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Report
Resolving “Too Big to Fail”
Using a synthetic control research design, we find that ?living will? regulation increases a bank?s annual cost of capital by 22 basis points, or 10 percent of total funding costs. This effect is stronger in banks that were measured as systemically important before the regulation?s announcement. We interpret our findings as a reduction in ?too big to fail? subsidies. The size of this effect is large: a back-of-the-envelope calculation implies a subsidy reduction of $42 billion annually. The impact on equity costs drives the main effect. The impact on deposit costs is statistically ...
Speech
Global financial stability - the road ahead
Remarks at the Tenth Asia-Pacific High Level Meeting on Banking Supervision, Auckland, New Zealand
Speech
Opening remarks at the Workshop on Reforming Culture and Behavior in the Financial Services Industry.
Remarks at the Workshop on Reforming Culture and Behavior in the Financial Services Industry, Federal Reserve Bank of New York, New York City.
Speech
Panel remarks at the Clearing House annual conference
Remarks at The Clearing House Annual Conference, New York City.
Journal Article
Do big banks have lower operating costs?
This study examines the relationship between bank holding company (BHC) size and components of noninterest expense (NIE) in order to shed light on the sources of scale economies in banking. Drawing on detailed expense information provided by U.S. banking firms in the memoranda of their regulatory filings, the authors find a robust negative relationship between size and normalized measures of NIE. The relationship is strongest for employee compensation expenses and components of ?other? noninterest expense such as information technology and corporate overhead expenses. In addition, the authors ...
Working Paper
Explaining the Life Cycle of Bank-Sponsored Money Market Funds: An Application of the Regulatory Dialectic
In this paper, we present empirical evidence of the regulatory dialectic in the prime institutional money market fund (PI-MMF) industry. The “regulatory dialectic”, developed by Kane (1977, 1981), describes how banks and regulators react to each other. For decades, a cap on commercial deposit interest rates fueled dramatic growth in bank-sponsored PI-MMFs as a form of shadow banking. During the growth period, banks with more commercial deposits were more likely to enter the PI-MMF industry in an effort to keep their commercial customers in affiliated subsidiaries. However, the 2008 crisis ...
Discussion Paper
Resolving \\"Too Big to Fail\\"
Many market participants believe that large financial institutions enjoy an implicit guarantee that the government will step in to rescue them from potential failure. These ?Too Big to Fail? (TBTF) issues became particularly salient during the 2008 crisis. From the government?s perspective, rescuing these financial institutions can be important to avoid harm to the financial system. The bailouts also artificially lower the risk borne by investors and the financing costs of big banks. The Dodd-Frank Act attempts to remove the incentive for governments to bail out banks in the first place by ...
Speech
Remarks on the panel Financial Regulation Nine Years on from the GFC – Where Do We Stand? at the G30’s 76th plenary session at the Federal Reserve Bank of New York, New York City
Remarks on the panel Financial Regulation Nine Years on from the GFC ? Where Do We Stand? at the G30?s 76th plenary session at the Federal Reserve Bank of New York, New York City.
Speech
The role of the Federal Reserve—lessons from financial crises: Remarks at the Annual Meeting of the Virginia Association of Economists, Virginia Military Institute, Lexington, Virginia
Remarks at the Annual Meeting of the Virginia Association of Economists, Virginia Military Institute, Lexington, Virginia.
Discussion Paper
Did Too-Big-To-Fail Reforms Work Globally?
Once a bank grows beyond a certain size or becomes too complex and interconnected, investors often perceive that it is “too big to fail” (TBTF), meaning that if the bank were to fail, the government would likely bail it out. Following the global financial crisis (GFC) of 2008, the G20 countries agreed on a set of reforms to eliminate the perception of TBTF, as part of a broader package to enhance financial stability. In June 2020, the Financial Stability Board (FSB), a sixty-eight-member international advisory body set up in 2009, published the results of a year-long evaluation of the ...