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Journal Article
So Far, So Good: Government Insurance of Financial Sector Tail Risk
The US government has intervened to provide extraordinary support 16 times from 1970 to 2020 with the goal of preventing or mitigating (or both) the cost of financial instability to the financial sector and the real economy. This article discusses the motivation for such support, reviewing the instances where support was provided, along with one case where it was expected but not provided. The article then discusses the moral hazard and fiscal risks posed by the government's insurance of the tail risk along with ways to reduce the government's risk exposure.
Journal Article
Profits in `85: large banks gain while others continue to lag
Journal Article
The choice of capital instruments
A system of bank supervision and regulation should protect taxpayers and the financial system without imposing unnecessary costs on banks. This article focuses on whether existing capital regulations, one of the primary tools of bank supervision and regulation, are imposing unnecessary costs on banks. In particular, the capital requirements may be requiring banks to issue equity when it would be less costly for them to issue subordinated debt. ; The authors obtain evidence on the costs generated by equity issues by examining the type of capital banks issued in response to the capital ...
Journal Article
Reforming deposit insurance and FDICIA
Current discussions about deposit insurance reform center on issues such as the size of insurance premiums, the size of the fund, and the size of the coverage limits-all issues that reflect a concern with how to allocate the losses arising from bank failures. The authors of this article argue that such issues, while important, do not affect the performance of the deposit insurance system nor should they be the focus of deposit insurance reform. They suggest that reform efforts should be directed toward strengthening the incentives to enforce the least cost resolution provisions of the Federal ...
Journal Article
Subordinated debt as bank capital: a proposal for regulatory reform
Industry observes have proposed increasing the role of subordinated debt in bank capital requirements as a means to increase market discipline. A recent Federal Reserve System Task Force evaluated the characteristics of such proposals. Here, the authors take the next step and offer a specific sub-debt proposal. They describe how it would operate and what changes it would require in the regulatory framework.
Working Paper
Cost savings associated with bank mergers
Journal Article
F.Y.I. commercial bank profitability: still weak in 1987