The Financial Modernization Act: evolution or revolution?

The Gramm-Leach-Bliley Act (GLBA) removed the barriers that separated commercial banking from investment banking, merchant banking, and insurance activities. Did this legislation revolutionize the financial services industry by allowing Financial Holding Companies (FHCs) to exploit revenue efficiencies and cost economies, or did it merely formalize an evolutionary process of deregulation that was already well underway? Our evidence refutes the notion that the GLBA was a revolutionary event, at least in the short run. Using a combination of market and accounting data, we find that, to date, FHC status has had little effect on bank performance. We do find, however, limited evidence that FHCs that were Section 20 affiliates before passage of the GLBA were able to further exploit the synergies between investment banking and commercial banking.Gramm-Leach-Bliley Act ; Banking law - United States ; Bank holding companies

Community bank performance in the presence of county economic shocks

A potentially troubling characteristic of the U.S. banking industry is the geographic concentration of many community banks* offices and operations. If geographic concentration of operations exposes banks to local market risk, we should observe a widespread decline in their financial performance following adverse economic shocks. By analyzing the performance of a sample of geographically concentrated U.S. community banks exposed to severe unemployment shocks in the 1990s, we find that banks are not particularly sensitive to local economic deterioration. Indeed, performance at banks in counties that suffered economic shocks is not statistically different from performance at banks that did not suffer economic shocks. These findings suggest that an additional supervisory tax such as higher capital requirements on banks with geographically concentrated operations is unwarranted. They also suggest that such banks are unlikely to reduce risk significantly through geographic expansion. Finally, bank supervisors should not rely systematically on county-level labor data to forecast or even to explain contemporaneous community bank performance. Rising county-level unemployment rates are consistent with both healthy and deteriorating bank performance.Community banks ; Regional economics

Economies of integration in banking: an application of the survivor principle

Despite the growing concentration of U.S. banking assets in mega-banks, most academic research finds that scale and scope economies are small. I apply the survivor principle to the banking industry between 1984 and 2002 and find that the so-called economies of integration are significant. These results hold after accounting for off-balance- sheet activities and after replicating the results at the holding company level. Regression analysis reveals that deregulation of branching restrictions, especially at the state level, played a significant role in allowing banks to exploit these economies. The results also suggest that, although the absolute number of community banks will decrease over time, community banks of all sizes will remain viable in the future. A likely explanation for the paradox of significant economies of integration and small estimated cost economies is that the size benefits to a bank come from sources other than cost efficiencies.Financial institutions ; Banks and banking

The demise of community banks? local economic shocks aren't to blame

A potentially troubling characteristic of the U.S. banking industry is the geographic concentration of many community banks* offices and operations. If geographic concentration of operations exposes banks to local market risk, we should observe a widespread decline in their financial performance following adverse local economic shocks. In addition, geographic diversification should help banks reduce risk significantly. By analyzing the performance of geographically concentrated U.S. community banks exposed to severe unemployment shocks in the 1990s, I find that banks are not systematically vulnerable to local economic deterioration. Indeed, differences in performance at banks in counties that suffered economic shocks relative to those that did not suffer economic shocks are either statistically insignificant or economically small. These findings suggest that banks are unlikely to engage in mergers and acquisitions primarily to reduce local market risk because that risk source is already low. This result bodes well for the continued existence of geographically concentrated community banks, though scale and scope economies will continue to reduce their numbers relative to larger banks.Community banks ; Regional economics

Noise figure measurement concept for acoustic amplifiers

Optimum length buffer crystals are used with an amplification section for measuring the noise figure for acoustic amplifiers. Measuring the time required to saturate with noise a signal, which is reflected back and forth in the circuit, gives a direct measurement of the amplifiers noise figure

What does the Federal Reserve’s economic value model tell us about interest rate risk at U.S. community banks?

The savings and loan crisis of the 1980s revealed the vulnerability of some depository institutions to changes in interest rates. Since that episode, U.S. bank supervisors have placed more emphasis on monitoring the interest rate risk of commercial banks. One outcome developed by economists at the Federal Reserve Board of Governors was a duration-based Economic Value Model (EVM) designed to estimate the interest rate sensitivity of banks. ; We test whether measures derived from the Fed’s EVM are correlated with the interest rate sensitivity of U.S. community banks. The answer to this question is important because bank supervisors rely on EVM measures for monitoring and scoping bank-level interest rate sensitivity. ; We find that the Federal Reserve’s EVM is indeed correlated with banks’ interest rate sensitivity and conclude that supervisors can rely on this tool to help assess a bank’s interest rate risk. Our results are consistent with prior research that finds the average interest rate risk at banks to be modest, though we do not consider the potential interaction between interest rate risk and other risk factors.Community banks ; Risk management ; Interest rates

Are the causes of bank distress changing? can researchers keep up?

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 current supervisory surveillance models may no longer accurately represent the banking environment. After reviewing the history of these models, we provide empirical evidence that the characteristics of failing banks has changed in the last ten years and argue that the time is right for new research employing new empirical techniques. In particular, dynamic models that utilize 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 we describe several examples of this new generation of early-warning models that are not yet widely known among academic banking economists.Bank failures ; Bank supervision

Are small rural banks vulnerable to local economic downturns?

A potentially troubling characteristic of the U.S. banking industry is the geographic concentration of many banks’ offices and operations. Historically, banking laws have prevented U.S. banks from branching into other counties and states. A potential adverse consequence of these regulations was to leave banks—especially small rural banks—vulnerable to local economic downturns. If geographic concentration of bank offices leaves banks vulnerable to local economic downturns, we should observe a significant correlation between bank performance and the local economy. Looking at Eighth District banks, however, we find little connection between the dispersion of a bank’s offices and its ability to insulate itself from localized economic shocks. County-level economic data are weakly correlated with bank performance. Two policy implications follow from this finding. First, a priori, little justification exists for imposing more stringent regulatory requirements on banks with geographically concentrated operations than on other banks. Second, county-level labor and income data do not appear to be systematically useful in the bank supervision process.Rural areas ; Banks and banking ; Economic conditions - United States

What does the Federal Reserve's economic value model tell us about interest rate risk at U.S. community banks?

The savings and loan crisis of the 1980s revealed the vulnerability of some depository institutions to changes in interest rates. Since that episode, U.S. bank supervisors have placed more emphasis on monitoring the interest rate risk of commercial banks. Economists at the Board of Governors of the Federal Reserve System developed a duration-based economic value model (EVM) designed to estimate the interest rate sensitivity of banks. The authors test whether measures derived from the Fed’s EVM are correlated with the interest rate sensitivity of U.S. community banks. The answer to this question is important because bank supervisors rely on EVM measures for monitoring and risk-scoping bank-level interest rate sensitivity. The authors find that the Federal Reserve’s EVM is indeed correlated with banks’ interest rate sensitivity and conclude that supervisors can rely on this tool to help assess a bank’s interest rate risk. These results are consistent with prior research that finds the average interest rate risk at banks to be modest, though the potential interaction between interest rate risk and other risk factors is not considered here.Risk management ; Interest rates ; Banks and banking

Summary of electrical component development for a 400-hertz Brayton energy conversion system

Design, fabrication, and testing of 12-kilowatt inductor alternator, voltage regulator-exciter, and parasitic loading speed controller - summar