Insights from Newly Digitized Banking Data, 1867-1904
Call reports—regulatory filings in which commercial banks report their assets, liabilities, income, and other information—are one of the most-used data sources in banking and finance. Though call reports were collected as far back as 1867, the underlying data are only easily accessible for the recent past: the mid-1980s onward in the case of the FDIC’s FFIEC call reports. To help researchers look farther back in time, we’ve begun creating a complete digital record of this “missing” call report data; this data release covers 1867 through 1904, the bulk of the National Banking Era. Here, we describe the digitization process and highlight some of the interesting features of that era from a research perspective.
Reasonable Seasonals? Seasonal Echoes in Economic Data after COVID-19
Seasonal adjustment is a key statistical procedure underlying the creation of many economic series. Large economic shocks, such as the 2007-09 downturn, can generate lasting seasonal echoes in subsequent data. In this Liberty Street Economics post, we discuss the prospects for these echo effects after last year’s sharp economic contraction by focusing on the payroll employment series published by the U.S. Bureau of Labor Statistics (BLS). We note that seasonal echoes may lead the official numbers to overstate actual changes in payroll employment modestly between March and July of this year after which distortions flip the other way.
How the Fed Managed the Treasury Yield Curve in the 1940s
The coronavirus pandemic has prompted the Federal Reserve to pledge to purchase Treasury securities and agency mortgage-backed securities in the amount needed to support the smooth market functioning and effective transmission of monetary policy to the economy. But some market participants have questioned whether something more might not be required, including possibly some form of direct yield curve control. In the first half of the 1940s the Federal Open Market Committee (FOMC) sought to manage the level and shape of the Treasury yield curve. In this post, we examine what can be learned from the FOMC’s efforts of seventy-five years ago.
The Value of Opacity in a Banking Crisis
During crisis periods, we often observe regulators limiting access to bank‑level information with the goal of restoring the public’s confidence in banks. Thus, information management often plays a central role in ending financial crises. Despite the perceived importance of managing information about individual banks during a financial crisis, we are not aware of any empirical work that quantifies the effect of such policies. In this blog post, we highlight results from our recent working paper, demonstrating that in a crisis, a policy of suppressing information about banks’ balance sheets has a significant and positive effect on deposits.
Fight the Pandemic, Save the Economy: Lessons from the 1918 Flu
The COVID-19 outbreak has sparked urgent questions about the impact of pandemics, and the associated countermeasures, on the real economy. Policymakers are in uncharted territory, with little guidance on what the expected economic fallout will be and how the crisis should be managed. In this blog post, we use insights from a recent research paper to discuss two sets of questions. First, what are the real economic effects of a pandemic—and are these effects temporary or persistent? Second, how does the local public health response affect the economic severity of the pandemic? In particular, do non-pharmaceutical interventions (NPIs) such as social distancing have economic costs, or do policies that slow the spread of the pandemic also reduce its economic severity?
Did Subprime Borrowers Drive the Housing Boom?
The role of subprime mortgage lending in the U.S. housing boom of the 2000s is hotly debated in academic literature. One prevailing narrative ascribes the unprecedented home price growth during the mid-2000s to an expansion in mortgage lending to subprime borrowers. This post, based on our recent working paper, “Villains or Scapegoats? The Role of Subprime Borrowers in Driving the U.S. Housing Boom,” presents evidence that is inconsistent with conventional wisdom. In particular, we show that the housing boom and the subprime boom occurred in different places.
Once Upon a Time in the Banking Sector: Historical Insights into Banking Competition
How does competition among banks affect credit growth and real economic growth? In addition, how does it affect financial stability? In this blog post, we derive insights into this important set of questions from novel data on the U.S. banking system during the nineteenth century.
“Skin in the Game,” Depositor Discipline, and Bank Risk Taking
In a previous post, we argued that double liability for bank owners might not limit their risk taking, despite the extra “skin in the game,” if it also weakens depositor discipline of banks. This post, drawing on our recent working paper, looks at the interplay of those opposing forces in the late 1920s when bank liability differed across states. We find that double liability may have reduced the outflow of deposits during the crisis, but wasn’t successful in mitigating bank risk during the boom.
Does More “Skin in the Game” Mitigate Bank Risk-Taking?
It is widely said that a lack of “skin in the game” would distort lenders’ incentives and cause a moral hazard problem, that is, excessive risk-taking. If so, does more skin in the game—in the form of extended liability—reduce bankers’ risk-taking? In order to examine this question, we investigate historical data prior to the Great Depression, when bank owners’ liability for losses in the event of bank failure differed by state and primary regulator. This post describes our preliminary findings.