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Working Paper
Nonparametric Estimation of Lerner Indices for U.S. Banks Allowing for Inefficiency and Off-Balance Sheet Activities
Wheelock, David C.; Wilson, Paul W. (2019-04-16)
The Lerner index is widely used to assess firms' market power. However, estimation and interpretation present several challenges, especially for banks, which tend to produce multiple outputs and operate with considerable inefficiency. We estimate Lerner indices for U.S. banks for 2001-18 using nonparametric estimators of the underlying cost and profit functions, controlling for inefficiency, and incorporating banks' off-balance-sheet activities. We find that mis-specification of cost or profit functional forms can seriously bias Lerner index estimates, as can failure to account for ...
Working Papers , Paper 2019-12

Discussion Paper
Banking the Unbanked: The Past and Future of the Free Checking Account
Berre, Stein; Blickle, Kristian S.; Chakrabarti, Rajashri (2021-06-30)
About one in twenty American households are unbanked (meaning they do not have a demand deposit or checking account) and many more are underbanked (meaning they do not have the range of bank-provided financial services they need). Unbanked and underbanked households are more likely to be lower-income households and households of color. Inadequate access to financial services pushes the unbanked to use high-cost alternatives for their transactional needs and can also hinder access to credit when households need it. That, in turn, can have adverse effects on the financial health, educational ...
Liberty Street Economics , Paper 20210630a

Working Paper
The Evolution of Scale Economies in U.S. Banking
Wheelock, David C.; Wilson, Paul W. (2015-08-01)
Continued consolidation of the U.S. banking industry and a general increase in the size of banks has prompted some policymakers to consider policies that discourage banks from getting larger, including explicit caps on bank size. However, limits on the size of banks could entail economic costs if they prevent banks from achieving economies of scale. This paper presents new estimates of returns to scale for U.S. banks based on nonparametric, local-linear estimation of bank cost, revenue and profit functions. We report estimates for both 2006 and 2015 to compare returns to scale some seven ...
Working Papers , Paper 2015-21

Speech
Keynote Remarks
Held, Michael (2022-02-03)
Remarks at the Union of Arab Banks' Conference on Anti-Bribery Corruption, the Sixth European Union Anti-Money Laundering Directive, and the Anti-Money Laundering Act of 2020 (delivered via videoconference).
Speech

Discussion Paper
Tracking the U.S. Banking Industry
Vickery, James; Avraham, Dafna; Sullivan, Tara (2012-10-10)
The New York Fed has recently published the first edition of a new quarterly report tracking the aggregate financial condition of consolidated U.S. banking organizations. In this post, we describe the methodology used to construct the statistics in the report as well as present and briefly discuss some of the findings.
Liberty Street Economics , Paper 20121010

Report
Who Pays the Price? Overdraft Fee Ceilings and the Unbanked
Morgan, Donald P.; Dlugosz, Jennifer L.; Melzer, Brian T. (2021-06-01)
Would a cap on overdraft fees increase financial inclusion? Studying an event in which state-level caps were relaxed for national banks, we find that caps constrain the supply of overdraft credit and deposit accounts. Absent caps, banks charge customers more for overdraft but bounce fewer checks and reduce required minimum deposits. Low-income households are both more likely to open accounts and less likely to lose them, suggesting they prefer being banked despite higher overdraft fees. Overdraft fee caps thus hamper, rather than foster, financial inclusion.
Staff Reports , Paper 973

Report
Evaluating regulatory reform: banks’ cost of capital and lending
Van Tassel, Peter; Kovner, Anna (2018-06-01)
We examine the eﬀects of regulatory changes on banks’ cost of capital and lending. Since the passage of the Dodd-Frank Act, the value-weighted CAPM cost of capital for banks has averaged 10.5 percent and declined by more than 4 percent on a within-ﬁrm basis relative to ﬁnancial crisis highs. This decrease was much greater for the largest banks subject to new regulation than for other banks and ﬁrms. Over a longer twenty-year horizon, we ﬁnd that changes in the systematic risk of bank equity have real economic consequences: increases in banks’ cost of capital are associated with ...
Staff Reports , Paper 854

Working Paper
Agency Conflicts in Residential Mortgage Securitization: What Does the Empirical Literature Tell Us?
Frame, W. Scott (2017-03-01)
The agency conflicts inherent in securitization are viewed by many as having been a key contributor to the recent financial crisis, despite the presence of various legal and economic constructs to mitigate them. A review of recent empirical research for the U.S. home mortgage market suggests that securitization itself may not have been a problem, but rather the origination and distribution of observably riskier loans. Low-documentation mortgages, for which asymmetric information problems are acute, performed especially poorly during the crisis. Securitized low-documentation mortgages ...
FRB Atlanta Working Paper , Paper 2017-1

Working Paper
Is a Friend in Need a Friend Indeed? How Relationship Borrowers Fare during the COVID-19 Crisis
Berger, Allen N.; Bouwman, Christa H. S.; Roman, Raluca; Udell, Gregory F.; Norden, Lars (2021-03-25)
We analyze loan contract terms, investigating whether relationship borrowers fare better or worse than others in times of need, using the COVID-19 crisis as a quasi-natural experiment. COVID-19 is superior to prior crises for such analysis because its public health and government restrictions shocks directly harm borrowers, rather than banks. Our dataset includes Y-14Q, covering syndicated and non syndicated loans and small and large firms, unlike some other datasets. We find the dark side of relationships dominates across four relationship measures, 14 COVID-19 shocks, and PPP participation. ...
Working Papers , Paper 21-13

Journal Article
Measuring Cov-Lite Right
Yu, Edison (2018)
More business loans today lack traditional covenants governing borrowers. Does that leave banks with fewer tools to ward off default?
Banking Trends , Issue 3 , Pages 1-8

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