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Conference Paper
Economic cycles and bank health
Over the past two decades the United States has experienced substantial increases in the number of bank failures, however, surprisingly few banks have failed during the 2001 recession. This paper explores the relationship between economic cycles and bank health. We find that economic forecasts provide little additional information over bank-specific financial data during prosperous times, possibly because bank problems during these times are likely to be idiosyncratic to individual management decisions. However, economic forecasts become relevant during troubled economic periods, with poor ...
Journal Article
Building an infrastructure for financial stability: an overview
Numerous conferences organized in the aftermath of the financial crisis of 1997-98 offered analyses of what went wrong in the crisis countries and prompted a number of reform proposals directed toward reducing the risk of future crises. However, now that the crisis has abated, reform appears to be much lower on most political agendas and is rarely the topic of media reports or academic inquiries. The Federal Reserve Bank of Boston's June 2000 conference "Building an Infrastructure for Financial Stability" attempted to address this deficiency. ; As conference participants presented their ...
Working Paper
Capital and risk: new evidence on implications of large operational losses
Operational risk is currently receiving significant media attention, as financial scandals have appeared regularly and multiple events have exceeded one billion dollars in total impact. Regulators have also been devoting attention to this risk, and are finalizing proposals that would require banks to hold capital for potential operational losses. This paper uses newly available loss data to model operational risk at internationally active banks. Our results suggest that the amount of capital held for operational risk will often exceed capital held for market risk, and that the largest banks ...
Working Paper
Impact of greater bank disclosure amidst a banking crisis
Banking crises have continued to emerge in recent years, contributing to severe economic contractions in Japan, Russia, and Southeast Asia. In response, international organizations have advocated enhanced market discipline, encouraging countries to improve disclosure. One reason so little progress has been made is that neither the proponents nor the opponents of enchanted disclosure policies have persuasive empirical evidence to support their views on potential costs and benefits of such a policy. This paper fills that gap by examining the impact of requiring the release of supervisory ...
Journal Article
Depositor discipline at failing banks
Uninsured depositors, whose deposits are not fully protected by federal deposit insurance, have an incentive to monitor banks' activities and impose additional funding costs on risky banks. This pricing is a form of market discipline, since the market penalizes banks for taking on greater risk. For banks that become troubled, market discipline can take a more severe form: Market participants may become unwilling to supply uninsured funds at any reasonable price. This study examines the effectiveness of depositor discipline at banks that failed in New England in the early 1990s. ; The ...
Conference Paper
International implications of disclosing supervisory information
Journal Article
Banking in the age of information technology
Working Paper
Manager's opportunistic trading of their firms' shares: a case study of executives in the banking industry
Providing managers with stock in the firm may help ensure that managers act in the shareholders' interest. The level of managerial stock ownership, however, is not generally controlled by the firm's compensation committee. Rather, managers themselves determine the level of their stock holdings. To date, though, little evidence exists on managers' personal transactions and how these trades affect their overall equity holdings. This analysis provides insight on the trading practices of bank managers. ; I find that managers do not rely solely on the actions of a compensation committee to set ...
Journal Article
Problem loans at New England banks, 1989 to 1992: evidence of aggressive loan policies
The New England banking industry experienced serious problems between 1989 and 1992. As the region's economy deteriorated, banks failed at an unprecedented rate and many others barely survived. Banking problems were widespread, but they were not uniform. The ratio of nonperforming loans to total loans was in excess of 10 percent for some New England banks, below 1 percent for others, even though all faced the external shock of the collapse in the region's real estate market.> This study attempts to determine whether a 'skills' hypothesis or a 'policies' hypothesis better explains the ...