Supervisory implications of rising similarity in banking: remarks at the Financial Times U.S. Banking Forum: Charting a Course for Stability and Success, New York City
Remarks at the Financial Times U.S. Banking Forum: Charting a Course for Stability and Success, New York City.
What Explains Shareholder Payouts by Large Banks?
On June 28, the Federal Reserve released the latest results of the Comprehensive Capital Analysis and Review (CCAR), the supervisory program that assesses the capital adequacy and capital planning processes of large, complex banking companies. The Fed did not object to any of the banks? capital plans, an outcome that was widely heralded as a signal that these banks would be able to increase payouts to their shareholders. And in fact, immediately following the release of the CCAR results, several large banks announced substantial increases in quarterly dividends and record-sized share ...
Bank Size and Household Financial Sentiment: Surprising Evidence from the University of Michigan Surveys of Consumers
We analyze comparative advantages/disadvantages of small and large banks in improving household sentiment regarding financial conditions. We match sentiment data from the University Of Michigan Surveys Of Consumers with local banking market data from 2000 to 2014. Surprisingly, the evidence suggests that large rather than small banks have significant comparative advantages in boosting household sentiment. Findings are robust to instrumental variables and other econometric methods. Additional analyses are consistent with both scale economies and the superior safety of large banks as channels ...
How Do Large Banks Manage Their Cash?
As the aggregate supply of reserves shrinks and large banks implement liquidity regulations, they may follow a variety of liquidity management strategies depending on their business models and the interest rate differences between alternative liquid instruments. In this post, the authors provide new evidence on how large banks have managed their cash?the largest component of reserves?on a daily basis since the implementation of liquidity regulations.
Stress Tests and Small Business Lending
Post-crisis stress tests have altered banks? credit supply to small business. Banks affected by stress tests reduce credit supply and raise interest rates on small business loans. Banks price the implied increase in capital requirements from stress tests where they have local knowledge, and exit markets where they do not, as quantities fall most in markets where stress-tested banks do not own branches near borrowers, and prices rise mainly where they do. These reductions in supply are concentrated among risky borrowers. Stress tests do not, however, reduce aggregate credit. Small banks ...
Sizing Up Systemic Risk
Regulators now use a framework for identifying systemically important banking institutions that is based on five broad measures of bank structure. Though size is only one of these equally weighted measures, it seems to be the focus of most attention. This Commentary explores whether the other measures contribute unique information or whether size is all one needs to identify all the institutions whose failure could bring down the financial system.
What makes large bank failures so messy and what should be done about it?
This study argues that the defining feature of large and complex banks that makes their failures messy is their reliance on runnable financial liabilities. These liabilities confer liquidity or money-like services that may be impaired or destroyed in bankruptcy. To make large bank failures more orderly, the authors recommend that systemically important bank holding companies be required to issue ?bail-in-able? long-term debt that converts to equity in resolution. This reassures holders of uninsured liabilities that their claims will be honored in resolution, making them less likely to run. In ...
Restoring confidence in reference rates
Remarks at the Salomon Center for the Study of Financial Institutions, New York University Stern School of Business, New York City.
What we learn from China's rising shadow banking: exploring the nexus of monetary tightening and banks' role in entrusted lending
We argue that China's rising shadow banking was inextricably linked to potential balance-sheet risks in the banking system. We substantiate this argument with three didactic findings: (1) commercial banks in general were prone to engage in channeling risky entrusted loans; (2) shadow banking through entrusted lending masked small banks' exposure to balance-sheet risks; and (3) two well-intended regulations and institutional asymmetry between large and small banks combined to give small banks an incentive to exploit regulatory arbitrage by bringing off-balance-sheet risks into the balance ...
Large Bank Cash Balances and Liquidity Regulations
The liquidity needs of the largest U.S. commercial banks play an important role in understanding the banking system?s appetite for actual reserve holdings?bank reserve demand. In this post, the authors discuss the recent evolution of large bank cash balances, the effect of liquidity regulations on these balances, and how banks might react to changes in the supply of reserves.