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Working Paper
Bank Profitability and Debit Card Interchange Regulation: Bank Responses to the Durbin Amendment
Kay, Benjamin S.; Manuszak, Mark D.; Vojtech, Cindy M. (2014-08-22)
The Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 alters the competitive structure of the debit card payment processing industry and caps debit card interchange fees for banks with over $10 billion in assets. Market participants predicted that debit card issuers would offset the reduction in debit interchange revenue by increases in customer account fees. Some participants also predicted that banks would cut costs in response to the law by reducing staff and shutting down branches. Using a difference-in-differences testing strategy, we show that ...
Finance and Economics Discussion Series , Paper 2014-77

Working Paper
Credit Ratings, Private Information, and Bank Monitoring Ability
Nakamura, Leonard I.; Roszbach, Kasper (2016-06-16)
In this paper, we use credit rating data from two large Swedish banks to elicit evidence on banks' loan monitoring ability. For these banks, our tests reveal that banks' internal credit ratings indeed include valuable private information from monitoring, as theory suggests. Banks' private information increases with the size of loans.
Working Papers , Paper 16-14

Discussion Paper
How Were the Basel 3 Minimum Capital Requirements Calibrated?
Hirtle, Beverly (2011-03-28)
One way to reduce the likelihood of bank failures is to require banks to hold more and better capital. But how much capital is enough? An international committee of regulators recently reached a new agreement (called Basel 3) to impose new, higher standards for capital on globally active banks. The Basel 3 common equity minimum capital requirement will be 4.5 percent plus an additional buffer of at least 2.5 percent of risk-weighted assets (RWA). Are these numbers big or small?and where did they come from? In this post, I describe how the new Basel capital standards were calibrated.
Liberty Street Economics , Paper 20110328

Working Paper
Global Stablecoins: Monetary Policy Implementation Considerations from the U.S. Perspective
Lowe, David; Malloy, Matthew (2021-03-22)
This note explores the potential effects of the widespread adoption of a global stablecoin (GSC) on key aggregate financial sector balance sheets in the United States. To do this, we map out cash flows of GSC transactions among financial sector entities using a stylized set of 't-accounts'. By analyzing these individual transactions, we infer aggregate and compositional effects on U.S. commercial banking sector and Federal Reserve balance sheets. Through this lens, we also consider how these balance sheet changes could affect monetary policy implementation, the demand for central bank ...
Finance and Economics Discussion Series , Paper 2021-020

Working Paper
The rising tide lifts some interest rates: climate change, natural disasters, and loan pricing
Correa, Ricardo; He, Ai; Herpfer, Christoph; Lel, Ugur (2022-06-02)
We investigate how corporate loan costs are affected by climate change-related natural disasters. We construct granular measures of borrowers’ exposure to natural disasters and then disentangle the direct effects of disasters from the effects of lenders updating their beliefs about the impact of future disasters. Following a climate change-related disaster, spreads on loans of at-risk, yet unaffected borrowers, spike and are amplified when attention to climate change is high. Weaker borrowers with the most extreme exposure to these disasters suffer the highest increase in spreads. ...
International Finance Discussion Papers , Paper 1345

Working Paper
Expansionary Austerity: Reallocating Credit Amid Fiscal Consolidation
Morais, Bernardo; Peydró, José-Luis; Ruiz-Ortega, Claudia (2021-08-04)
We study the impact of public debt limits on economic growth exploiting the introduction of a Mexican law capping the debt of subnational governments. Despite larger fiscal consolidation, states with higher ex-ante public debt grew substantially faster after the law, albeit at the expense of increased extreme poverty. Credit registry data suggests that the mechanism behind this result is a reduction in crowding out. After the law, banks operating in more indebted states reallocate credit away from local governments and into private firms. The unwinding of crowding out is stronger for riskier ...
International Finance Discussion Papers , Paper 1323

Briefing
Understanding the Surge in Commercial Real Estate Lending
Muething, Catherine; Fessenden, Helen (2017-08)
U.S. banks have increased their commercial real estate (CRE) lending significantly in the past five years. Economists and regulators note that some positive factors are driving this trend, but they also see potential risks. Analysts at the Richmond Fed have found that some banks could be especially vulnerable if economic conditions deteriorate. These include institutions that are in certain major urban areas and have high concentrations of CRE loans, rapid CRE loan growth, and heavy reliance on "noncore" (or illiquid) funding. But the analysts also conclude that, overall, banks' CRE exposures ...
Richmond Fed Economic Brief , Issue August

Working Paper
Is Lending Distance Really Changing? Distance Dynamics and Loan Composition in Small Business Lending
Brevoort, Kenneth P.; Adams, Robert M.; Driscoll, John C. (2021-02-16)
Has information technology improved small businesses' access to credit by hardening the information used in loan underwriting and reducing the importance of proximity to lenders? Previous research, pointing to increasing average lending distances, suggests that it has. But this conclusion can obscure differences across loans and lenders. Using over 20 years of Community Reinvestment Act data on small business lending, we find that while average distances have increased substantially, distances at individual banks remain unchanged. Instead, average distance has increased because a small group ...
Finance and Economics Discussion Series , Paper 2021-011

Working Paper
Do Costly Internal Equity Injections Reveal Bank Expectations about Post-Crisis Real Outcomes?
Gupta, Arun; Sapriza, Horacio (2022-12-21)
We construct a novel signal of bank expectations utilizing confidential data and a regulatory constraint imposed on bank internal capital markets during the 2008 crisis that made internal equity injections to commercial bank subsidiaries difficult to reverse. When the US government initiated a $176 billion recapitalization program during the crisis, this constraint made it costly ex-ante for multi-bank holding companies (MBHC) to use these funds for the purpose of recapitalizing subsidiaries against future anticipated losses; in contrast, lending the funds to subsidiaries was exempt from the ...
Working Paper , Paper 23-03

Working Paper
Current Expected Credit Losses (CECL) Standard and Banks' Information Production
Kim, Sehwa; Kim, Seil; Kleymenova, Anya V.; Li, Rongchen (2023-09-29)
We examine whether the adoption of the current expected credit losses (CECL) model, which reflects forward-looking information in loan loss provisions (LLP), improves banks’ information production. Consistent with better information production, we find changes in CECL banks' financial reporting and operations. First, these banks' loan loss provisions become timelier and better reflect future local economic conditions. Second, CECL banks disclose longer, more forward-looking, and more quantitative LLP information. Lastly, they have fewer loan defaults after adopting CECL. These improvements ...
Finance and Economics Discussion Series , Paper 2023-063

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