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Speech
Opening remarks at the Conference on Supervising Large, Complex Financial Institutions: Defining Objectives and Measuring Effectiveness
Dudley, William (2016-03-18)
Remarks at the Conference on Supervising Large, Complex Financial Institutions: Defining Objectives and Measuring Effectiveness, Federal Reserve Bank of New York, New York City.
Speech , Paper 197

Discussion Paper
Can I Speak to Your Supervisor? The Importance of Bank Supervision
Hirtle, Beverly; Kovner, Anna (2024-04-15)
In March of 2023, the U.S. banking industry experienced a period of significant turmoil involving runs on several banks and heightened concerns about contagion. While many factors contributed to these events—including poor risk management, lapses in firm governance, outsized exposures to interest rate risk, and unrecognized vulnerabilities from interconnected depositor bases, the role of bank supervisors came under particular scrutiny. Questions were raised about why supervisors did not intervene more forcefully before problems arose. In response, supervisory agencies, including the Federal ...
Liberty Street Economics , Paper 20240415

Discussion Paper
Banks and Nonbanks Are Not Separate, but Interwoven
Acharya, Viral V.; Cetorelli, Nicola; Tuckman, Bruce (2024-06-18)
In our previous post, we documented the significant growth of nonbank financial institutions (NBFIs) over the past decade, but also argued for and showed evidence of NBFIs’ dependence on banks for funding and liquidity support. In this post, we explain that the observed growth of NBFIs reflects banks optimally changing their business models in response to factors such as regulation, rather than banks stepping away from lending and risky activities and being substituted by NBFIs. The enduring bank-NBFI nexus is best understood as an ever-evolving transformation of risks that were hitherto ...
Liberty Street Economics , Paper 20240618

Journal Article
Reciprocal Deposits and the Banking Turmoil of 2023
Prescott, Edward Simpson; Rosenberger, Grant (2024-08-13)
Reciprocal deposits are deposits exchanged between banks to effectively increase deposit insurance coverage. Their use grew significantly during the banking turmoil of 2023. This Economic Commentary describes what they are, their connection to brokered deposits, how their legal treatment has changed over time, and which banks use them the most. It also discusses longer-run trends in uninsured deposits.
Economic Commentary , Volume 2024 , Issue 14 , Pages 12

Working Paper
Does Access to Bank Accounts as a Minor Improve Financial Capability? Evidence from Minor Bank Account Laws
Collins, J. Michael; Larrimore, Jeff; Urban, Carly (2021-11-19)
Banking the unbanked is a common policy goal, but should this include access to bank accounts for minors? This study estimates how teenagers' access to bank accounts affects their financial development. Using variation in state laws, we show policies that permit access to independently-owned accounts increase account ownership at age 16 through age 19, although by age 24 those young adults are banked at similar rates to teens who grew up in states that do not allow minors to own accounts independently. Teens who had access to independently-owned accounts use fewer high-cost alternative ...
Finance and Economics Discussion Series , Paper 2021-075

Report
Where Do Banks End and NBFIs Begin?
Acharya, Viral V.; Cetorelli, Nicola; Tuckman, Bruce (2024-09-01)
In recent years, assets of nonbank financial intermediaries (NBFIs) have grown significantly relative to those of banks. These two sectors are commonly viewed either as operating in parallel, performing different activities, or as substitutes, performing substantially similar activities, with banks inside and NBFIs outside the perimeter of banking regulation. We argue instead that NBFI and bank businesses and risks are so interwoven that they are better described as having transformed over time, rather than as having migrated from banks to NBFIs. These transformations are at least in part a ...
Staff Reports , Paper 1119

Working Paper
Banker Compensation, Relative Performance, and Bank Risk
Prescott, Edward Simpson; Jarque, Arantxa (2019-11-05)
A multi-agent, moral-hazard model of a bank operating under deposit insurance and limited liability is used to analyze the connection between compensation of bank employees (below CEO) and bank risk. Limited liability with deposit insurance is a force that distorts effort down. However, the need to increase compensation to risk-averse employees in order to compensate them for extra bank risk is a force that reduces this effect. Optimal contracts use relative performance and are implementable as a wage with bonuses tied to individual and firm performance. The connection between pay for ...
Working Papers , Paper 19-20

Working Paper
Competition and Bank Fragility
Sengupta, Rajdeep; Marsh, W. Blake (2017-06-01)
Research Working Paper , Paper RWP 17-6

Working Paper
Insider bank runs: community bank fragility and the financial crisis of 2007
Jackson, William E.; Lang, William W.; Henderson, Christopher (2015-01-01)
From 2007 to 2010, more than 200 community banks in the United States failed. Many of these failed community banking organizations (CBOs) held less than $1 billion in total assets. As economic conditions worsen, banking organizations are expected to preserve capital to withstand unexpected losses. This study examines CBOs prior to failure or becoming problem institutions to understand if, on average, a run on capital by insiders via dividend payouts led to greater financial fragility at the onset of the crisis. We use a control group of similar-sized banks that did not fail or become problem ...
Working Papers , Paper 15-9

Journal Article
Why Do Supervisors Rate Banking Organizations?
Bergin, James P.; Stiroh, Kevin J. (2021-11-01)
This article addresses a question that at first may appear simple: why do supervisors rate banking organizations? Prudential supervisors have a long-standing practice of confidentially rating the condition of the firms that they supervise. These ratings are used for a variety of purposes and can have important consequences. The authors analyze the history and evolution of this practice and consider how the use of ratings advances the statutory and regulatory goals of supervision of banking organizations. They conclude with a discussion of the implications for the design and implementation of ...
Economic Policy Review , Volume 27 , Issue 3 , Pages 27

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