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Working Paper
Pre-Positioning and Cross-Border Financial Intermediation
The benefits of cross-border financial activity are wide-ranging, from greater competition and more efficient markets to broader and more stable access to capital. During normal economic times, the official sector and private sector share an incentive to foster such cross-border financial activities. During a financial crisis, however, the short-term alignment of official- and private-sector incentives can diverge—sometimes significantly. We present a game-theoretic model of the underlying trade-offs and discuss lessons for international financial regulators, placing them in the ...
Working Paper
The Differential Impact of Bank Size on Systemic Risk
We examine whether financial stress at larger banks has a different impact on the real economy than financial stress at smaller banks. Our empirical results show that stress experienced by banks in the top 1 percent of the size distribution leads to a statistically significant and negative impact on the real economy. This impact increases with the size of the bank. The negative impact on quarterly real GDP growth caused by stress at banks in the top 0.15 percent of the size distribution is more than twice as large as the impact caused by stress at banks in the top 0.75 percent, and more than ...
Working Paper
A Brief History of the U.S. Regulatory Perimeter
This paper provides a brief history of the U.S. financial regulatory perimeter, a legal cordon comprised of “positive†and “negative†restrictions on the conduct of banking organizations. Today’s regulatory perimeter faces a wide range of challenges, from disaggregation, to new commercial entrants, to new varieties of charters (and new uses of legacy charters). We situate these challenges in the longer history of American banking, identifying a pattern in debates about the nature, shape, and position of the perimeter: outside-in pressure, inside-out pressure, and ...
Working Paper
Enforcing Fair Lending: Evidence from Mortgage Market Litigation
Does fair lending litigation impact mortgage lender decisions? Using a novel dataset of all fair lending legal actions from 1991 to 2023, we find that it does. In the wake of legal settlements for discrimination against Black borrowers, lenders significantly reduced denial rates for Black applicants. The reductions offset pre-litigation racial disparities in denial rates by litigated banks, relative to those banks' competitors. Origination rates for Black applicants also increased post-litigation. We further observe evidence of a spillover effect on the approval decisions of non-litigated ...
Discussion Paper
Lessons from the History of the U.S. Regulatory Perimeter
Banking organizations in the United States have long been subject to two broad categories of regulatory standards. The first is permissive: a "positive" grant of rights and privileges, typically via a charter for a corporate entity, to engage in the business of banking.