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Focuses on the the role of banks in the American financial system in late 19th century. History of the banking system of the United States; Discussion on the real-bills doctrine; Details on the Bank of A. Levy and the Emigrant Savings Bank cases.

This paper reviews some of the recent studies on international capital flows with a focus on the role of European global banks. It presents a revision to the commonly held "global saving glut" view that East Asian economies (along with oil-rich nations) were the dominant suppliers of capital that fueled the asset price boom in many parts of the world in the early 2000s. It argues that the role of funding costs and a "liberal" regulatory regime that allowed for an unprecedented expansion of the balance sheets of European banks was no less important. Finally, we describe the aftermath of the crisis in terms of some of the challenges faced by Europe as a whole and European banks in particular. [ABSTRACT FROM AUTHOR]

This paper investigates the effectiveness of one of the Federal Reserve's unconventional monetary policy tools, the term auction facility (TAF). At issue is whether the TAF reduced the spread between the London interbank offered rate (LIBOR) rates and equivalent-term Treasury rates by reducing the liquidity premium embedded in LIBOR rates. This paper suggests that rather than reducing the liquidity premium in LIBOR rates, the announcement of the TAF increased the risk premium in financial and other bond rates because market participants interpreted the announcement by the Fed and other central banks as a sign that the financial crisis was worse than previously thought. Evidence is presented that supports this hypothesis. [ABSTRACT FROM AUTHOR]

This paper provides a simple two-depositor, two-stage model to understand how a bank's withdrawal history affects an individual's decision about withdrawals, which could possibly trigger bank runs. Individual depositors have private information about their personal consumption types and receive noisy private signals about the quality of the bank's portfolio. Depositors make publicly observable withdrawal decisions in sequence. Computed examples indicate that the optimal contract contingent on withdrawal histories can tolerate bank runs. These runs are triggered by unfavorable signals about a bank's portfolio, and early liquidation of unsuccessful investments can avoid future losses. Because the signals are private, a depositor's action is the only way to partially reveal his private information. A runadmitting bank contract allows information to be revealed. However, if signals are too noisy, bank runs may occur too often when fundamentals are strong. In this case, a bank would offer a run-proof contract. Given the relevant role of information, a policy that makes private information public would be useful to improve welfare and eliminate bank runs. [ABSTRACT FROM AUTHOR]

This paper provides a systematic analysis of the lending performance of U.S. commercial banks and savings institutions that received financial support through the Capital Purchase Program (CPP) established in October 2008. The authors combine U.S. Treasury data on recipients of the CPP with quarterly financial data for the entire population of depository institutions to reconstruct aggregate lending and gross credit flows (expansion and contraction). CPP institutions experienced a less severe lending contraction than non-CPP institutions for all types of loans and bank asset levels. The authors find no evidence of unusual reallocation of lending across depository institutions. [ABSTRACT FROM AUTHOR]

This paper presents empirical evidence on the efficacy of forecast averaging using the ALFRED (ArchivaL Federal Reserve Economic Data) real-time database. The authors consider averages over a variety of bivariate vector autoregressive models. These models are distinguished from one another based on at least one of the following factors: (i) the choice of variables used as predictors, (ii) the number of lags, (iii) use of all available data or only data after the Great Moderation, (iv) the observation window used to estimate the model parameters and construct averaging weights, and (v) the use of either iterated multistep or direct multistep methods for forecast horizons greater than one. A variety of averaging methods are considered. The results indicate that the benefits of model averaging relative to Bayesian information criterion-based model selection are highly dependent on the class of models averaged The authors provide a novel decomposition of the forecast improvements that allows determination of the most (and least) helpful types of averaging methods and models averaged across. [ABSTRACT FROM AUTHOR]

In 2007 Britain experienced its first run on a bank of any macroeconomic significance since 1866. This was not dealt with by the method that had maintained banking stability for so long: letting the bank fail but supplying abundant liquidity to the markets to prevent contagion. In this paper the authors examine why that traditional solution was not used and propose changes to Britain's deposit insurance system, to its bank insolvency regime, and in arrangements to allow customers access to banking services should their bank be closed-so that the traditional approach can once more be used to mitigate moral hazard. [ABSTRACT FROM AUTHOR]

Since the liberalization of its trade in the mid-1980s, Mexico has pursued an aggressive globalization strategy, which today makes it the country with the most free trade agreements in the world. This liberalization strategy has also included the banking sector, particularly since 1997, when all restrictions to the entry of foreign banks were removed. The history of the banking sector in Mexico includes episodes of nationalization in 1982, privatization in 1992, and near-complete failure in 1995. Since then, however, the Mexican government has undertaken a series of bold reforms that have contributed to the modernization of its financial system. This paper documents the evolution of Mexico's banking sector starting from its nationalization in 1982 and culminating with the increased entry of foreign banks in recent years that has driven the recovery of bank credit to the private sector. [ABSTRACT FROM AUTHOR]

This new wave of financial innovations has broad implications for society, banking, and central banking: Digital platforms can ease entry for financial services providers, increase transactional efficiency, and widen access to and participation in the financial system. They could also decrease the use of cash and alter the U.S. dollar's role as today's vehicle currency. [ABSTRACT FROM AUTHOR]

The first 20 years of the twenty-first century have presented U.S. banks with three recessions, long periods of very low interest rates, and increased regulation. The number of commercial banks operating in the United States declined by 51 percent during this period. This article examines the performance of U.S. commercial banks from 2000 through 2020. An overall picture is provided by examining the evolution of assets, deposits, loans, and other financial characteristics over the period. In addition, new estimates of technical inefficiency are provided, offering additional insight into banks' performance during the recent difficult years. [ABSTRACT FROM AUTHOR]

This article discusses various challenges in the specification and implementation of "macro- finance" models in which macroeconomic variables and term structure variables are modeled together in a no-arbitrage framework. The author classifies macro-finance models into pure latent-factor models ("internal basis models") and models that have observed macroeconomic variables as state variables ("external basis models") and examines the underlying assumptions behind these models. Particular attention is paid to the issue of unspanned short-run fluctuations in macro-economic variables and their potentially adverse effect on the specification of external basis models. The author also discusses the challenge of addressing features such as structural breaks and time-varying inflation uncertainty. Empirical difficulties in the estimation and evaluation of macro- finance models are also discussed in detail. [ABSTRACT FROM AUTHOR]

Comments on a study by Philip Strahan on the effects of bank deregulation on the economic performance of the U.S. Impact of branching restrictions on the U.S. banking system; Efficiency of branch banking system; Correlation between deregulation and state per capita income growth.

Comments on an article about the relation between finance and economic growth. Effect of financial institutions on economic growth; Measures of financial development; Mechanisms through which finance works.

Opinion. Presents the author's view on the work of Eugene White about the function of banks. Discussion on the Suffolk National Bank of Boston case; Information on the managerial structure of the nineteenth-century banks; Alternative ways by which banks coped with information problems.

Opinion. Presents the author's view on the article of Richard Sylla on the importance of financial development in the banking system of the United States. Importance of the bank/securities market on the early American financial development; Discussion on the role of government policy in the banking system; Discussion on the Federalist program.

Comments on an article which developed a model based on the interaction of the transactions costs of intermediation and monetary policy. Costs of establishing financial institutions and markets; Ways of improving the banking sector; Importance of lowering the rate of inflation in developing countries.

This article examines how the U.S. banking system responded to the founding of the Federal Reserve System (Fed) in 1914. The Fed was established to bring an end to the frequent crises that plagued the U.S. banking system, which reform proponents attributed to the nation's "inelastic" currency stock and dependence on interbank relationships to allocate liquidity and operate the payments system. Reform advocates noted that banking panics tended to occur at times of the year when the demands for currency and bank loans were normally at seasonal peaks and money markets were at their tightest. Moreover, they blamed the interbank system, upon which the banking system depended for seasonal accommodation and interregional payments, for transmitting shocks throughout the banking system. The article finds that after the Fed's founding, country national banks were much less dependent on correspondent banks for seasonal liquidity and that peaks in lending by individual Reserve Banks aligned with the liquidity needs of banks in their districts. Further, the article shows that after the Fed's founding, banks generally were less liquid and relied more heavily on deposits for funding, consistent with the idea that banks viewed the Fed as a reliable source of liquidity. The return of banking panics during the Great Depression, however, showed that the Fed was not, in fact, up to the challenge of serving as a full-fledged lender of last resort. (JEL E58, G21, N21, N22) [ABSTRACT FROM AUTHOR]

Comments on a study by Nicola Cetorelli on the effect of bank competition on the formation of firm-creditor relationships. Link between credit market and competition and entry; Negative correlation between the size of entry barriers in a country and the development of financial markets.

The Federal Open Market Committee has recently attempted to stimulate economic growth using unconventional methods. Prominent among these is quantitative easing (QE)-the purchase of a large quantity of longer-term debt on the assumption that it will reduce long-term yields through the portfolio balance channel. Former Federal Reserve Chairman Ben Bernanke and others suggest that QE works through the portfolio balance channel, which implies a strong, statistically significant positive relationship between the public's holding of long-term Treasury debt and long-term Treasury yields. The author uses the econometric approach of Gagnon et al. (2011) and others to investigate the relationship between a variety of measures of the public's debt holding and various yield measures in the literature. The empirical results provide virtually no support for the portfolio balance channel. [ABSTRACT FROM AUTHOR]

This article describes the joint evolution of Federal Reserve policy and the study of the impact of monetary policy surprises on high-frequency asset prices. Since the 1970s, the Federal Open Market Committee has clarified its objectives and modified its procedures to become more transparent and predictable. Researchers have had to account for these changes to procedures and perceived objectives in developing methods to study the effects of monetary surprises. Unexpected changes to the Committee's federal funds target and postmeeting statements strongly and consistently affect asset prices, including interest rates, exchange rates, and (for target changes) stock prices. The study of monetary surprises on asset prices provides important insight for policymakers, financial market participants, and economic models. [ABSTRACT FROM AUTHOR]

The authors study the distinguishing features of community banks that maintained the highest super - visory ratings during the recent financial crisis (2006 to 2011). They identify balance sheet and income statement ratios that separate these thriving banks from other community banks and supplement that analysis with detailed interview evidence from a sample of thriving banks. They conclude that there is a strong future for well-run community banks and that the banks that prosper will be the ones with strong commitments to maintaining risk control standards in all economic environments. There is no one-sizefits- all strategy, however, and each bank must develop a business plan that works in its market. [ABSTRACT FROM AUTHOR]

Numerous commentaries have questioned both the legality and appropriateness of Federal Reserve lending to banks during the recent financial crisis. This article addresses two questions motivated by such commentary: Did the Federal Reserve violate either the letter or spirit of the law by lending to undercapitalized banks? Did Federal Reserve credit constitute a large fraction of the deposit liabilities of failed banks during their last year before failure? The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) imposed limits on the number of days that the Federal Reserve may lend to undercapitalized or critically undercapitalized depository institutions. The authors find no evidence that the Federal Reserve ever exceeded statutory limits during the recent financial crisis, recession, and recovery. In most cases, the number of days that Federal Reserve credit was extended to an undercapitalized or critically undercapitalized depository institution was appreciably less than the number of days permitted under law. Furthermore, compared with patterns of Fed lending during 1985-90, the authors find that few banks that failed during 2008-10 borrowed from the Fed during their last year prior to failure, and even fewer had outstanding Fed loans when they failed. Moreover, Federal Reserve loans averaged less than 1 percent of total deposit liabilities among nearly all banks that did borrow from the Fed during their last year. It is impossible to know whether the enactment of FDICIA explains differences in Federal Reserve lending practices during 2007-10 and the previous period of financial distress in the 1980s. However, it does seem clear that Federal Reserve lending to depository institutions during the recent episode was consistent with the congressional intent of this legislation. [ABSTRACT FROM AUTHOR]

Many well-respected economists have suggested plans for mortgage restructuring built on the idea of share appreciation mortgages, which generate rather complex transactions with conflicting interests between the lender and the homeowner. The 60/40 Plan, however, combines several economic principles adapted to the nature of home loans and appears to provide all the benefits but fewer of the drawbacks of many of these programs, including current government programs such as the Home Affordable Refinance (HARP) and Home Affordable Modification (HAMP) programs. For example, HARP homeowners must service the entire principal balance and meet additional eligibility restrictions that are not warranted by economic considerations. In contrast, the 60/40 Plan provides for affordable monthly payments by restructuring the debt into two parts, has relatively minor eligibility requirements, and creates household incentives to maintain the property. Failure to address the current financing needs of the housing market may result in a decapitalization of the banking sector, lost potential house value for many homeowners through foreclosure, and an extended episode of low growth for the U.S. economy. [ABSTRACT FROM AUTHOR]

The number of U.S. commercial banks and savings institutions declined by 12 percent between December 31, 2006, and December 31, 2010, continuing a consolidation trend begun in the mid- 1980s. Banking industry consolidation has been marked by sharply higher shares of deposits held by the largest banks-the 10 largest banks now hold nearly 50 percent of total U.S. deposits. However, antitrust policy is predicated on the assumption that banking markets are local in nature, and enforcement has focused on preventing bank mergers from increasing the concentration of local banking markets. The author finds little change over time in the average concentration of local banking markets or the average number of dominant banks in them, even during the recent financial crisis and recession when numerous bank failures and several large bank mergers occurred. Concentration did not increase substantially, on average, in markets where mergers occurred among banks when both the acquiring and acquired banks had existing local offices, though rural markets generally saw larger increases in concentration from such mergers than did urban markets. Although the structures of local banking markets, on average, have changed little since the mid-1980s, deposit concentration has continued to increase at the level of U.S. Census regions. As technology evolves and the costs of obtaining banking services from distant providers fall further, local market characteristics may become less relevant for analysis of competition in banking. [ABSTRACT FROM AUTHOR]

The authors document the provision of liquidity in Swiss francs (CHF) by the Swiss National Bank (SNB) to banks located outside Switzerland during the recent financial crisis. What makes the Swiss case special is the size of this liquidity provision-at times, 80 percent of all short-term CHF liquidity provided by the SNB-and the measures adopted to distribute this liquidity. In addition to making CHF available to other central banks via swap facilities, the SNB also allows banks outside Switzerland to directly participate in its repurchase agreement transactions. Although this policy was adopted for reasons predating the 2007-09 financial crisis, it proved tremendously helpful during the crisis by providing the European banking system direct access to the primary funding facility for CHF. [ABSTRACT FROM AUTHOR]

The article presents a reprint of the article "Quantitative Easing: Entrance and Exit Strategies," by the Federal Reserve Bank of St. Louis, Missouri, which appeared in the April 1, 2010 issue of "Review." It provides a comparison on the quantitative easing strategies used by the Federal Reserve to the Japanese experience in 2001 and 2006. It criticizes the central bank independence based on the quantitative easing.

This essay articulates the principles and practices of New Monetarism, the authors' label for a recent body of work on money, banking, payments, and asset markets. They first discuss methodological issues distinguishing their approach from others: New Monetarism has something in common with Old Monetarism, but there are also important differences; it has little in common with Keynesianism. They describe the principles of these schools and contrast them with their approach. To show how it works in practice, they build a benchmark New Monetarist model and use it to study several issues, including the cost of inflation, liquidity, and asset trading. They also develop a new model of banking. [ABSTRACT FROM AUTHOR]

The article presents a speech by economist Raghuram G. Rajan, delivered as the Homer Jones Memorial Lecture, organized by the Federal Bank of Saint Louis, Missouri, which he discussed the financial crisis that can be blamed on various factors and regulatory institutions as well as the changes in banking regulations.

The federal tax code creates challenges for comparing the profit rates of different banks on a consistent basis. The earnings of banks that elect to operate under subchapter S of the federal tax code are not subject to federal corporate income tax, but shareholders of these "S-banks" are taxed on their pro rata share of the entire earnings of the bank. The number of banks electing subchapter S tax treatment has increased rapidly, especially among small banks. The authors use estimates of the federal corporate income tax that S-banks would pay if they were subject to the tax to show that the difference in the tax treatment of S-banks and other banks has a large impact on measures of U.S. banking system profitability. Further, the article shows that adjustment of S-bank earnings by estimates of federal income taxes to make them comparable with the earnings of other banks can markedly affect conclusions of studies that use net income as a measure of performance. Finally, the article shows that S-banks (even after their earnings are reduced by estimated federal taxes) tend to out-earn their peers; S-banks also tend to have higher earnings rates than their peers in the year before they elect S-bank status. [ABSTRACT FROM AUTHOR]

The recent rapid appreciation of house prices in many U.S. markets has prompted concern over the possible effects of a sharp decline in prices, especially for commercial banks and other real estate lenders. This article examines regional real estate booms and busts in the 1980s and 1990s: Only about half of state house price booms were followed by a severe decline in prices, but large declines occurred in several states that did not have a prior boom. Banks in states that had large house price declines experienced high loan default rates and, thus, low profit and high failure rates. Although U.S. banks may have become more exposed to residential real estate recently, they appear less vulnerable to a decline in house prices than banks in states with large price declines in the earlier period. [ABSTRACT FROM AUTHOR]

Since 1990, the banking sector has experienced enormous legislative, technological, and financial changes, yet research into the causes of bank distress has slowed. One consequence is that traditional supervisory surveillance models may not capture important risks inherent in the current banking environment. After reviewing the history of these models, the authors provide empirical evidence that the characteristics of failing banks have changed in the past ten years and argue that the time is right for new research that employs new empirical techniques. In particular, dynamic models that use forward-looking variables and address various types of bank risk individually are promising lines of inquiry. Supervisory agencies have begun to move in these directions, and the authors describe several examples of this new generation of early-warning models that are not yet widely known among academic banking economists. [ABSTRACT FROM AUTHOR]

Discusses the transparency of a central bank to fulfill the accountability requirements of a democracy. Demands for unlimited, absolute transparency as a necessary counterpart of independence; Transparency and efficiency in monetary policy; Public announcement of a quantitative definition of price stability.

Investigates the effectiveness of the economic value model (EVM) by examining whether model estimates are correlated with community bank measures of interest rate sensitivity during periods of both rising and failing interest rates. Lines of inquiry regarding the interest rate sensitivity of depository institutions; Use of the regression analysis; Information on asset growth; Data on the relationship between EVM and the sensitivity ratings.

Deals with the antitrust analysis in the banking industry perform by federal bank regulatory agencies and the U.S. Department of Justice. Method of antitrust analysis in the banking industry; Evidence on the validity of the assumptions used in the analysis of bank mergers; Test of the structure-conduct-performance hypothesis.

Summarizes the results of a benchmark reconstruction of the adjusted monetary base and adjusted bank reserves data of the Federal Reserve Bank of Saint Louis in Missouri. Role of the monetary base in monetary policy; Effects of changes in statutory reserve requirements; Information on seasonal adjustment of the adjusted monetary base and total reserves.

Describes a way for a lender to implement self-monitoring of its lending process. Steps that a self-monitoring process should follow; Background on lending discrimination; Problems of self-monitoring; Role of bank examiners and regulators.

Focuses on how the removal of limits on bank entry and expansion affected the economic performance of the U.S. History of banking regulations in the country; Effects of bank deregulation; Annual growth rate of the U.S.

Presents a study that examined the effect of bank competition on the life-cycle dynamics of industrial sectors. Data on industry structure; Banking deregulation by census region; Effect of bank competition on the rates of job creation.

Discusses studies on the controversial issue of whether financial systems play a critical role in determining long-run rates of economic growth. Data on the growth financial intermediary development from 1960 to 1989; Information on the cross-country studies of growth; Analysis of industry- and firm-level research on the finance growth nexus; Details of the stock markets, banks and economic growth.

Discusses the evolution of the financial market. Costs of accessing the banking system in developing countries; Reason for low utilization rates of banks; Percentage of families that do not have a checking account in the U.S. as of July 2003; Role of money growth rate in agents' decisions about whether to utilize banks.

Examines the conditions of U.S. commercial banks of various sizes since the early 1990s, with an emphasis on differences between the condition of community banks and larger banks. Importance of the condition of the banking industry; Trends in the condition of banks; Simulation of an early warning model.

Presents a study which investigated the empirical relationship between the performance of rural banks and local economic activity. Reason for the possible vulnerability of banks with geographically concentrated operations to local economic contractions; Reliability of county-level economic data; Policy implications that arise from the results of the study.

Provides information on a study which investigated the interaction between banks and credit unions in local markets in the United States. Model of bank-credit union competition; Data and empirical methods; Conclusion.

Presents information on a study which examined the extent to which large banking organizations in the United States have expanded their presence in rural areas during the period of relaxation in constraints on multioffice banking in the 1980s and early 1990s. Possible effects of large banking organizations on rural banking markets; Method in measuring the presence of large banking organizations in rural areas; Results and conclusion.

Examines the experience of the transition economies of the Czech Republic, Hungary and Poland. Efforts toward the creation of a banking system; Evolution of monetary policy; Approaches to managing inflation.

Presents background on credit unions and the debate they have spurred in the United States (US). Overview of credit unions in US; Legislative history of credit unions in US; Information on the debate among credit unions; Details on the model of credit-union formation and consolidation; Conclusions.

Provides information on a study which presented two distinct measures of inertia in the target federal funds rate changes. Discrete nature of target changes; Examination of Taylor-rule specification of the target federal funds rate; Conclusions.

Looks at the daily vault cash balances in the Eighth Federal Reserve District in the United States. Historical movement of vault cash as a percent of demand deposits at depository institutions from 1930 to 1997; Total required reserves and vault cash held by banks in the Eight District; Why banks manage vault cash. INSETS: Varying requirements for nonmember banks;A closer look at the reserve requirements picture;Derivation of the (S, s) inventory rule.

Opinion. Presents the author's view on the article of Rolnick, Smith and Weber about the Suffolk Banking System. Assertion that the interbank borrowing and lending market will provide a monopoly in payment services; Considerations regarding the Suffolk System; Effect of branching restrictions to the cost of producing payment services.