Capital allocation for operational risk: implementation challenges for bank supervisors

Risk management

Market and risk management innovations: implications for safe and sound banking

This commentary reviews three of the major innovations suggested in Benston et al. (1986): movement toward greater risk-sensitive approaches, an enhanced role for market discipline and disclosure, and earlier intervention for troubled banks. The author then discusses environmental changes that may not have been anticipated two decades ago and some implications for bank supervision and regulation.Banks and banking ; Bank supervision

Defining financial stability, and some policy implications of applying the definition

Keynote remarks by Eric S. Rosengren, President and Chief Executive Officer, Federal Reserve Bank of Boston, at the Stanford Finance Forum, Graduate School of Business, Stanford University, June 3, 2011Financial institutions - Law and legislation ; Financial crises ; Financial stability

Elliptic hypergeometric functions associated with root systems

We give a survey of elliptic hypergeometric functions associated with root systems, comprised of three main parts. The first two form in essence an annotated table of the main evaluation and transformation formulas for elliptic hypergeometric integeral and series on root systems. The third and final part gives an introduction to Rains' elliptic Macdonald-Koornwinder theory (in part also developed by Coskun and Gustafson).Comment: 28 pages. Modulo minor edits this paper will appear as a chapter in the book "Multivariable Special Functions" (edited by Tom Koornwinder and Jasper Stokman) which is part of the Askey-Bateman project. This version: essential correction of equation (1.2.14) and some further minor correction

Economic cycles and bank health

Over the past two decades the United States has experienced substantial increases in the number of bank failures, however, surprisingly few banks have failed during the 2001 recession. This paper explores the relationship between economic cycles and bank health. We find that economic forecasts provide little additional information over bank-specific financial data during prosperous times, possibly because bank problems during these times are likely to be idiosyncratic to individual management decisions. However, economic forecasts become relevant during troubled economic periods, with poor economic conditions hindering a broader set of institutions.Bank failures

Bank lending and the transmission of monetary policy

Bank loans ; Monetary policy - United States ; New England ; Econometric models ; Bank capital

Crunching the recovery: bank capital and the role of bank credit

New England ; Bank supervision ; Bank capital ; Bank loans

Failed bank resolution and the collateral crunch: the advantages of adopting transferable puts

Current methods of failed bank resolution are unnecessarily expensive for taxpayers and impose substantial costs on borrowers at failed banks. This situation is due to distorted incentives imbedded in the standard contract between the government and acquirers of failed banks, which result in more loan foreclosures than if the loan were held by a well-capitalized bank. This paper proposes a modification to the standard contract in the form of a transferable put, which would introduce market-based incentives to the disposition of failed bank assets.Bank failures

Determinants of the Japan Premium: Actions Speak Louder Than Words

Since August 1995, Japanese banks have had to pay a premium on Eurodollar and Euroyen interbank loans relative to their U.S. and U.K. competitors. This so-called Japan premium' provides a market indicator of investor anxiety about the ability of Japanese banks to repay loans. We examine the determinants of the Japan premium and find that government announcements not associated with concrete actions had little impact. On the other hand, announcements of concrete actions by the Japanese government, such as injections of funds into the banking system, tended to have an effect on the size of the Japan premium.

Derivatives Activity at Troubled Banks

Derivatives have become an essential instrument for hedging risks, yet moral hazard can lead to their misuse by problem banks. Given that the absence of comprehensive data on bank derivatives activities prevents an accurate assessment of bank risk-taking, banks have an opportunity to take unmonitored second bets. Thus , troubled banks have the motive to increase risk, and derivatives provide the means to do so. The role of bank supervisors should be to limit the opportunity through more comprehensive data reporting requirements and closer supervisory scrutiny of derivatives activity at problem banks. Because a relatively large number of banks active in the derivatives market have low capital ratios and are considered institutions with a significant risk of failure by bank supervisors, the possible misuse of derivatives by troubled banks should be of concern to regulators. However, we find no evidence that the volume of derivatives activity at troubled banks affects the probability of formal regulatory intervention or even a downgrade in supervisory rating. This paper was presented at the Financial Institutions Center's October 1996 conference on "