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104 posts on "Financial Institutions"

April 06, 2015

Are BHC and Federal Reserve Stress Test Results Converging? What Do We Learn from 2015?



stress-test-results


In March, the Federal Reserve and thirty-one large U.S. bank holding companies (BHCs) announced results of the latest Dodd-Frank Act-mandated stress tests. Some commentators have argued that BHCs, in designing their stress test models, have strong incentives to mimic the Fed’s stress test results, since the Fed’s results are an integral part of the Federal Reserve’s supervisory assessment of capital adequacy for these firms. In this post, we look at the 2015 stress test projections by the eighteen largest U.S. BHCs and by the Fed and compare them to similar numbers from 2013 and 2014. As stress testing becomes more established, do we see evidence that the BHCs are mimicking the Fed?

Continue reading "Are BHC and Federal Reserve Stress Test Results Converging? What Do We Learn from 2015?" »

Posted by Blog Author at 7:00 AM in Financial Institutions | Permalink | Comments (0)

March 04, 2015

No Guarantees, No Trade!



World trade fell 20 percent relative to world GDP in 2008 and 2009. Since then, there has been much debate about the role of trade finance in the Great Trade Collapse. Distress in the financial sector can have a strong impact on international trade because exporters require additional working capital and rely on specific financial products, in particular letters of credit, to cope with risks when selling abroad. In this post, which is based on a recent Staff Report, we shed new light on the link between finance and trade, showing that changes in banks’ supply of letters of credit have economically significant effects on firms’ export behavior. Our research suggests that trade finance helps explain the drop in exports in 2008–2009, especially to smaller and poorer markets.

Continue reading "No Guarantees, No Trade!" »

Posted by Blog Author at 7:00 AM in Financial Institutions, International Economics | Permalink | Comments (0)

February 11, 2015

Available for Sale? Understanding Bank Securities Portfolios



It’s natural to think of banks as intermediaries that take in deposits and use them to make loans to businesses and individuals. But in fact, loans make up only 45 percent of the assets of U.S. banking organizations. What’s the rest? A large chunk, representing 24 percent of total assets, is accounted for by securities, such as U.S. Treasury and foreign government bonds, mortgage-backed securities (MBS), municipal and corporate bonds, and equities. In this post, we take a tour of bank securities portfolios, making use of charts and statistics from the Federal Reserve Bank of New York’s report on Quarterly Trends for Consolidated U.S. Banking Organizations. We also discuss reasons why securities represent such a significant part of U.S. banking firm balance sheets.

Continue reading "Available for Sale? Understanding Bank Securities Portfolios" »

Posted by Blog Author at 7:00 AM in Financial Institutions | Permalink | Comments (0)

February 02, 2015

Bank Capital and Risk: Cautionary or Precautionary?



Bank Capital and Risk: Cautionary or Precautionary

Do riskier banks have more capital? Banking companies with more equity capital are better protected against failure, all else equal, because they can absorb more losses before becoming insolvent. As a result, banks with riskier income and assets would hopefully choose to fund themselves with relatively more equity and less debt, giving them a larger equity cushion against potential losses. In this post, we use a top-down stress test model of the U.S. banking system—the Capital and Loss Assessment under Stress Scenarios (CLASS) model—to assess whether banks that are forecast to lose capital in a severe downturn do indeed have more capital, and how the relationship between capital and risk has evolved over time.

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Posted by Blog Author at 7:00 AM in Financial Institutions | Permalink | Comments (1)

December 03, 2014

Why Do Banks Keep All That “Fracking” Money?



Blog_fracking2_iStock_000048579590_450x350
Second in a two-part series

In a recent post, I discussed the significant impact that “fracking” and other unconventional energy development has had on bank deposits. Using this deposit windfall, I estimated how banks allocate these funds, finding that over the recent business cycle they reduced the portion used for loans. In this post, I will discuss what may have influenced the decision to lend these funds or to hold liquid assets like cash or securities.

Continue reading "Why Do Banks Keep All That “Fracking” Money?" »

Posted by Blog Author at 7:00 AM in Financial Institutions | Permalink | Comments (0)

December 01, 2014

What Do Banks Do with All That "Fracking" Money?



Blog_fracking1b_iStock_00004857888_450x225
First in a two-part series

Banks play a crucial role in the economy by channeling funds from savers to borrowers. The ability of banks to accomplish this intermediation has become an important element in understanding the causes and consequences of business cycles. In a recent staff report, I investigate how a positive deposit windfall translates into investments by banks. This post, the first of two, shows how the development of new energy resources has led to deposit inflows to banks and how that can be used to estimate banks’ investment decisions over the recent business cycle. The second post will look at factors that might explain the business cycle patterns observed below.


Continue reading "What Do Banks Do with All That "Fracking" Money?" »

Posted by Blog Author at 7:00 AM in Financial Institutions | Permalink | Comments (2)

November 03, 2014

Evolution of S-Corporation Banks



Commercial banks didn’t become eligible for S-Corporation status until 1997, when President Bill Clinton signed legislation (the Small Business Job Protection Act of 1996) that allowed commercial banks to select S-Corporation as their preferred tax status. In this post, we discuss the features and history of S-Corporations, as well as the effect of lifting the restriction on banks’ organizational tax choice.


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Posted by Blog Author at 7:00 AM in Corporate Finance, Financial Institutions | Permalink | Comments (0)

October 20, 2014

Don’t Be Late! The Importance of Timely Settlement of Tri-Party Repo Contracts



Tri-party repo is popular among securities dealers as a way to raise short-term funding. The tri-party repo settlement process has been improved, and continues to be improved, with the implementation of a set of recent reforms. Two main goals of these reforms are to sharply reduce the amount of liquidity needed to facilitate the settlement of tri-party repo contracts, and to increase the use of more resilient sources of liquidity (for example, term financing and committed credit) to ensure that settlement can occur in good and bad times. In this post, we detail how the reforms have affected the sources of liquidity that dealers can use to facilitate settlement of tri-party repo contracts. We then explain cash investors’ role in the settlement process, and highlight how their current practice of sending principal payments late in the day disrupts the timely settlement of tri-party repo contracts.


Continue reading "Don’t Be Late! The Importance of Timely Settlement of Tri-Party Repo Contracts" »

Posted by Blog Author at 7:00 AM in Financial Institutions, Financial Markets | Permalink | Comments (1)

October 15, 2014

How Do Liquidity Conditions Affect U.S. Bank Lending?



The recent financial crisis underscored the importance of understanding how liquidity conditions for banks (or other financial institutions) influence the banks’ lending to domestic and foreign customers. Our recent research examines the domestic and international lending responses to liquidity risks across different types of large U.S. banks before, during, and after the global financial crisis. The analysis compares large global U.S. banks—that is, those that have offices in foreign countries and are able to move liquidity from affiliates across borders—with large domestic U.S. banks, which have to rely on financing raised in capital markets and from depositors to extend credit and issue loans. One key result of our study, detailed below, is that the internal liquidity management by global banks has, on average, mitigated the effects of aggregate liquidity shocks on domestic lending by these banks.

Continue reading "How Do Liquidity Conditions Affect U.S. Bank Lending? " »

Posted by Blog Author at 7:00 AM in Financial Institutions | Permalink | Comments (0)

October 01, 2014

Cross-Country Evidence on Transmission of Liquidity Risk through Global Banks

Claudia M. Buch, James Chapman, and Linda Goldberg

Over the past thirty years, the typical large bank has become a global entity with subsidiaries in many countries. In parallel, financial liberalization has increased the interconnectedness of banking systems, with domestic banking systems becoming more exposed to shocks transmitted through foreign banks. This globalization of banking propagated liquidity risk during the global financial crisis and subsequent euro area crisis. Unfortunately, little is known about how cross-border operations of global banks transmit liquidity shocks between countries. The seminal work by Peek and Rosengren (1997, 2000) provides early examples of how bank-level data can help identify the specific transmission channels. There are, however, two limitations to conducting this line of research. First, there is a lack of public data on the balance sheets of global banks. Second, it is difficult to compare the results of different research projects that use sensitive supervisory data collected by banking supervisors and central banks. Together with other scholars, we established the International Banking Research Network (IBRN) to overcome these limitations.

Continue reading "Cross-Country Evidence on Transmission of Liquidity Risk through Global Banks" »

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