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Conference Paper
Innovation in financial markets
Working Paper
Sub-debt yield spreads as bank risk measures
Several recent studies have recommended greater reliance on subordinated debt as a tool to discipline bank risk taking. Some of these proposals recommend using sub-debt yield spreads as triggers for supervisory discipline under prompt corrective action (PCA). Currently such action is prompted by capital adequacy measures. This paper provides the first empirical analysis of the relative accuracy of various capital ratios and sub-debt spreads in predicting bank condition: measured as subsequent CAMEL or BOPEC ratings. The results suggest that some of the capital ratios, including the summary ...
Working Paper
Subordinated debt and prompt corrective regulatory action
Several recent studies have recommended greater reliance on subordinated debt as a tool to discipline bank risk taking. Some of these proposals recommend using subordinated debt yield spreads as additional triggers for supervisory discipline under prompt corrective action (PCA), action that is currently prompted by capital adequacy measures. This paper provides a theoretical model describing how use of a second market-measure of bank risk, in addition to the supervisors? own internalized information, could improve bank discipline. The authors then empirically evaluate the implications of the ...
Working Paper
Subordinated debt and bank capital reform
In recent years there has been a growing realization that there are significant problems with the current bank risk-based capital guidelines. As financial firms have become more sophisticated and complex they have effectively arbitraged the existing capital requirements. They have become so good at avoiding the intent of capital regulation that the regulations have essentially ceased to be a safety and soundness issue for supervisors and have become more a compliance issue. There is also a growing realization that bank regulation must more effectively incorporate market discipline to ...
Newsletter
The mixing of banking and commerce: a conference summary
Acquisitions of industrial loan corporations by commercial firms have renewed the debate over the separation between banking and commerce in the U.S. On May 16?18, 2007, policymakers and academics weighed in on this debate during the Chicago Fed?s 43rd annual Conference on Bank Structure and Competition, titled The Mixing of Banking and Commerce.
Newsletter
Implementing financial reform regulations from the Dodd–Frank Act and Basel III
The Chicago Fed?s 47th annual Conference on Bank Structure and Competition, which took place May 4?6, 2011, focused on the implementation of new regulations mandated by the Dodd?Frank Wall Street Reform and Consumer Protection Act (DFA) and proposed by the Basel Committee on Banking Supervision (BCBS) in its Basel III framework.
Working Paper
Subordinated debt and prompt corrective regulatory action
Several recent studies have recommended greater reliance on subordinated debt as a tool to discipline bank risk taking. Some of these proposals recommend using subordinated debt yield spreads as additional triggers for supervisory discipline under prompt corrective action (PCA); action that is currently prompted by capital adequacy measures. This paper provides a theoretical model describing how use of a second market-measure of bank risk, in addition to the supervisors own internalized information, could improve bank discipline. We then empirically evaluate the implications of the model. The ...
Working Paper
Payments system risk issues in a global economy