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Journal Article
The history and rationale for a separate bank resolution process
Everyone recognizes the need to have a credible resolution regime in place for financial companies whose failure could harm the entire financial system, but people disagree about which regime is best. The emergence of the parallel banking system has led policymakers to reconsider the dividing line between firms that should be resolved in bankruptcy and firms that should be subject to a special resolution regime. A look at the history of insolvency resolution in this country suggests that a blended approach is worth considering. Activities that have potential systemic impact might be best ...
Journal Article
An end to too big to let fail? The Dodd-Frank Act's orderly liquidation authority
One of the changes introduced by the sweeping new financial market legislation of the Dodd?Frank Act is the provision of a formal process for liquidating large financial firms?something that would have been useful in 2008, when troubles at Lehman Brothers, AIG, and Merrill Lynch threatened to damage the entire U.S. financial system. While it may not be the end of the too-big-to-fail problem, the orderly liquidation authority is an important new tool in the regulatory toolkit. It will enable regulators to safely close and wind up the affairs of those distressed financial firms whose failure ...
Journal Article
Municipal finance in the face of falling property values
Working Paper
False security: how securitization failed to protect arrangers and investors from borrower claims
The future of housing finance is in a state of flux. In February 2011, the Obama Administration released a proposal outlining three plans for the future of housing finance. In all three plans, Freddie Mac and Fannie Mae will be phased out over a period of years and replaced with a private securitization market, which may be backed, in whole or in part, by a government guarantee. Whether the final plan relies upon government-guaranteed securities or private-label securities, Congress will have to resolve a range of complex legal aspects of securitization, from the bankruptcy remoteness of ...
Journal Article
How well does bankruptcy work when large financial firms fail? Some lessons from Lehman Brothers
There is disagreement about whether large and complex financial institutions should be allowed to use U.S. bankruptcy law to reorganize when they get into financial difficulty. We look at the Lehman example for lessons about whether bankruptcy law might be a better alternative to bailouts or to resolution under the Dodd-Frank Act?s orderly liquidation authority. We find that there is no clear evidence that bankruptcy law is insufficient to handle the resolution of large complex financial firms.
Working Paper
The effect of local housing ordinances
The housing and economic crises have exerted a strong and lingering impact on housing markets across the nation. In this paper, we assess the degree to which local anti-blight policies have infl uenced housing market outcomes following the crises. The analysis is performed for cities in Cuyahoga County, Ohio. We measure outcomes that characterize market distress and that may be influenced by local housing ordinances including foreclosure, bulk sales, flipping, vacancy, and tax delinquency. Using matching procedures on linked data containing property, loan, and transaction characteristics, we ...
Journal Article
What's at Stake in the Detroit Bankruptcy?
Working Paper
The impact of vacant, tax-delinquent, and foreclosed property on sales prices of neighboring homes
In this empirical analysis, we estimate the impact of vacancy, neglect associated with property-tax delinquency, and foreclosures on the value of neighboring homes using parcel-level observations. Numerous studies have estimated the impact of foreclosures on neighboring properties, and these papers theorize that the foreclosure impact works partially through creating vacant and neglected homes. To our knowledge, this is only the second attempt to estimate the impact of vacancy itself and the first to estimate the impact of tax-delinquent properties on neighboring home sales. We link vacancy ...
Journal Article
Ohio and Pennsylvania: Two Approaches to Judicial Foreclosure Alternatives
As the number of foreclosures continues to rise across the country, many policymakers are creating alternatives to foreclosure. Two counties in the Federal Reserve's Fourth District?Cuyahoga County in Ohio, which encompasses Cleveland, and Allegheny County in Pennsylvania, encompassing Pittsburgh?have developed mediation and diversion programs aimed at mitigating the externalities associated with foreclosure, such as reduced property values and increased crime rates in surrounding neighborhoods.
Journal Article
Estimating the Impact of Fast-Tracking Foreclosures in Ohio and Pennsylvania
All the signs in the housing market seem to be pointing the right way, except the amount of time loans are spending in the foreclosure process. Foreclosure fast-tracks for vacant homes in foreclosure may help reverse that trend.