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Keywords:Regulation 

Working Paper
Banks, Non Banks, and Lending Standards

We study how competition between banks and non-banks affects lending standards. Banks have private information about some borrowers and are subject to capital requirements to mitigate risk-taking incentives from deposit insurance. Non-banks are uninformed and market forces determine their capital structure. We show that lending standards monotonically increase in bank capital requirements. Intuitively, higher capital requirements raise banks’ skin in the game and screening out bad projects assures positive expected lending returns. Non-banks enter the market when capital requirements are ...
Finance and Economics Discussion Series , Paper 2020-086

Journal Article
Are the New Basel III Capital Buffers Countercyclical? Exploring the Option of a Rule-Based Countercyclical Buffer

Countercyclical capital regulation can reduce the procyclicality of the banking system and dampen aggregate economic fluctuations. I describe two new capital buffers introduced in Basel III and discuss why their countercyclical effects may be small. If over time regulators want to increase the degree of countercyclicality of capital regulation, they might consider adopting a rule-based countercyclical buffer, that is, a buffer that is automatically lowered during recessions according to a rule. I present a conservative example of such a rule and its effects on capital requirements over the ...
Economic Commentary , Volume 2018 , Issue 03 , Pages 6

Journal Article
In-depth: is the end near for the popular transaction account guarantee program?

The Dodd-Frank superseded and extended the coverage of the FDIC?s popular TAG program, which is set to expire on Dec. 31, 2012. Opinions are divided among numerous bankers, banking organizations, lawmakers and others on whether TAG should continue or terminate.
Central Banker , Issue Summer

Report
The financial crisis: connecting the dots

Richard Fisher, president and CEO of the Federal Reserve Bank of Dallas, spoke and wrote extensively on the financial crisis in 2008
Annual Report

Discussion Paper
Introduction to a Series on Market Liquidity: Part 2

Market participants and policymakers have raised concerns about the potential adverse effects of financial regulation on market liquidity?the ability to buy and sell securities quickly, at any time, at minimal cost. Market liquidity supports the efficient allocation of capital through financial markets, which is a catalyst for sustainable economic growth. Changes in market liquidity, whether due to regulation or other forces, are therefore of great interest to policymakers and market participants alike.
Liberty Street Economics , Paper 20151005

Discussion Paper
Continuing the Conversation on Liquidity

Market participants and policymakers have raised concerns about market liquidity?the ability to buy and sell securities quickly, at any time, at minimal cost. Market liquidity supports the efficient allocation of financial capital, which is a catalyst for sustainable economic growth. Any possible decline in market liquidity, whether due to regulation or otherwise, is of interest to policymakers and market participants alike.
Liberty Street Economics , Paper 20160208b

Discussion Paper
Money Market Funds and the New SEC Regulation

On October 14, 2016, amendments to Securities and Exchange Commission (SEC) rule 2a-7, which governs money market mutual funds (MMFs), went into effect. The changes are designed to reduce MMFs? susceptibility to destabilizing runs and contain two principal requirements. First, institutional prime and muni funds?but not retail or government funds?must now compute their net asset values (NAVs) using market-based factors, thereby abandoning the fixed NAV that had been a hallmark of the MMF industry. Second, all prime and muni funds must adopt a system of gates and fees on redemptions, which can ...
Liberty Street Economics , Paper 20170320

Discussion Paper
Taxing risk and the optimal regulation of financial institutions

Knowing that bailouts are inevitable because governments will rescue firms whose collapse may cause systemic failure, financial institutions fail to internalize risks their investments impose on society, thereby creating a ?risk externality.? This paper proposes that just as taxes are imposed to deal with pollution externalities, taxes can also address risk externalities. ; The size of the optimal tax depends on risk-related attributes and may be difficult for supervisors to calculate and implement. A market-based method can estimate its appropriate magnitude. For a particular financial ...
Economic Policy Paper , Paper 10-3

Working Paper
Where Are All the New Banks? The Role of Regulatory Burden in New Charter Creation

New bank formation in the U.S. has declined dramatically since the financial crisis, from well over 100 new banks per year to less than 1. Many have suggested that this is due to newly-instituted regulation, but the current weak economy and low interest rates (which both depress banking profits) could also have played a role. We estimate a model of bank entry decisions on data from 1976 to 2013 which indicates that at least 75% of the decline in new bank formation would have occurred without any regulatory change. The standalone effect of regulation is more difficult to quantify.
Finance and Economics Discussion Series , Paper 2014-113

Working Paper
Banks as Regulated Traders

This paper uses detailed high-frequency regulatory data to evaluate whether trading increases or decreases systemic risk in the U.S. banking sector. We estimate the sensitivity of weekly bank trading net profits to a variety of aggregate risk factors, which include equities, fixed-income, derivatives, foreign exchange, and commodities. We find that U.S. banks had large trading exposures to equity market risk before the introduction of the Volcker Rule in 2014 and that they curtailed these exposures afterwards. Pre-rule equity risk exposures were large across the board of the main asset ...
Finance and Economics Discussion Series , Paper 2019-005

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