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During the 2008–09 financial crisis, the U.S. government arranged bailouts of major banks to prevent a suspension of bank deposits, where banks cease paying checks and refuse depositors’ requests to withdraw funds. Although these bailouts likely helped firms and households continue to make payments, they have been debated due to potential moral hazard concerns as well as the high cost to taxpayers. Assessing the costs and benefits of preventing deposit suspensions is difficult, as nationwide bank suspensions have not occurred since the Great Depression. To circumvent this challenge, Qian Chen, Christoffer Koch, Gary Richardson, and Padma Sharma study the effects of more recent deposit suspensions at the state level (Nebraska in 1983, Ohio and Maryland in 1985, and Rhode Island in 1991). They find that the suspension in Rhode Island, which occurred during a recession, lowered employment, gross state product, and per capital personal income. Their results suggest that interventions that prevent large deposit suspensions during recessions, such as those undertaken after 2008, are likely worth the costs. Effective interventions not only help avoid economic losses during recessions, but also prevent losses to output and employment several years into the future.

Starting in the 1990s, US bank assets grew more concentrated among a few large institutions. We explore the changing role of idiosyncratic volatility as a shaping force of the bank asset power law distribution. Our results reveal that idiosyncratic asset volatilities for bank-holding companies declined since the 1990s. To the extent that firm-specific shocks can have significant macroeconomic consequences, this result implies that even as one obvious source of aggregate risk and contagion--bank asset concentration--has increased, another important source--idiosyncratic volatility--has diminished.

Bank asset concentration has risen in the U.S. since the 1980s and declined in Europe since 2008. We decompose this rise and fall of big banks using rank-based empirical methods that characterize dynamic power law distributions into two shaping factors: the growth rates and idiosyncratic volatilities of assets for different size-ranked banks. Higher relative growth rates for the largest U.S. banks led to greater asset concentration. Idiosyncratic volatilities for U.S. banks declined, resulting in lower fundamental volatility of bank assets — the aggregate volatility due to idiosyncratic, bank-specific shocks — despite the rise in concentration since the 1990s. In contrast, the relative growth rates for the largest European banks declined and this led to the lower concentration of European bank assets. Over this same time period, the idiosyncratic volatilities and fundamental volatility of European bank assets have been stable.

Economic policy uncertainty affects decisions of households, businesses, policy makers and financial intermediaries. We first examine the impact of economic policy uncertainty on aggregate bank credit growth. Then we analyze commercial bank entity level data to gauge the effects of policy uncertainty on financial intermediaries’ lending. We exploit the cross-sectional heterogeneity to back out indirect evidence of its effects on businesses and households. We ask (i) whether, conditional on standard macroeconomic controls, economic policy uncertainty affected bank level credit growth, and (ii) whether there is variation in the impact related to banks’ balance sheet conditions; that is, whether the effects are attributable to loan demand or, if impact varies with bank level financial constraints, loan supply. We find that policy uncertainty has a significant negative effect on bank credit growth. Since this impact varies meaningfully with some bank characteristics – particularly the overall capital-to-assets ratio and bank asset liquidity-loan supply factors at least partially (and significantly) help determine the influence of policy uncertainty. Because other studies have found important macroeconomic effects of bank lending growth on the macroeconomy, our findings are consistent with the possibility that high economic policy uncertainty may have slowed the U.S. economic recovery from the Great Recession by restraining overall credit growth through the bank lending channel.

In the boom before the Great Depression, capital requirements for commercial banks were low and fixed. Bankers faced double liability. Failing banks were not bailed out. During the boom before the Great Recession, capital requirements were proportional to risk-weighted assets. Bankers faced limited liability. Banks deemed too big to fail received bailouts. During the 1920s, the largest banks increased capital levels as asset prices rose. During the boom from 2002 to 2007, the largest institutions kept capital levels near regulatory minimums. Our results suggest more market discipline would have induced the largest U.S. banks to hold greater capital buffers prior to the financial crisis of 2008.

Trust in the reported data of contagious diseases in real time is important for policy makers. Media and politicians have cast doubt on Chinese reported data on COVID-19 cases. We find Chinese confirmed infections match the distribution expected in Benford’s Law and are similar to that seen in the U.S. and Italy. We identify a more likely candidate for problems in the policy making process: Poor multilateral data sharing on testing and sampling., Highlights • We find no evidence of manipulation of Chinese COVID-19 data using Benford’s Law. • Models on the trade-off between growth and deaths can be calibrated with Chinese data. • Multilateral data sharing on testing and sampling will improve policy responses.

Cases the Federal Deposit Insurance Corporation (FDIC) pursues against the directors and officers of failed commercial banks for (gross) negligence are important for the corporate governance of U.S. commercial banks. These cases shape the kernel of bank corporate governance, as they guide expectations of bankers and regulators in defining the limits of unacceptable behaviour under financial distress, such as risk shifting. We examine the differences in behaviour of all 408 U.S. commercial banks that were taken into receivership between 2007 and 2012. Sued banks had different balance sheet dynamics relative to those who are not sued in the three years prior to failure. These banks were generally larger, faster growing, obtained riskier funding and tended to underprovision. We find evidence that boards of failing banks respond to litigation by reducing the use of riskier funding in an out-of-sample set of banks. Our results suggest the FDIC does set corporate governance standards for all banks by suing negligent directors and officers.

The U.S. banking sector has become substantially more concentrated since the 1990s, raising questions about both the causes and implications of this consolidation. We address these questions using nonparametric empirical methods that characterize dynamic power law distributions in terms of two shaping factors — the reversion rates (a measure of crosssectional mean reversion) and idiosyncratic volatilities of assets for different size-ranked banks. Using quarterly data for subsidiary commercial banks and thrifts and their parent bank-holding companies, we show that the greater concentration of U.S. bank-holding company assets is a result of lower mean reversion, a result consistent with policy changes such as interstate branching deregulation and the repeal of Glass-Steagall. In contrast, the greater concentration of both U.S. commercial bank and thrift assets is a result of higher idiosyncratic volatility, yet, idiosyncratic volatility of parent bank-holding company assets fell. This contrast suggests that diversification through non-banking activities has reduced the idiosyncratic asset volatilities of the largest bank-holding companies and affected systemic risk.

A substantial body of work has highlighted the distinctive personality trait levels of elected officials, but very little is known about the personality of those who actually implement the political will of these officials, namely, bureaucrats. We sent surveys to all Danish municipal politicians and high-level bureaucrats for whom contact information could be obtained (92% of total). With response rates of 53% and 40% for politicians and bureaucrats, respectively, our sample of political elites across the two groups represents the best-powered study of political elites to date. Responses to our 30-item Big Five survey (the BFI-2-S; Soto and John, 2017a; Vedel et al., 2020) highlighted substantial similarity among various categories of political elites. For example, differences between bureaucrats and elected officials were small on average, and less than half that observed in a recent study comparing Danish elected officials with a representative population sample (Nørgaard & Klemmensen, 2018). Comparisons between bureaucrats of different rank partially aligned with results on executive personality (Ones & Dilchert, 2009). Potential implications for effective political functioning and for meeting the needs of those with personalities diverging from those of political elites are briefly discussed.