Download or read book Three Essays on Bailout Banks During 2007 2009 Financial Crisis written by and published by . This book was released on 2015 with total page 332 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on the Banking Industry and the U S Economy written by Pallavi Choudhuri and published by . This book was released on 2014 with total page 161 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three essays on the banking industry. The first essay examines the role of securitization and its impact on cost efficiency, and investigates whether banks that securitized their assets to manage their liquidity needs achieved greater cost efficiency in the short run, and whether there was any incentive towards taking on excessive credit risk in the process. The analysis is carried out for commercial banks that securitized their assets during the period leading up to the 2007-2009 financial crisis. The results suggest that for banks that are exposed to higher risk from unused loan commitments, increased cost efficiency is associated with an increase in banks' ability to securitize loans, prompted by higher loan portfolio liquidity. In addition, improved cost efficiency is associated with higher credit risk exposure from asset securitization for very large banks, providing distorted economic incentive to increase asset risk. The banking industry experienced great turmoil during the recent financial crisis, with increases in solvency risk, coupled with liquidity risk that exacerbated under a severe economy-wide liquidity shock. The second essay explores the relationship between liquidity and insolvency in the framework of the FHLB advances program used by commercial banks between 2007 and 2010. While the FHLB system provided an important source of liquidity for its member banks, the results provide evidence that borrowing per asset is positively associated with increases in the Texas ratio, an early warning signal of default risk, raising questions about moral hazard incentives embedded in the system. The third essay explores the role played by banks in promoting technological innovation in the U.S. In particular, I examine whether changes in the banking industry following branch liberalization translated into a higher rate of innovative activity and the channels through which the finance-technology nexus takes place. The results show that while intrastate branch deregulation is negatively associated with technological innovation, the effect is positive after interstate branch deregulation through increased access to capital.

Download or read book Three Essays on Intermediary Lending written by Xiaohong Wang and published by . This book was released on 2012 with total page 167 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the third part of the study, I examine how shocks to banks' financial conditions impact corporate financing and investment decisions during the 2007-2009 financial crisis. I find that average firms relied more heavily on bank credit during the crisis. However, firms whose banks incurred more nonperforming loans used less bank credit when comparing their bank debt before and during the crisis. The reduction on bank debt weren't replaced by alternative financing such as public debt or trade credit. There is some evidence that shocks on banks eventually affected corporate real activities; firms with more adversely affected banks invested less and hoarded more cash during the crisis compared to their pre-crisis level. Overall, my results suggest that adverse shocks on the banking system can curtail bank lending and negatively affect the real sector.

Download or read book Three Essays on Macroeconomics and Banking written by Lulei Song and published by . This book was released on 2018 with total page 145 pages. Available in PDF, EPUB and Kindle. Book excerpt: My dissertation covers three loosely connected topics in Macroeconomics and Banking. The first chapter, titled Effect of Failed Bank Mergers During the Crisis on Cost Efficiency, examines the effect of merging with failed banks during the crisis period on the acquiring banks' cost X-efficiency. Between December 31, 2006, and Decem- ber 31, 2010, the number of U.S. commercial banks and savings institutions declined significantly because of failures. The majority of failed banks were acquired by the existing banks. I utilize the Fourier flexible cost function form to estimate the cost X-efficiency, and find out that merging with failed banks does negatively affect the cost X-efficiency of the acquiring bank. Although the local market concentration does not change much after the merger, the decrease in cost X-efficiency may still indicate the increase of market power for acquiring banks. With the evolving technology, the cost of obtaining banking service from distant providers fell a lot compared with 30 or 40 years ago. Local market concentration may no longer be a good measure of market competitiveness, and the FDIC may need to develop other more relevant measures regarding merger regulations. The second chapter, titled Financial Regulation and Stability of the Banking System, builds a dynamic stochastic general equilibrium model which includes both regulated and unregulated banks to study the effect of the capital requirement, which is imposed only on regulated banks, on the stability of the financial system. One of the most distinctive features of the recent financial crisis is the turmoil of the financial market. Financial institutions with high leverage were the first to bear the brunt, and the chain effect caused by their bankruptcy led the economy into a prolonged depression. In order to stabilize the financial market and prevent financial institutions from taking excessive risks, the government imposed capital requirements on the regulated banks. However, a large number of financial institutions, which perform similar functions as regulated banks, are not under government regulation. In this paper, I build a model which includes both regulated banks, referred to as commercial banks, and unregulated banks, referred to as shadow banks, to study and quantify the effects of capital requirements on the stability of the financial system. I find that when the capital requirement is high enough to help commercial banks to survive the bank runs, it does help to alleviate the negative impact of the crisis. However, if the capital requirement is not high enough, increasing capital requirements only causes decreased net output but does not help to stabilize consumption and capital price during the crisis. The third chapter is titled The Effect of Monetary Policy on Asset Price Volatility: Evidence from Time-Varying Parameter Vector Autoregression Approach. The great financial recession in 2007 - 2009 reactivated the discussion of the effect and the focus of monetary policies. Some researchers argue that whether the monetary authority should take action to fight against the asset price bubbles prior to 2007 aside from targeting inflation and GDP gap. However, one important fact that often get ne- glected is that the volatility of the financial market is also closely related to monetary policy shocks, and it has an important impact on economic output and unemployment in the economy. This paper utilizes two empirical methods, constant parameter structural vector auto-regression and time-varying parameter vector auto-regression, to study the relationship between monetary policy and financial market volatility. I find that under these two different methods, the financial market volatility responds differently to the monetary policy shocks.

Download or read book The Panic of 1907 written by Robert F. Bruner and published by John Wiley & Sons. This book was released on 2009-04-27 with total page 296 pages. Available in PDF, EPUB and Kindle. Book excerpt: "Before reading The Panic of 1907, the year 1907 seemed like a long time ago and a different world. The authors, however, bring this story alive in a fast-moving book, and the reader sees how events of that time are very relevant for today's financial world. In spite of all of our advances, including a stronger monetary system and modern tools for managing risk, Bruner and Carr help us understand that we are not immune to a future crisis." —Dwight B. Crane, Baker Foundation Professor, Harvard Business School "Bruner and Carr provide a thorough, masterly, and highly readable account of the 1907 crisis and its management by the great private banker J. P. Morgan. Congress heeded the lessons of 1907, launching the Federal Reserve System in 1913 to prevent banking panics and foster financial stability. We still have financial problems. But because of 1907 and Morgan, a century later we have a respected central bank as well as greater confidence in our money and our banks than our great-grandparents had in theirs." —Richard Sylla, Henry Kaufman Professor of the History of Financial Institutions and Markets, and Professor of Economics, Stern School of Business, New York University "A fascinating portrayal of the events and personalities of the crisis and panic of 1907. Lessons learned and parallels to the present have great relevance. Crises and panics are as much a part of our future as our past." —John Strangfeld, Vice Chairman, Prudential Financial "Who would have thought that a hundred years after the Panic of 1907 so much remained to be written about it? Bruner and Carr break significant new ground because they are willing to do the heavy lifting of combing through massive archival material to identify and weave together important facts. Their book will be of interest not only to banking theorists and financial historians, but also to business school and economics students, for its rare ability to teach so clearly why and how a panic unfolds." —Charles Calomiris, Henry Kaufman Professor of Financial Institutions, Columbia University, Graduate School of Business

Download or read book Three Essays on Financial Crisis written by Michael Pomerleano and published by . This book was released on 2007 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays in Financial Fragility written by Yuliyan Mitkov and published by . This book was released on 2017 with total page 152 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation is composed of three separate, but closely related, essays on financial instability. Chapter 1 offers new insights into the fragility-enhancing economic mechanisms at work during the Financial Crisis of 2007-08. Chapter 2 reexamines the effectiveness of recent regulatory measures aiming to mitigate future episodes of financial turmoil. Chapter 3 proposes a novel approach to an old problem in the literature on financial instability, namely how to derive sharper predictions in models with multiple equilibria. In Chapter 1, I explore how the distribution of wealth across households influences the government's response to a banking crisis and the fragility of the financial system. In particular, I analyze a version of the Diamond and Dybvig (1983) model of financial intermediation where households have heterogeneous endowments and a government collects taxes and uses the proceeds to finance the provision of a public good. In addition, if there is a financial panic, the government can use some tax revenue to bail out banks experiencing a run. I show that when the wealth distribution is unequal, the government's bailout policy during a systemic crisis will be shaped in part by distributional concerns. In particular, government guarantees of deposits will tend to be credible for relatively poor investors, but may not be credible for wealthier investors. As a result, wealthier investors will have a stronger incentive to panic and, in equilibrium, the institutions in which they invest are more likely to experience a run and receive a bailout. Thus bailouts, when they occur, will tend to benefit relatively wealthy investors at the expense of the general public. Notice that this result obtains naturally in my setting, without any appeal to political frictions or other factors that would give the wealthy undue influence over government policy. Rising inequality can strengthen this pattern. In particular, one of the effects of higher inequality is to make the panic-and-bailout cycle for the wealthy investors easier to obtain in equilibrium. In some cases, more progressive taxation reduces financial fragility and can even raise equilibrium welfare for all agents. In Chapter 2, which is joint work with Todd Keister, we study the interaction between a government's bailout policy during a banking crisis and individual banks' willingness to impose losses on (or "bail in") their investors. Our interest in this topic is motivated by the fact that, in recent years, policy makers in several jurisdictions have drafted rules requiring financial institutions to impose losses on their investors in any future crisis. These rules aim both to protect taxpayers in the event of a future crisis and to change the incentives of banks and investors in a way that makes such a crisis less likely. While the specific requirements vary, and are often yet to be finalized, in many cases the bail-in will be triggered by an announcement or action taken by the institution facing losses. This fact raises the question of what incentives banks will face when deciding whether and when to bail in their investors. Banks in our model hold risky assets and are free to write complete, state-contingent contracts with investors. In the constrained efficient allocation, banks experiencing a loss immediately cut payments to withdrawing investors. In a competitive equilibrium, however, these banks often delay cutting payments in anticipation of being bailed out. In some cases, the costs associated with this delay are large enough that investors will choose to run on their bank, creating further distortions and deepening the crisis. We discuss the implications of the model for banking regulation and optimal policy design. In Chapter 3, I investigate a new approach to endogenizing the probability of a self-fulfilling outcome in games of coordination. Specifically, a number of important economic phenomena such as currency attacks, bank runs and sovereign defaults can be understood as collective action problems where the players can end up coordinating on one of two different outcomes with markedly different consequences. This multiplicity of possible equilibrium outcomes presents a theoretical challenge since it renders the model predictions and its comparative statics relatively ambiguous. One approach to deriving sharper predictions in collective action problems is the global games framework initially proposed by Carlson and Van Damn (1993) and further developed by Frankel, Morris, and Pauzner (2000). The private sunspot approach is an alternative way of endogenizing the probability of a self-fulfilling event. The purpose of Chapter 3 is to illustrate the logic of the private sunspot approach through a simple example referred to as the Bandit Game. In particular, I analyze a coordination game where two bandits receive an idiosyncratic signal of the realization of a random variable and want to coordinate on attacking a village in order to seize whatever it had produced. By being unrelated to the fundamentals of the environment, this random variable adds uncertainty to the model that is purely extrinsic (i.e. a sunspot). I refer to the bandits' idiosyncratic signals of this random variable as private sunspots (as opposed to public sunspots, which are perfectly observed) and study equilibria where the strategies of the bandits are conditioned on their private sunspot signals. In other words, the private sunspot generalizes the public sunspot approach by introducing strategic uncertainty in the bandits' actions. I show that under certain condition, the private sunspot equilibrium involving an attack on the village will be unique, with the probability of an attack pinned down by the features of the environment.

Download or read book Crisis and Response written by Federal Deposit Insurance Corporation and published by . This book was released on 2018-03-06 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Crisis and Response: An FDIC History, 2008¿2013 reviews the experience of the FDIC during a period in which the agency was confronted with two interconnected and overlapping crises¿first, the financial crisis in 2008 and 2009, and second, a banking crisis that began in 2008 and continued until 2013. The history examines the FDIC¿s response, contributes to an understanding of what occurred, and shares lessons from the agency¿s experience.

Download or read book THREE ESSAYS ON THE IMPACT OF MONETARY POLICY TARGET INTEREST RATES ON BANK DISTRESS AND SYSTEMIC RISK written by Mustafa Akcay and published by . This book was released on 2018 with total page 223 pages. Available in PDF, EPUB and Kindle. Book excerpt: My dissertation topic is on the impact of changes in the monetary policy interest rate target on bank distress and systemic risk in the U.S. banking system. The financial crisis of 2007-2009 had devastating effects on the banking system worldwide. The feeble performance of financial institutions during the crisis heightened the necessity of understanding systemic risk exhibited the critical role of monitoring the banking system, and strongly necessitated quantification of the risks to which banks are exposed, for incorporation in policy formulation. In the aftermath of the crisis, US bank regulators focused on overhauling the then existing regulatory framework in order to provide comprehensive capital buffers against bank losses. In this context, the Basel Committee proposed in 2011, the Basel III framework in order to strengthen the regulatory capital structure as a buffer against bank losses. The reform under Basel III framework aimed at raising the quality and the quantity of regulatory capital base and enhancing the risk coverage of the capital structure. Separately, US bank regulators adopted the Dodd-Frank Wall Street Reform and Consumer Protection Act (2010) to implement stress tests on systemically important bank holding companies (SIBs). Concerns about system-wide distress have broadened the debate on banking regulation towards a macro prudential approach. In this context, limiting bank risk and systemic risk has become a prolific research field at the crossroads of banking, macroeconomics, econometrics, and network theory over the last decade (Kuritzkes et al., 2005; Goodhart and Sergoviano, 2008; Geluk et al., 2009; Acharya et al., 2010, 2017; Tarashev et al., 2010; Huang et al., 2012; Browless and Engle, 2012, 2017 and Cummins, 2014). The European Central Bank (ECB) (2010) defines systemic risk as a risk of financial instability "so widespread that it impairs the functioning of a financial system to the point where economic growth and welfare suffer materially." While US bank regulators and policy-makers have moved to strengthen the regulatory framework in the post-crisis period in order to prevent another financial crisis, a growing recent line of research has suggested that there is a significant link between monetary policy and bank distress (Bernanke, Gertler and Gilchrist, 1999; Borio and Zhu, 2008; Gertler and Kiyotaki, 2010; Delis and Kouretas, 2010; Gertler and Karadi, 2011; Delis et al., 2017). In my research, I examine the link between the monetary policy and bank distress. In the first chapter, I investigate the impact of the federal funds rate (FFR) changes on the banking system distress between 2001 and 2013 within an unrestricted vector auto-regression model. The Fed used FFR as a primary policy tool before the financial crisis of 2007-2009, but focused on quantitative easing (QE) during the crisis and post-crisis periods when the FFR hit the zero bound. I use the Taylor rule rate (TRR, 1993) as an "implied policy rate", instead of the FFR, to account for the impact of QE on the economy. The base model of distress includes three macroeconomic indicators-real GDP growth, inflation, and TRR-and a systemic risk indicator (Expected capital shortfall (ES)). I consider two model extensions; (i) I include a measure of bank lending standards to account for the changes in the systemic risk due to credit tightening, (ii) I replace inflation with house price growth rate to see if the results remain robust. Three main results can be drawn. First, the impulse response functions (IRFs) show that raising the monetary policy rate contributed to insolvency problems for the U.S. banks, with a one percentage point increase in the rate raising the banking systemic stress by 1.6 and 0.8 percentage points, respectively, in the base and extend models. Second, variance decomposition (VDs) analysis shows that up to ten percent of error variation in systemic risk indicator can be attributed to innovations in the policy rate in the extended model. Third, my results supplement the view that policy rate hikes led to housing bubble burst and contributed to the financial crisis of 2007-2009. This is an example for how monetary policy-making gets more complex and must be conducted with utmost caution if there is a bubble in the economy. In the second chapter, I examine the prevalence and asymmetry of the effects on bank distress from positive and negative shocks to the target fed fund rate (FFR) in the period leading to the financial crisis (2001-2008). A panel model with three blocks of control variables is used. The blocks include: positive/negative FFR shocks, macroeconomic drivers, and bank balance sheet indicators. A distress indicator similar to Texas Ratio is used to proxy distress. Shocks to FFR are defined along the lines suggested by Morgan (1993). Three main results are obtained. First, FFR shocks, either positive or negative, raise bank distress over the following year. Second, the magnitudes of the effects from positive and negative shocks are unequal (asymmetric); a 100 bps positive (negative) shock raises the bank distress indicator (scaled from 0 to 1) by 9 bps (3 bps) over the next year. Put differently, after a 100 bps positive (negative) shock, the probability of bankruptcy rises from 10% to 19% (13%). Third, expanding operations into non-banking activities by FHCs does not benefit them in terms of distress due to unanticipated changes in the FFR as FFR shocks (positive or negative) create similar levels of distress for BHCs and FHCs. In the third chapter, I explore the systemic risk contributions of U.S. bank holding companies (BHCs) from 2001 to 2015 by using the expected shortfall approach. Developed by analogy with the component expected shortfall concept, I decompose the aggregate systemic risk, as measured by expected shortfall, into several subgroups of banks by using publicly available balance sheet data to define the probability of bank default. The risk measure, thus, encompasses the entire universe of banks. I find that concentration of assets in a smaller number of larger banks raises systemic risk. The systemic risk contribution of banks designated as SIFIs increased sharply during the financial crisis and reached 74% at the end of 2015. Two-thirds of this risk contribution is attributed to the four largest banks in the U.S.: Bank of America, JP Morgan Chase, Citigroup and Wells Fargo. I also find that diversifying business operations by expanding into nontraditional operations does not reduce the systemic risk contribution of financial holding companies (FHCs). In general, FHCs are individually riskier than BHCs despite their more diversified basket of products; FHCs contribute a disproportionate amount to systemic risk given their size, all else being equal. I believe monetary policy-making in the last decade carries many lessons for policy makers. Particularly, the link between the monetary policy target rate and bank distress and systemic risk is an interesting topic by all accounts due to its implications and challenges (explained in more detail in first and second chapters). The literature studying the relation between bank distress and monetary policy is fairly small but developing fast. The models I investigate in my work are simple in many ways but they may serve as a basis for more sophisticated models.

Download or read book Global Economic Financial Crisis written by and published by . This book was released on 2009-01-01 with total page 368 pages. Available in PDF, EPUB and Kindle. Book excerpt: A collapse in housing prices in the United States in the middle of 2007 led to a rise in defaults in loan repayments and then rapidly to major losses in financial institutions across the world. The financial crisis of 2007 and 2008 took little time to turn into the global economic crisis of 2008 and 2009, leaving no country and no sector untouched and has become the worst contraction since the Depression of the 1930s. The structure of financial innovation that drove growth for close to a quarter of a century has turned out to be a house of cards. Governments and central banks are now rethinking the organization and role of banks. The incentives given to executives of the financial institutions to promote profits at all costs have been put under scrutiny. This volume puts together a collection of essays on a number of aspects of the global economic and financial crisis that were first published in the Economic & Political Weekly in early 2009. Economists and policy makers from across the world cover six areas from a global and Indian perspective. One set of articles discusses the structural causes of the financial crisis. A second focuses on banking and offers solutions for the future. A third examines the role of the US dollar in the unfolding of the crisis. A fourth area of study is the impact on global income distribution. A fifth set of essays takes a long-term view of policy choices confronting the governments of the world. A separate section assesses the downturn in India, the state of the domestic financial sector, the impact on the informal economy and the reforms necessary to prevent another crisis. This book is essential reading for anyone interested in and concerned about the global economic and financial crisis.

Download or read book Three Essays in Financial Economics written by Matthieu Segol and published by . This book was released on 2020 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The three chapters of this PhD investigate the effects of financial constraints in several contexts. In the first chapter, we analyze the impact of new regulatory constraints on US banks' interest rate derivative portfolios. In particular, we evaluate the effect of the central clearing requirement for interest rate derivatives, which can represent a significant cost for end-users. Our results show that a significant number of banks rebalanced their derivative portfolio after the implementation of the reform, precisely in order to limit the use of central clearing. This type of behaviour indicates that the new regulatory landscape does not provide a cost incentive to move towards central clearing for all end-users subject to the reform. The second chapter evaluates the impact of inadequate bank loan terms on firms' intangible investment in Europe. This analysis is carried out using new survey data which provide information on firms' investment in several categories of intangible assets. In addition, surveyed firms are asked to indicate their satisfaction regarding several terms of their loan contract, allowing us to cover a large scope of possible financial constraints. Our results show that a satisfying loan amount is the main determinant of firms' probability to invest in intangibles. On the other hand, dissatisfaction with the loan rate, maturity and/or collateral requirements have a negative impact on firms' ability to invest in several intangibles simultaneously, preventing them to benefit from the complementarity of these assets. In the last chapter, I build a theoretical model designed to study the impact of collateral constraints on asset price stability in a market where investors have different degrees of ambiguity aversion. Collateral constraints and ambiguity aversion are financial markets' features which have been particularly studied during the 2007-2009 financial crisis given their possible role in the amplification of the initial shock. An important outcome of our specification is that expectations of ambiguity-averse agents regarding future growth are endogenous and, consequently, can be impacted by binding collateral constraints. Our simulations show that binding constraints can lead to reduced asset price volatility in this framework, suggesting a possible stabilizing effect of tighter financial regulations when a fraction of market participants are concerned about ambiguity.

Download or read book Financial Crises Explanations Types and Implications written by Mr.Stijn Claessens and published by International Monetary Fund. This book was released on 2013-01-30 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper reviews the literature on financial crises focusing on three specific aspects. First, what are the main factors explaining financial crises? Since many theories on the sources of financial crises highlight the importance of sharp fluctuations in asset and credit markets, the paper briefly reviews theoretical and empirical studies on developments in these markets around financial crises. Second, what are the major types of financial crises? The paper focuses on the main theoretical and empirical explanations of four types of financial crises—currency crises, sudden stops, debt crises, and banking crises—and presents a survey of the literature that attempts to identify these episodes. Third, what are the real and financial sector implications of crises? The paper briefly reviews the short- and medium-run implications of crises for the real economy and financial sector. It concludes with a summary of the main lessons from the literature and future research directions.

Download or read book Three Essays on Financial Institutions and Real Estate written by Robert Deacle and published by . This book was released on 2011 with total page 189 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation examines several aspects of U.S. financial institutions' real estate-related activity. The first two essays examine the impact of Federal Home Loan Bank (FHLB) membership and funding on bank and thrift holding company (BHC and THC) risk and returns. The first essay uses risk measures derived from BHC and THC stock prices, while the second essay uses risk measures based upon BHC and THC bond prices. The third essay studies the impact of BHC investment in real estate on risk and returns using measures based on stock prices. In the first essay, BHC and THC stock portfolios are formed along several dimensions. Bivariate generalized autoregressive conditional heteroskedasticity (GARCH) models are estimated to produce measures of total risk, market risk, and interest rate risk for the time period from the beginning of 2001 through 2009. Two sets of results related to FHLB activity are obtained. First, FHLB membership is found to be associated with lower total risk and market risk while having no association with interest rate risk. Second, and similarly, greater reliance on FHLB advances is associated with lower total risk and market risk but is not associated with interest rate risk. These results are consistent with the view that the risks created by government backing of the FHLB system and some of the system's policies are mitigated by FHLB policies and products that reduce risk. In addition, THC stocks are found to have lower total and market risk than the portfolio of BHC stocks. The second essay investigates the relationship of both FHLB membership and funding with BHC and THC risk by using the cost of uninsured debt as a measure of risk. These relationships are analyzed in a simultaneous equation regression framework using data from the start of the third quarter of 2002 through the end of the first quarter of 2009. The cost of uninsured debt is proxied by yield spreads calculated from trading data on holding company (HC) bonds. Several interesting results are obtained. Reliance on advances is found to have a negative effect on the cost of debt throughout the sample period (the third quarter of 2002 through the first quarter of 2009). Cost of debt has a significant effect on the level of advances only during the recent financial crisis (the third quarter of 2007 through the first quarter of 2009), when the effect is negative. The negative association between cost of debt and the level of advances suggests that BHCs and THCs, on the whole, do not use FHLB advances to make unusually risky loans and supports the argument that FHLB policies and services have some risk-reducing effects. FHLB membership, independent of advances, is found to have no influence on HC cost of debt. Additional analysis indicates that THC status is associated with higher cost of debt than BHC status. The third essay examines the influence of real estate investment by BHCs from the third quarter of 1990 through the fourth quarter of 2010 on their risks and returns. Portfolios are formed of BHC stocks according to BHCs' ratio of real estate investment to total assets and according to the type of regulation - lenient or strict - under which they invest in real estate. Tests of differences in median portfolio returns between these portfolios are performed. In addition, the effects of real estate investment on risk and return are estimated using univariate GARCH models of portfolio returns. The main results are as follows: 1) BHCs that invest in real estate have greater total risk and lower risk-adjusted returns than those that do not; 2) greater real estate investment is associated with lower returns and greater market risk for some types of BHCs while it is not associated with significant differences in total risk or risk-adjusted returns; and 3) BHCs that invest in real estate under relatively lenient rules have lower returns, greater total risk, and lower risk-adjusted returns than those that invest in real estate under relatively strict rules. The results indicate that benefits from real estate investment by banks - such as diversification of cash flows, economies of scale and scope, and increased charter value - are outweighed by greater variability of returns and lower returns due to BHCs' lack of expertise in the field. The findings also provide evidence that rules granting banks greater freedom to invest in real estate result in increased risk but not increased returns.

Download or read book Essays on Banking and Local Credit Markets written by Hoai-Luu Nguyen and published by . This book was released on 2015 with total page 129 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis consists of three chapters on banking and local credit markets. The first chapter studies the relationship between bank-specific capital and credit access in a new setting: bank branch closings in markets where the branch network is dense. Existing regulation in the U.S. is targeted toward areas with few branches where closings inhibit physical access to the branch network. I show that, even in crowded markets, closings can have large effects on local credit supply. To generate plausibly exogenous variation in the incidence of closings, I use Census tract level data paired with a novel identification strategy that exploits within-county variation in exposure to post-merger consolidation. This instrument identifies the effect of closings that occur in close proximity to other branches. I find that closings have a prolonged negative impact on credit supply to local small businesses, but only a temporary effect on local mortgage lending. The number of new small business loans is 13% lower for several years, and this decline persists even after the entry of new banks. The decline in lending is highly localized, dissipating 8 miles out, and is concentrated in low-income and high-minority neighborhoods. These results show closings have large effects on local credit supply when lending is information-intensive and lender-specific relationships are difficult to replace. The second chapter (co-authored with Michael Greenstone and Alexandre Mas) estimates the effect of the reduction in credit supply that followed the 2008 financial crisis on the real economy. We predict county lending shocks using variation in pre-crisis bank market shares and estimated bank supply-shifts. Counties with negative predicted shocks experienced declines in small business loan originations, indicating that it is costly for these businesses to find new lenders. Using confidential microdata from the Longitudinal Business Database, we find that the 2007-2009 lending shocks accounted for statistically significant, but economically small, declines in both small firm and overall employment. Predicted lending shocks affected lending but not employment from 1997-2007. The third chapter uses a cash demand framework to model household credit decisions when there are both fixed and marginal costs associated with borrowing. In standard models of credit demand, the price associated with a loan is simply the interest rate. In reality, however, loan contracts encompass many dimensions that contribute to the effective price a household pays to borrow. Understanding how these other factors influence households' credit decisions is important for evaluating the impact of policy on household credit demand. I show, using data from Thailand, that the cash demand model matches many observed patterns of household behavior while providing a framework for understanding how tradeoffs between different costs drive borrowing decisions.

Download or read book Too Big to Fail written by Gary H. Stern and published by Rowman & Littlefield. This book was released on 2004-02-29 with total page 247 pages. Available in PDF, EPUB and Kindle. Book excerpt: The potential failure of a large bank presents vexing questions for policymakers. It poses significant risks to other financial institutions, to the financial system as a whole, and possibly to the economic and social order. Because of such fears, policymakers in many countries—developed and less developed, democratic and autocratic—respond by protecting bank creditors from all or some of the losses they otherwise would face. Failing banks are labeled "too big to fail" (or TBTF). This important new book examines the issues surrounding TBTF, explaining why it is a problem and discussing ways of dealing with it more effectively. Gary Stern and Ron Feldman, officers with the Federal Reserve, warn that not enough has been done to reduce creditors' expectations of TBTF protection. Many of the existing pledges and policies meant to convince creditors that they will bear market losses when large banks fail are not credible, resulting in significant net costs to the economy. The authors recommend that policymakers enact a series of reforms to reduce expectations of bailouts when large banks fail.

Download or read book The Financial Crisis Inquiry Report written by Financial Crisis Inquiry Commission and published by Cosimo, Inc.. This book was released on 2011-05-01 with total page 692 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Financial Crisis Inquiry Report, published by the U.S. Government and the Financial Crisis Inquiry Commission in early 2011, is the official government report on the United States financial collapse and the review of major financial institutions that bankrupted and failed, or would have without help from the government. The commission and the report were implemented after Congress passed an act in 2009 to review and prevent fraudulent activity. The report details, among other things, the periods before, during, and after the crisis, what led up to it, and analyses of subprime mortgage lending, credit expansion and banking policies, the collapse of companies like Fannie Mae and Freddie Mac, and the federal bailouts of Lehman and AIG. It also discusses the aftermath of the fallout and our current state. This report should be of interest to anyone concerned about the financial situation in the U.S. and around the world.THE FINANCIAL CRISIS INQUIRY COMMISSION is an independent, bi-partisan, government-appointed panel of 10 people that was created to "examine the causes, domestic and global, of the current financial and economic crisis in the United States." It was established as part of the Fraud Enforcement and Recovery Act of 2009. The commission consisted of private citizens with expertise in economics and finance, banking, housing, market regulation, and consumer protection. They examined and reported on "the collapse of major financial institutions that failed or would have failed if not for exceptional assistance from the government."News Dissector DANNY SCHECHTER is a journalist, blogger and filmmaker. He has been reporting on economic crises since the 1980's when he was with ABC News. His film In Debt We Trust warned of the economic meltdown in 2006. He has since written three books on the subject including Plunder: Investigating Our Economic Calamity (Cosimo Books, 2008), and The Crime Of Our Time: Why Wall Street Is Not Too Big to Jail (Disinfo Books, 2011), a companion to his latest film Plunder The Crime Of Our Time. He can be reached online at www.newsdissector.com.

Download or read book Accounting discretion of banks during a financial crisis written by Mr.Luc Laeven and published by International Monetary Fund. This book was released on 2009-09-01 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper shows that banks use accounting discretion to overstate the value of distressed assets. Banks' balance sheets overvalue real estate-related assets compared to the market value of these assets, especially during the U.S. mortgage crisis. Share prices of banks with large exposure to mortgage-backed securities also react favorably to recent changes in accounting rules that relax fair-value accounting, and these banks provision less for bad loans. Furthermore, distressed banks use discretion in the classification of mortgage-backed securities to inflate their books. Our results indicate that banks' balance sheets offer a distorted view of the financial health of the banks.