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Working Paper
Do jumbo-CD holders care about anything?
Uninsured deposits represent a theoretically appealing but relatively untested alternative to subordinated debt for incorporating market discipline into banking supervision. To make the deposit market a useful supervisory tool, it is necessary to know what types of risk are priced by depositors and in what proportions. Using a clustering technique to select from among a large set of potential regressors, as well as a carefully chosen set of control variables, we attempt to determine the types of risk that cause uninsured depositors to react in both the price and quantity dimensions. As a ...
Journal Article
Federal Reserve lending to troubled banks during the financial crisis, 2007-2010
Numerous commentaries have questioned both the legality and appropriateness of Federal Reserve lending to banks during the recent financial crisis. This article addresses two questions motivated by such commentary: Did the Federal Reserve violate either the letter or spirit of the law by lending to undercapitalized banks? Did Federal Reserve credit constitute a large fraction of the deposit liabilities of failed banks during their last year before failure? The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) imposed limits on the number of days that the Federal Reserve ...
Journal Article
Community bank lending during the financial crisis
The total volume of loans held by community banks peaked in 2008 and dropped during the financial crisis and Great Recession. Total loans bottomed out in 2011 and, as of December 2012, have only recovered to a level roughly 10 percent below their 2008 peak. During this period, both demand and supply factors undoubtedly played roles in the change in bank lending.
Journal Article
Are district banks losing their profit edge?
After decades of beating out their peers in the return on average assets race, Eighth District banks now trail the pack.
Journal Article
Are small rural banks vulnerable to local economic downturns?
A potentially troubling characteristic of the U.S. banking industry is the geographic concentration of many banks? offices and operations. Historically, banking laws have prevented U.S. banks from branching into other counties and states. A potential adverse consequence of these regulations was to leave banks?especially small rural banks?vulnerable to local economic downturns. If geographic concentration of bank offices leaves banks vulnerable to local economic downturns, we should observe a significant correlation between bank performance and the local economy. Looking at Eighth District ...
Journal Article
Could a CAMELS downgrade model improve off-site surveillance?
The Federal Reserve?s off-site surveillance system includes two econometric models that are collectively known as the System for Estimating Examination Ratings (SEER). One model, the SEER risk rank model, uses the latest financial statements to estimate the probability that each Fed-supervised bank will fail in the next two years. The other component, the SEER rating model, uses the latest financial statements to produce a ?shadow? CAMELS rating for each supervised bank. Banks identified as risky by either model receive closer supervisory scrutiny than other state-member banks.> Because many ...
Journal Article
Trends in community banks' net interest margins
Net interest margins are clearly under pressure at community banks, but this trend is not new. It is a product of a highly competitive banking industry and a direct result of today?s lower lending levels and abundant balance sheet liquidity. The net interest margin is the difference between interest income and interest expense. Interest income and interest expense fluctuated considerably through the business cycle, but the long-term trend indicates that asset yields are falling faster than deposit and other funding costs.
Working Paper
The role of a CAMEL downgrade model in bank surveillance
This article examines the potential contribution to bank supervision of a model designed to predict which banks will have their supervisory ratings downgraded in future periods. Bank supervisors rely on various tools of off-site surveillance to track the condition of banks under their jurisdiction between on-site examinations, including econometric models. One of the models that the Federal Reserve System uses for surveillance was estimated to predict bank failures. Because bank failures have been so rare during the last decade, the coefficients on this model have been "frozen" since 1991. ...
Journal Article
Most community banks will pay lower premiums under FDIC assessment rules
Find out why community banks will benefit from the new FDIC assessment base as called for under the Dodd-Frank Act.
Working Paper
Federal Reserve lending to troubled banks during the financial crisis, 2007-10
Numerous commentaries have questioned both the legality and appropriateness of Federal Reserve lending to banks during the recent financial crisis. This article addresses two questions motivated by such commentary: 1) Did the Federal Reserve violate either the letter or spirit of the law by lending to undercapitalized banks? 2) Did Federal Reserve credit constitute a large fraction of the deposit liabilities of failed banks during their last year prior to failure? The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) imposed limits on the number of days that the Federal ...