reference library

The Dodd-Frank Wall Street Reform and Consumer Protection Act (commonly known as Dodd-Frank), which was intended to address perceived problems in the financial system and prevent future crises, is the…
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Market share of conforming-size, home purchase mortgage originations has steadily and substantially shifted from banking institutions to nonbank lenders over recent years. In 2017, nonbanks originated more than 1.8 million…
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A series of statutory provisions codified at Title 12 of the U.S. Code empower special government officials known as supervisors to examine banks and tell bankers what to do, not…
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Pre-crisis estimates of the jumbo-conforming spread, utilizing a variety of methodologies, ranged from 10 to 25 basis points. In the post-crisis period, this spread has decreased and has been negative…
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We propose a contingent clawback bond (COCLA) as an alternative source of contingent convertible capital (CoCo). We develop a utility maximization model in which a bank manager faces the following…
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Over the last decade, macroprudential policy has made important advances and become more widely used. We have a better understanding of its goals and tools, and are accumulating evidence that…
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Liquidity shocks transmitted through interbank connections contributed to bank distress during the Great Depression. New data on interbank connections reveal that banks were much more likely to close when their…
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This paper seeks to refine our understanding of how refinancing a mortgage affects household outcomes. This issue has attracted particular attention in the wake of the Great Recession, however, there…
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“This report presents the results of the Basel Committee’s latest Basel III monitoring exercise, based on data as of 30 June 2018. Through a rigorous reporting process, the Committee regularly…
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Most economists differ, not on the causes of the Great Recession, but on their relative importance. They concur, though, on the basic problem, namely human, not market failure. This study…
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In any search for policies that slow growth and drive inequality, financial regulation is an obvious place to start. After all, the financial sector was Ground Zero for the worst…
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Yesterday, the Federal Reserve released the results of the 2018 Comprehensive Capital Analysis and Review (CCAR). As described in previous TCH’s posts, the 2018 results were crucially driven by the…
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Banking regulators such as the Office of the Comptroller of the Currency (OCC) can implement policies to address the risk of regulatory capture. The objectives of these policies include reducing…
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Among the perks of being a bank is the privilege of holding an account with the central bank. Unavailable to individuals and nonbank businesses, central bank accounts pay higher interest…
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A few academic papers have recently indicated that banks with a greater amount of capital tend to lend more as a result of lower funding costs. This evidence has been…
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This note proposes a recalibration of the global systemically important bank holding company (GSIB) capital surcharge that takes into account the impact of the liquidity coverage ratio (LCR) – one…
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This report starts by outlining the lax oversight of nonbank financial companies and the systemic-risk regulatory gaps that existed before the 2007–2008 financial crisis. Next, the report charts the development…
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This annual assessment consists of two primary components: The Dodd-Frank Act stress test (DFAST) is a forward-looking quantitative evaluation of bank capital that demonstrates how a hypothetical set of stressful…
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Reliance on macroprudential tools is problematic in several ways. First, in spite of reforms to the regulation of bank capital, high leverage, regulatory complexity, and public-sector guarantees continue to be…
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The Community Reinvestment Act (CRA) requires banks to lend to low- and moderate-income (LMI) households in the areas where they take deposits. But it has become obsolete. When the CRA…
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This paper provides a comprehensive, global database of deposit insurance arrangements as of 2013. We extend our earlier dataset by including recent adopters of deposit insurance and information on the…
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Fannie Mae and Freddie Mac were originally chartered as government-sponsored enterprises (GSEs) to ensure a stable supply of credit for mortgages nationwide. They dominate the secondary (resale) market for residential…
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We use exogenous variation in the degree of restrictions to bank competition across Italian provinces to study both the effects of bank regulation and the impact of deregulation. We find…
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This paper argues that the debt forgiveness provided by the U.S. consumer bankruptcy system helped stabilize employment levels during the Great Recession. We document that over this period, states with…
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Multi-year forecasts of bank performance under stressful economic conditions determine large institution regulatory capital requirements and yet the accuracy of these forecasts is undocumented. I compare the accuracies of alternative…
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The Tax Cuts and Jobs Act (TCJA) is expected to increase after-tax profits for most companies, primarily by lowering the top corporate statutory tax rate from 35 percent to 21…
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The Great Recession during the late 2000s and early 2010s has led to a strengthening of macroprudential policies over the world in order to address systemic risk concerns. However, the…
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We quantify the size of a fire-sale externality in the derivatives market in the absence of a macroprudential buffer on top of microprudential initial margin requirements. We show how this…
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When the FSB adopted the Key Attributes in 2011 it was agreed to develop further guidance on their implementation, taking into account the need for implementation to accommodate different national…
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This article assesses the accomplishments, unfinished business, and outstanding issues in the post-crisis approach to prudential regulation. After briefly reviewing how the ongoing integration of capital markets and traditional lending…
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Countries are using macroprudential tools more actively with the goal of improving the resilience of their broader financial systems. A growing body of evidence suggests that these tools can accomplish…
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We examine the cleansing effect of financial crises via their contribution to the exit of inefficient US commercial banks from 1984 to 2013. We find a larger increase in the…
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Increasingly, our regulatory structure has been adopting processes that are inconsistent with adherence to the rule of law. These process concerns are rarely voiced by academics, but that is a…
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This special feature is structured as follows. First, we present the main features of a public repository of studies on the effects of bank regulations, called FRAME (Financial Regulation Assessment:…
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We study the impact of higher capital requirements on banks’ decisions to grant collateralized rather than uncollateralized loans. We exploit the 2011 EBA capital exercise, a quasi-natural experiment that required…
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The Basel I Accord introduced a discontinuity in required capital for undrawn credit commitments. While banks had to set aside capital when they extended commitments with maturities in excess of…
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We are living through a period of major political and economic uncertainty. While Brexit and new global forces reshape our economy, the rise of digital technologies could set our financial…
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In the wake of the financial collapse of 2008, the federal government created new regulatory bodies to oversee aspects of the financial services industry; most notably the Federal Housing Finance…
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Bail-in within resolution is a core part of resolution strategies of global systemically important banks (G-SIBs). It refers to the write-down and/or conversion of liabilities into equity and helps implement…
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The macroprudential elements of the stress tests arise from: the scenario design, which is set to vary over time with the economic and financial cycles; the requirement to hold portfolios…
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A branch manager gets home loans for borrowers with weak credit or low incomes—and taxpayers back him up. Prashant Gopal Bloomberg Businessweek May 24, 2018 External Link

We investigate the frictions that impede individual investors’ use of accounting information and, in particular, their costs of monitoring and acquiring accounting disclosures. We do so using an archival setting…
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We examine the effect of economic policy uncertainty on the relation between investment and the cost of capital. Using the news-based index developed by Baker et al. (2016) for twenty-one…
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We construct a new measure of the changing generosity of deposit insurance for many countries, empirically model the international influences on the adoption and generosity of deposit insurance, and show…
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The Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (collectively, the agencies) are issuing a notice…
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This paper provides a comprehensive account of the evolution of default risk for newly originated home purchase loans since 1990. We bring together several data sources to produce this history,…
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This paper studies the effect of information disclosure on banks’ portfolio risk. We cast a simple banking system into a general equilibrium model with trading frictions. We find that the…
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In December 2013, the primary United States financial regulatory agencies jointly adopted final rules to implement Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which is…
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In the supervisory post-stress capital assessment, the Federal Reserve estimates that the aggregate common equity tier 1 ratio for the firms participating in CCAR 2018 would decline in the severely…
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We take issue with claims that the funding mix of banks, which makes them fragile and crisis-prone, is efficient because it reflects special liquidity benefits of bank debt. Even aside…
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Following the 2008-9 financial crisis, large banks increasingly issued contingent convertible bonds (CoCo bonds) to increase their capital buffers – a policy supported by national bank regulators. This paper examines…
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The outreach of macroprudential policies is likely limited in practice by imperfect regulation enforcement, whether due to shadow banking, regulatory arbitrage, or other regulation circumvention schemes. We study how such…
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Financial crises are traditionally analyzed as purely economic phenomena. The political economy of financial booms and busts remains both under-emphasized and limited to isolated episodes. The policy discussions and economic…
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Boom‐bust cycles in the eurozone periphery almost toppled the single currency and recent experience suggests that they may return soon. We check whether monetary or macroprudential policy could have prevented…
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These guiding principles for the temporary funding of global systemically important banks (G-SIBs) in resolution seek to address the risk of banks having insufficient liquidity to maintain the continuity of…
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This article is a review of a 531 page book that in turn is a review and evaluation of the 2319 page Dodd–Frank Wall Street Reform and Consumer Protection Act…
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There are still remarkable gaps in the data available on the overall structure of the financial systems of major economies. This column presents rough estimates for the UK and the…
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We propose a novel measure of risk perceptions: the price of volatile stocks (PVSt), defined as the book-to-market ratio of low-volatility stocks minus the book-to-market ratio of high-volatility stocks. PVSt…
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In January 2021, the Consumer Financial Protection Bureau will face a decision: to renew its special definition for Qualified Mortgages (QMs) made by Fannie Mae and Freddie Mac, abolish that…
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Foundational financial legislation is typically adopted in the midst or aftermath of financial crises, when an informed understanding of the causes of the crisis is not yet available. Moreover, financial…
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Prior to the Great Depression, regulators imposed double liability on bank shareholders to ensure financial stability and protect depositors. Under double liability, shareholders of failing banks lost their initial investment…
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The financial system has undergone far-reaching changes since the global financial crisis of 2008. We cast those changes in terms of shifts in the manner in which financial intermediaries manage…
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This paper discusses the problems exposed by the global financial crisis in the areas of financial regulation and supervision and possible solutions. It describes and evaluates current proposals regarding the…
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One aim of post-crisis monetary policy has been to ease credit conditions for borrowers by unlocking bank lending. We find that bank equity is an important determinant of both the…
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How well equipped are today’s macroprudential regimes to deal with a re-run of the factors that led to the global financial crisis? We argue that a large proportion of the…
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We follow a representative panel of millions of consumers in the U.S. from 2007 to 2017 and document several facts on the long-term effects of the Great Recession. There were…
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There are concerns that the Dodd-Frank Act (DFA) has impeded small business lending. By increasing the fixed regulatory compliance requirements needed to make business loans and operate a bank, the…
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A newly emerged consensus holds that policy makers should use macroprudential regulation to prevent financial crises or soften their impact on the real economy. Despite their widespread use, little is…
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What are the quantitative effects of countercyclical capital buffers (CCyB)? I study this question in the context of a nonlinear DSGE model with a financial sector that is subject to…
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The regulatory changes and technological developments following the 2008 Global Financial Crisis are fundamentally changing the nature of financial markets, services and institutions. At the juncture of these two phenomena…
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Deposit insurance cannot be explained as an emergency measure conceived in haste to resolve an ongoing crisis. The legislation had been debated for years, the banking crisis of 1933 had…
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In this paper, I examine how insurance spread from one group of institutions to the next and how the level of insurance was gradually raised. Although deposit insurance has often…
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We find that regulators can implement identical rules inconsistently due to differences in their institutional design and incentives, and this behavior may adversely impact the effectiveness with which regulation is…
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We analyze the effectiveness of consumer financial regulation by considering the 2009 Credit Card Accountability Responsibility and Disclosure (CARD) Act in the United States. Using a difference-in- differences research design…
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We evaluate the effects of the 2009 Home Affordable Modification Program (HAMP) that provided intermediaries with sizeable financial incentives to renegotiate mortgages. HAMP increased intensity of renegotiations and prevented substantial…
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Empirical research has demonstrated the importance of such institutional structures as branch bank laws, bank cooperation arrangements, and formal clearing houses, for the probability of panic and for the resolution…
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I document the erosion of the historic restriction, at least since the 1930s, of Federal Reserve discount window assistance to liquidity-strained banks on the security of sound assets. Section 1…
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In taking up issues of bank capital requirements and the [Modigliani & Miller] M&M Propositions, I am actually returning to a subject treated in a paper on the regulation of…
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We analyze a model of voluntary disclosure by firms in financial market and the desirability of disclosure regulation. In our model firms choose the precision of their disclosure. Disclosure is…
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The 1934 Securities and Exchange Act and subsequent amendments required securities exchanges to operate as self-regulatory organizations (SROs) that police themselves under the supervision of the Securities and Exchange Commission….
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We document the build-up of regulatory and market equity capital in large U.S. bank holding companies between 1986 and 2000. During this time, large banking firms raised their capital ratios…
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In 1988 the Basel Committee on Banking Supervision completed the Basel Capital Accord, which set risk-weighted minimum capital standards for internationally active banks. The accord, which has been adopted by…
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Recent corporate scandals have ignited debate over appropriate rules for accounting and corporate governance. The debate has largely ignored an important preliminary question: who should set standards of corporate governance…
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Fannie Mae and Freddie Mac are a unique part of [federal housing policy]. Though they appear to be “normal” corporations, each with shares that trade on the New York Stock…
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There is a strong consensus that reform of the financial regulatory system must include significant increases in the capital requirements for banks. All else equal, this should make the banks…
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Many commentators have argued that if the Federal Reserve had followed a stricter monetary policy earlier this decade when the housing bubble was forming, and if Congress had not deregulated…
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The U.S. Department of Housing and Urban Development has long been plagued by scandals, mismanagement, and policy failures. Most recently, HUD’s subsidies and failed oversight of Fannie Mae and Freddie…
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There is a strong consensus among policymakers that there need to be higher minimum capital requirements for banks in order to foster a more stable financial system and to help…
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The U.S. Constitution vests all the “legislative powers” it grants in Congress. The Supreme Court allows Congress to delegate some authority to executive officials provided an “intelligible principle” guides such…
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While it is recognized that the high degree of leverage used by financial institutions creates systemic risks and other negative externalities, many argue that equity financing is “expensive,” and that…
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In the aftermath of the financial crisis, attention has turned to reducing systemic risk in the derivatives markets. Much of this attention has focused on counterparty risk in the over-the-counter…
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The banking legislation of the 1930s took very little time to pass, was unusually comprehensive, and unusually responsive to public opinion. Ironically, the primary motivations for the main bank regulatory…
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What is generally agreed is that subprime mortgages disproportionately contributed both to the severity of the crisis and to the size of losses imposed upon the taxpayer. What remains in…
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Since the credit crunch began in 2007, private sector financing for residential mortgages has been virtually non-existent. At the end of 2010, government-backed organizations-including Fannie Mae, Freddie Mac and the…
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The federal government recently placed Fannie Mae and Freddie Mac, the government chartered, privately owned mortgage finance companies, in conservatorship. These two massive companies are profit driven, but as government-sponsored…
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This paper jointly evaluates firm-level changes in investor composition and shareholder distributions following a 2003 reduction in the dividend and capital gains tax rates for individuals. We find that directors…
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The Basel regime is an international system of capital adequacy regulation designed to strengthen banks’ financial health and the safety and soundness of the financial system as a whole. It…
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While the current capital adequacy framework, Basel II, aims to make banks’ capital requirements more sensitive to the underlying risk of the assets, it may also introduce an additional source…
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We assemble data on the structure of bank supervision, distinguishing supervision by the central bank from supervision by a nonbank governmental agency and independent from dependent governmental supervisors. Using observations…
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