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Jel Classification:G28 

Report
Does CFPB Oversight Crimp Credit?

We study how regulatory oversight by the Consumer Financial Protection Bureau (CFPB) affects mortgage credit supply and other aspects of bank behavior. We use a difference-in-differences approach exploiting changes in regulatory intensity and a size cutoff below which banks are exempt from CFPB scrutiny. CFPB oversight leads to a reduction in lending in the Federal Housing Administration (FHA) market, which primarily serves riskier borrowers. However, it is also associated with a lower transition probability from moderate to serious delinquency, suggesting that tighter regulatory oversight ...
Staff Reports , Paper 857

Working Paper
Liquidity Risk, Bank Networks, and the Value of Joining the Federal Reserve System

Reducing systemic liquidity risk related to seasonal swings in loan demand was one reason for the founding of the Federal Reserve System. Existing evidence on the post-Federal Reserve increase in the seasonal volatility of aggregate lending and the decrease in seasonal interest rate swings suggests that it succeeded in that mission. Nevertheless, less than 8 percent of state-chartered banks joined the Federal Reserve in its first decade. Some have speculated that nonmembers could avoid higher costs of the Federal Reserve?s reserve requirements while still obtaining access indirectly to the ...
Working Paper , Paper 16-6

Journal Article
An Empirical Economic Assessment of the Costs and Benefits of Bank Capital in the United States

We evaluate the economic costs and benefits of bank capital in the United States. The analysis is similar to that found in previous studies, though we tailor it to the specific features and experience of the U.S. financial system. We also make adjustments to account for the impact of liquidity- and resolution-related regulations on the probability of a financial crisis. We find that the level of capital that maximizes the difference between total benefits and total costs ranges from just over 13 percent to 26 percent. This range reflects a high degree of uncertainty and latitude in specifying ...
Review , Volume 101 , Issue 3

Working Paper
FinTech and Financial Innovation : Drivers and Depth

This paper answers two questions that help those analyzing FinTech understand its origins, growth, and potential to affect financial stability. First, it answers the question of why "FinTech" is happening right now. Many of the technologies that support FinTech innovations are not new, but financial institutions and entrepreneurs are only now applying them to financial products and services. Analysis of the supply and demand factors that drive "traditional" financial innovation reveals a confluence of factors driving a large quantity of innovation. Second, this paper answers the question ...
Finance and Economics Discussion Series , Paper 2017-081

Report
The payment system benefits of high reserve balances

The policy measures taken since the financial crisis have greatly expanded the size of the Federal Reserve?s balance sheet and have thus raised the level of aggregate bank reserves as well. Over the same period there has been a significant shift in the timing of payments made over the Federal Reserve?s Fedwire Funds Service toward earlier settlement. This paper documents this timing change and presents regression results suggesting that the increase in overall reserve balances explains the vast majority of this development. The paper also discusses the benefits of high aggregate reserve ...
Staff Reports , Paper 779

Report
Banks' incentives and the quality of internal risk models

This paper investigates the incentives for banks to bias their internally generated risk estimates. We are able to estimate bank biases at the credit level by comparing bank-generated risk estimates within loan syndicates. The biases are positively correlated with measures of regulatory capital, even in the presence of bank fixed effects, consistent with an effort by low-capital banks to improve regulatory ratios. At the portfolio level, the difference in borrower probability of default is as large as 100 basis points, which can improve the typical loan portfolio?s Tier 1 capital ratio by as ...
Staff Reports , Paper 704

Working Paper
From Incurred Loss to Current Expected Credit Loss (CECL): A Forensic Analysis of the Allowance for Loan Losses in Unconditionally Cancelable Credit Card Portfolios

The Current Expected Credit Loss (CECL) framework represents a new approach for calculating the allowance for credit losses. Credit cards are the most common form of revolving consumer credit and are likely to present conceptual and modeling challenges during CECL implementation. We look back at nine years of account-level credit card data, starting with 2008, over a time period encompassing the bulk of the Great Recession as well as several years of economic recovery. We analyze the performance of the CECL framework under plausible assumptions about allocations of future payments to existing ...
Working Papers , Paper 20-09

Journal Article
Peas in a pod? Comparing the U.S. and Danish mortgage finance systems

Like the United States, Denmark relies heavily on capital markets for funding residential mortgages, and its covered bond market bears a number of similarities to U.S. agency securitization. This article describes the key features of the Danish mortgage finance system and compares and contrasts them with those of the U.S. system. In addition, it highlights characteristics of the Danish model that may be of interest as the United States considers further mortgage finance reform. In particular, the Danish system includes features that mitigate refinancing frictions during periods of falling ...
Economic Policy Review , Issue 24-3 , Pages 63-87

Working Paper
Which Lenders Are More Likely to Reach Out to Underserved Consumers: Banks versus Fintechs versus Other Nonbanks?

There has been a great deal of interest recently in understanding the potential role of fintech firms in expanding credit access to the underbanked and credit-constrained consumers. We explore the supply side of fintech credit, focusing on unsecured personal loans and mortgage loans. We investigate whether fintech firms are more likely than other lenders to reach out to “underserved consumers,” such as minorities; those with low income, low credit scores, or thin credit histories; or those who have a history of being denied for credit. Using a rich data set of credit offers from Mintel, ...
Working Papers , Paper 21-17

Journal Article
How Have Banks Been Managing the Composition of High-Quality Liquid Assets?

Banks? liquidity management practices are fundamental to understanding the implementation and transmission of monetary policy. Since the Global Financial Crisis of 2007-09, these practices have been shaped importantly by the liquidity coverage ratio requirement. Given the lack of public data on how banks have been meeting this requirement, we construct estimates of U.S. banks? high-quality liquid assets (HQLA) and examine how banks have managed these assets since the crisis. We find that banks have adopted a wide range of HQLA compositions and show that this empirical finding is consistent ...
Review , Volume 101 , Issue 3

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