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Banks versus Hurricanes: A Case Study of Puerto Rico after Hurricanes Irma and Maria
Anagnostakos, Peter; Bram, Jason; Chan, Benjamin; Fischl-Lanzoni, Natalia; Latif, Hasan; Mahoney, James M.; Morgan, Donald P.; Morgan, Ladd; Suarez, Ivelisse (2023-11-01)
We study Puerto Rico’s experience after the severe hurricane season of 2017 to better understand how extreme weather disasters affect bank stability and their ability to lend. Despite the devastation wrought by two category 5 hurricanes in a single month, we find relatively modest and transitory impacts on bank performance with no evident decline in lending capacity. We discuss various mitigants that help limit bank exposure to extreme weather and whether these mitigants may be vulnerable given the potential for more severe and more impactful climate events.
Staff Reports , Paper 1078

Working Paper
A Static Capital Buffer is Hard To Beat
Diba, Behzad T.; Canzoneri, Matthew B.; Mishin, Arsenii; Guerrieri, Luca (2026-06-22)
In a model with endogenous risk-taking, deposit insurance and limited liability may lead banks to make risky loans that are socially inefficient. Capital requirements can prevent excessive risk-taking at the cost of reducing liquidity-producing bank deposits. A policy that sets capital requirements just high enough to prevent excessive risktaking will move capital requirements pro-, counter-, or a-cyclically depending on the shock source. However, such a policy requires full knowledge of all the shocks hitting the economy and is not implementable. Simple rules that respond to cyclical ...
Finance and Economics Discussion Series , Paper 2026-042

Briefing
Intermediation and Bank Liquidity: A Conference Recap
Mullin, John; Wells, Matthew (2022-08)
How might a central bank digital currency alter banking system operations? What is the effect of credit easing on the dynamics of bank runs? Does increased competition among banks mean a more fragile banking system, and what can be done about it? These were among the research questions addressed by economists during a recent Richmond Fed research conference.
Richmond Fed Economic Brief , Volume 22 , Issue 34

Journal Article
Two Multibanks Help Medical Diagnostics Firm Take Off
Community Development, Federal Reserve Bank of Dallas (2001)
The Texas Mezzanine Fund was established in 1999 as a statewide multibank community development corporation by Guaranty Federal Bank, Washington Mutual, Inc. and Jefferson Heritage Bank. The fund originates loans to fast-growing small businesses that don't qualify for traditional bank loans.
e-Perspectives , Volume 1 , Issue 1

Discussion Paper
Are BHC and Federal Reserve Stress Test Results Converging? What Do We Learn from 2015?
Kovner, Anna; Hirtle, Beverly; McKay, Eric (2015-04-06)
In March, the Federal Reserve and thirty-one large U.S. bank holding companies (BHCs) announced results of the latest Dodd-Frank Act-mandated stress tests. Some commentators have argued that BHCs, in designing their stress test models, have strong incentives to mimic the Fed’s stress test results, since the Fed’s results are an integral part of the Federal Reserve’s supervisory assessment of capital adequacy for these firms. In this post, we look at the 2015 stress test projections by the eighteen largest U.S. BHCs and by the Fed and compare them to similar numbers from 2013 and 2014. ...
Liberty Street Economics , Paper 20150406

Discussion Paper
Deposit Betas: Up, Up, and Away?
Kang-Landsberg, Alena; Luck, Stephan; Plosser, Matthew (2023-04-11)
Deposits make up an $18 trillion market that is simultaneously the main source of bank funding and a critical tool for households’ financial management. In a prior post, we explored how deposit pricing was changing slowly in response to higher interest rates as of 2022:Q2, as measured by a “deposit beta” capturing the pass-through of the federal funds rate to deposit rates. In this post, we extend our analysis through 2022:Q4 and observe a continued rise in deposit betas to levels not seen since prior to the global financial crisis. In addition, we explore variation across deposit ...
Liberty Street Economics , Paper 20230411

Report
Bank-intermediated arbitrage
Van Tassel, Peter; Boyarchenko, Nina; Gupta, Pooja; Eisenbach, Thomas M.; Shachar, Or (2018-06-01)
We argue that post-crisis banking regulations pass through from regulated institutions to unregulated arbitrageurs. We document that, once post-crisis regulations bind post 2014, hedge funds use a larger number of prime brokers and diversify away from GSIB-affiliated prime brokers, and that the match to such prime brokers is more fragile. Tighter regulatory constraints disincentivize regulated institutions not only to engage in arbitrage activity themselves but also to provide leverage to other arbitrageurs. Indeed, we show that the maximum leverage allowed and the implied return on basis ...
Staff Reports , Paper 858

Report
Why do banks target ROE?
Pennacchi, George; Santos, Joao A. C. (2018-06-01)
Historically, nonfinancial corporations relied on performance targets linked to their EPS. Up until the 1970s, banks also appeared to follow a similar practice, but since then they have favored ROE. Equity investors seem to be aware of these differences because EPS growth is better at explaining nonfinancials? stock market value while ROE is better at explaining banks? market values. In this paper we present a model of a bank with fixed-rate deposit insurance that faces increasing competition that erodes its charter value. When under these conditions the bank chooses its capital to maximize ...
Staff Reports , Paper 855

Discussion Paper
Banks versus Hurricanes
Fischl-Lanzoni, Natalia; Morgan, Ladd; Chan, Benjamin; Bram, Jason; Suarez, Ivelisse; Anagnostakos, Peter; Mahoney, James M.; Morgan, Donald P.; Latif, Hasan (2023-11-20)
The impacts of hurricanes analyzed in the previous post in this series may be far-reaching in the Second District. In a new Staff Report, we study how banks in Puerto Rico fared after Hurricane Maria struck the island on September 17, 2017. Maria makes a worst case in some respects because the economy and banks there were vulnerable beforehand, and because Maria struck just two weeks after Hurricane Irma flooded the island. Despite the immense destruction and disruption Maria caused, we find that the island’s economy and banks recovered surprisingly quickly. We discuss the various ...
Liberty Street Economics , Paper 20231120

Report
Coexistence of Banks and Non-Banks: Intermediation Functions and Strategies
Cetorelli, Nicola; Cisternas, Gonzalo; Sarkar, Asani (2025-03-01)
What is the essence of non-bank financial intermediation? How does it emerge and interact with intermediation performed by banks? To investigate these questions, we develop a model-based survey: we classify existing models into different intermediation functions á la Merton (1995) to show that variations of them admit a common modeling structure; then, we extend or reinterpret the resulting models to connect equilibrium strategies to non-bank activities in practice. Particular emphasis is placed on the coexistence of banks and non-banks: how their competition, or the extent of cooperation ...
Staff Reports , Paper 1145

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