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Rating banks: risk and uncertainty in an opaque industry
In: Staff reports 105
"The pattern of disagreement between bond raters suggests that bank and insurance firms are inherently more opaque than other firms. Moody's and Standard and Poor's split more frequently over these financial intermediaries, and the splits are more lopsided, as theory here predicts. Uncertainty over the banks stems from their assets, loans and trading assets in particular, the risks of which are hard to observe or easy to change. Banks' high leverage, which invites agency problems, compounds the uncertainty over their assets. Our findings bear on both the existence and reform of bank regulation"--Federal Reserve Bank of New York web site
Bond market discipline of banks: is the market tough enough?
In: Staff reports 95
Piggy banks: financial intermediaries as a commitment to save
In: Staff reports
In: Federal Reserve Bank of New York 50
Rating Banks: Risk and Uncertainty in an Opaque Industry
In: American economic review, Band 92, Heft 4, S. 874-888
ISSN: 1944-7981
The pattern of disagreement between bond raters suggests that banks and insurance firms are inherently more opaque than other types of firms. Moody's and S&P split more often over these financial intermediaries, and the splits are more lopsided, as theory here predicts. Uncertainty over the banks stems from certain assets, loans and trading assets in particular, the risks of which are hard to observe or easy to change. Banks' high leverage, which invites agency problems, compounds the uncertainty over their assets. These findings bear on both the existence and reform of bank regulation.
Financial contracts when costs and returns are private
In: Journal of Monetary Economics, Band 31, Heft 1, S. 129-146
Meet the New Borrowers
In: Current Issues in Economics and Finance, Band 5, Heft 3
SSRN
Learning by Bouncing: Overdraft Experience and Salience
In: Liberty Street Economics
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Who Pays the Price? Overdraft Fee Ceilings and the Unbanked
In: FRB of New York Staff Report No. 973, Rev. July 2023
SSRN
The information value of the stress test and bank opacity
We investigate whether the 'stress test,' the extraordinary examination of the nineteen largest U.S. bank holding companies conducted by federal bank supervisors in 2009, produced information demanded by the market. Using standard event study techniques, we find that the market had largely deciphered on its own which banks would have capital gaps before the stress test results were revealed, but that the market was informed by the size of the gap; given our proxy for the expected gap, banks with larger capital gaps experienced more negative abnormal returns. Our findings suggest that the stress test helped quell the financial panic by producing vital information about banks. Our findings also contribute to the academic literature on bank opacity and the value of government monitoring of banks.
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How Bad Are Weather Disasters for Banks?
In: FRB of New York Staff Report No. 990, 2021
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Working paper
The Benefits of Intrastate and Interstate Geographic Diversification in Banking
We estimate the benefits of intrastate and interstate geographic diversification for bank risk and return, and assess whether such benefits could be shaped by differences in bank size and disparities in economic conditions within states or across U.S. states. For small banks, only intrastate diversification is beneficial in terms of risk-adjusted returns but for very large institutions both intrastate and intrastate expansions are rewarding. However, in all cases the relationship is hump-shaped for both intrastate and interstate diversification indicating limits for banks of all size. Moreover, while our results indicate that the average 'very large' bank has already reached its optimal diversification level, the average 'small bank' could still benefit in terms of risk-adjusted returns from further geographic diversification. Higher economic disparity as measured by the dispersion in unemployment rates either across counties or states impacts the benefits of diversification. At initially low levels of diversification, moving to other markets with dissimilar economic conditions lowers the added value of diversification but it becomes more beneficial at higher diversification levels.
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The Benefits of Intrastate and Interstate Geographic Diversification in Banking
We estimate the benefits of intrastate and interstate geographic diversification for bank risk and return, and assess whether such benefits could be shaped by differences in bank size and disparities in economic conditions within states or across U.S. states. For small banks, only intrastate diversification is beneficial in terms of risk-adjusted returns but for very large institutions both intrastate and intrastate expansions are rewarding. However, in all cases the relationship is hump-shaped for both intrastate and interstate diversification indicating limits for banks of all size. Moreover, while our results indicate that the average 'very large' bank has already reached its optimal diversification level, the average 'small bank' could still benefit in terms of risk-adjusted returns from further geographic diversification. Higher economic disparity as measured by the dispersion in unemployment rates either across counties or states impacts the benefits of diversification. At initially low levels of diversification, moving to other markets with dissimilar economic conditions lowers the added value of diversification but it becomes more beneficial at higher diversification levels.
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