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Working Paper
Using SMVAM as a linear approximation to a nonlinear function: a note
A study contending that the linear statistical market-value accounting model (SMVAM) is a reasonable approximation of the relationship between market and book equity for firms with positive balance sheets, but that the linear approximation is inadequate when the data sample includes firms whose balance sheets show a low or negative liquidation value.
Journal Article
Raising the deposit-insurance limit: a bad idea whose time has come?
Federal deposit insurance protects the savings of small depositors, but it increases the likelihood that banks will take risks they otherwise would not have. Some bankers have suggested doubling the level of coverage to $200,000. While such an increase may put smaller banks on a par with larger ones, it exceeds the amount necessary to protect small savers and is unfair to taxpayers.
Conference Paper
Capital requirements and optimal bank portfolios: a reexamination
Journal Article
Capital requirements for financial firms
One of the reforms proposed for preventing financial crises is to require financial institutions to hold more capital. There are a number of unresolved issues related to such a requirement, ranging from the costs of increased capital requirements to the best way to structure them. Some of this research was presented at a recent conference, and we discuss the major findings in this Commentary.
Working Paper
Capital forbearance and thrifts: an ex post examination of regulatory gambling
This paper estimates the losses embedded in the capital positions of the 996 FSLIC-insured savings and loan institutions that did not meet capital standards at the end of the 1970s. We compare the estimated cost of resolving the insolvencies of these institutions at the end of the 1970s with the actual failure-resolution costs for those that were closed by July 3 1, 1992, and the projected resolution costs for the remaining thrifts that are likely to be closed. Our results show that even when one considers only the direct costs associated with delayed closure of economically failed thrifts, ...
Discussion Paper
Systemic banking crises
Systemic banking crises can have devastating effects on the economies of developing or industrialized countries. This Policy Discussion Paper reviews the factors that weaken banking systems and make them more susceptible to crises.
Journal Article
Using market incentives to reform bank regulation and federal deposit insurance
A presentation of the case for adopting market-oriented reforms to our bank regulatory and federal deposit insurance systems.
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 ...
Working Paper
Deposit insurance and the cost of capital
The impacts of deposit insurance and forbearance on the costs and value of uninsured deposits and equity capital are shown under three regimes.