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A Supervisory Perspective on the U.S. Banking System

Remarks at the Financial Times Global Banking Summit (delivered via videoconference).

Digital Banking: A Look at the Playing Field

Fintech developments have turbocharged banking services competition, leading to more offerings or specialization.
On the Economy

Exploring Risks and Opportunities for Community Banks in an Improving Environment

The Tenth Annual Community Bankers Symposium, co-sponsored by the Federal Reserve Bank of Chicago, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, was held at the Chicago Fed on November 7, 2014. This article summarizes key presentations and discussions at the symposium.
Chicago Fed Letter

Testimony on Exploring Financial Risks on Banking Posed by Climate Change

Testimony before the New York State Senate Committees on Banks, Finance, and Environmental Conservation (delivered via videoconference).

Macroprudential policy and the revolving door of risk: lessons from leveraged lending guidance

We investigate the U.S. experience with macroprudential policies by studying the interagency guidance on leveraged lending. We find that the guidance primarily impacted large, closely supervised banks, but only after supervisors issued important clarifications. It also triggered a migration of leveraged lending to nonbanks. While we do not find that nonbanks had more lax lending policies than banks, we unveil important evidence that nonbanks increased bank borrowing following the issuance of guidance, possibly to finance their growing leveraged lending. The guidance was effective at reducing ...
Staff Reports , Paper 815

Discussion Paper
How Does Supervision Affect Bank Performance during Downturns?

Supervision and regulation are critical tools for the promotion of stability and soundness in the financial sector. In a prior post, we discussed findings from our recent research paper which examines the impact of supervision on bank performance (see earlier post How Does Supervision Affect Banks?). As described in that post, we exploit new supervisory data and develop a novel strategy to estimate the impact of supervision on bank risk taking, earnings, and growth. We find that bank holding companies (BHCs or “banks”) that receive more supervisory attention have less risky loan ...
Liberty Street Economics , Paper 20200408

Working Paper
Foreign Investment, Regulatory Arbitrage, and the Risk of U.S. Banking Organizations

This study investigates the implications of cross-country differences in banking regulation and supervision for the international subsidiary locations and risk of U.S. bank holding companies (BHCs). We find that U.S. BHCs are more likely to operate subsidiaries in countries with weaker regulation and supervision and that such location decisions are associated with elevated BHC risk and higher contribution to systemic risk. The quality of BHCs? internal controls and risk management play an important role in these location choices and risk outcomes. Overall, our study suggests that U.S. banking ...
FRB Atlanta Working Paper , Paper 2017-2

A Microprudential Perspective on the Financial Risks of Climate Change

Remarks at the 2020 Climate Risk Symposium, Global Association of Risk Professionals (delivered via videoconference).

Discussion Paper
Enhancing Monitoring of NBFI Exposure: The Case of Open-End Funds

Non-bank financial institutions (NBFIs) have grown steadily over the last two decades, becoming important providers of financial intermediation services. As NBFIs naturally interact with banking institutions in many markets and provide a wide range of services, banks may develop significant direct exposures stemming from these counterparty relationships. However, banks may be also exposed to NBFIs indirectly, simply by virtue of commonality in asset holdings. This post and its companion piece focus on this indirect form of exposure and propose ways to identify and quantify such ...
Liberty Street Economics , Paper 20230418a

Bank Supervision

We provide a critical review of the empirical and theoretical literature on bank supervision. The review focuses on microprudential supervision: the supervision of individual banking institutions aimed at assessing the financial and operational health of those firms. Theory suggests that supervision is required both to ensure compliance with regulation but also to allow for the use of soft information in mitigating externalities of bank failure. Empirically, more intensive supervision results in reduced risk-taking, but there is less consensus on whether the risk-reducing impact of ...
Staff Reports , Paper 952


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