81 posts on "Regulation"
February 12, 2018
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.
Posted at 7:00 am in Banks, Credit, Economic History, Financial Institutions, Regulation, Systemic Risk | Permalink | Comments (3)
February 2, 2018
New Report Assesses Structural Changes in Global Banking
The Committee on the Global Financial System, made up of senior officials from central banks around the world and chaired by New York Fed President William Dudley, recently released a report on “Structural Changes in Banking after the Crisis.” The report includes findings from a wide-ranging study documenting the significant structural adjustments in banking systems around the world in response to regulatory, technological, and market changes after the crisis, while also assessing their implications for financial stability, credit provision, and capital markets activity. It includes a new banking database spanning over twenty-one countries from 2000 to 2016 that could serve as a valuable reference for further analysis. Overall, the study concludes that the changed regulatory and market environment since the crisis has led banks to alter their business models and balance sheets in ways that make them more resilient but also less profitable, while continuing their role as intermediaries providing financial services to the real economy.
Posted at 7:00 am in Banks, Credit, Financial Institutions, Financial Intermediation, Regulation, Systemic Risk | Permalink | Comments (1)
September 26, 2017
The Treasury Market Practices Group: A Consequential First Decade
The Treasury Market Practices Group (TMPG) was formed in February 2007 in response to the appearance of some questionable trading practices in the secondary market for U.S. Treasury securities.
August 23, 2017
At the New York Fed: The Appropriate Government Role in U.S. Mortgage Markets
While the U.S. mortgage finance system was at the center of the recent financial crisis, it remains largely untouched by legislative reforms. At the center of these conversations are Fannie Mae and Freddie Mac—both of which were placed into federal conservatorship in September 2008.
August 2, 2017
Were Banks Ever ‘Boring’?
In a previous post, I documented that much of the expansion into nontraditional activities by U.S. banks began well before the passage of the Gramm-Leach-Bliley Act in 1999, the legislation that repealed much of the Glass-Steagall Act of 1933. The historical record actually contains many prior instances of the Glass-Steagall restrictions being circumvented, with nonbank firms allowed to operate as financial conglomerates and engage in activities that go beyond traditional banking. These broad industry dynamics might indicate that the business of banking tends to expand firm boundaries beyond a traditional—“boring”—perimeter.
July 31, 2017
Were Banks ‘Boring’ before the Repeal of Glass‑Steagall?
Since the global financial crisis and Great Recession, many critics have called for regulatory and legislative reforms to restore a system of “boring” banks constrained to traditional banking activities like deposit taking and lending.
May 12, 2017
At the N.Y. Fed: The Evolution of OTC Derivatives Markets
The 2007-09 financial crisis illustrated the fragility of over-the-counter (OTC) derivatives markets and the contagion generated through bilateral derivatives exposures.
April 10, 2017
Financial Crises and the Desirability of Macroprudential Policy
The global financial crisis has put financial stability risks—and the potential role of macroprudential policies in addressing them—at the forefront of policy debates. The challenge for macroeconomists is to develop new models that are consistent with the data while being able to capture the highly nonlinear nature of crisis episodes. In this post, we evaluate the impact of a macroprudential policy that has the government tilt incentives for banks to encourage them to build up their equity positions. The government has a role since individual banks do not internalize the systemic benefit of having more bank equity. Our model allows for an evaluation of the tradeoff between the size of such incentives and the probability of a future financial crisis
March 20, 2017
Money Market Funds and the New SEC Regulation
On October 14, 2016, amendments to Securities and Exchange Commission (SEC) rule 2a-7, which governs money market mutual funds (MMFs), went into effect. The changes are designed to reduce MMFs’ susceptibility to destabilizing runs and contain two principal requirements.
January 9, 2017
Trends in Arbitrage‑Based Measures of Bond Liquidity
Corporate bonds are an important source of funding for public corporations in the United States.
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