level Meeting on Banking Supervision, Auckland, New Zealand
Report
Bank Complexity, Governance, and Risk
Bank holding companies (BHCs) can be complex organizations, conducting multiple lines of business through many distinct legal entities and across a range of geographies. While such complexity raises the costs of bank resolution when organizations fail, the effect of complexity on BHCs’ broader risk profiles is less well understood. Business, organizational, and geographic complexity can engender explicit trade-offs between the agency problems that increase risk and the diversification, liquidity management, and synergy improvements that reduce risk. The outcomes of such trade-offs may ...
Speech
Opening remarks at the Workshop on Reforming Culture and Behavior in the Financial Services Industry.
Remarks at the Workshop on Reforming Culture and Behavior in the Financial Services Industry, Federal Reserve Bank of New York, New York City.
Speech
The role of the Federal Reserve—lessons from financial crises: Remarks at the Annual Meeting of the Virginia Association of Economists, Virginia Military Institute, Lexington, Virginia
Remarks at the Annual Meeting of the Virginia Association of Economists, Virginia Military Institute, Lexington, Virginia.
Discussion Paper
Do Big Banks Have Lower Operating Costs?
Despite recent financial reforms, there is still widespread concern that large banking firms remain “too big to fail.” As a solution, some reformers advocate capping the size of the largest banking firms. One consideration, however, is that while early literature found limited evidence for economies of scale, recent academic research has found evidence of scale economies in banking, even for the largest banking firms, implying that such caps could impose real costs on the economy. In our contribution to the volume on large and complex banks, we extend this line of research by studying the ...
Speech
Remarks on the panel Financial Regulation Nine Years on from the GFC – Where Do We Stand? at the G30’s 76th plenary session at the Federal Reserve Bank of New York, New York City
Remarks on the panel Financial Regulation Nine Years on from the GFC ? Where Do We Stand? at the G30?s 76th plenary session at the Federal Reserve Bank of New York, New York City.