Using market incentives to reform bank regulation and federal deposit insurance

A presentation of the case for adopting market-oriented reforms to our bank regulatory and federal deposit insurance systems.Deposit insurance ; Bank supervision

The cost of buying time: lessons from the thrift debacle

An argument that capital forbearance for thrifts in the 1980s was at best a misguided policy whose costs will have long-term consequences for the health of both the nation's depositories and the overall economy.Savings and loan associations

Errors in recorded security prices and the turn-of-the year effect

A study that concludes recorded security price errors are potential sources of misspecification in joint tests of the capital asset pricing model and market efficiency.Stock - Prices

FSLIC forbearances to stockholders and the value of savings and loan shares

An investigation of the value of FSLIC forbearances to the stockholders of insolvent stock-chartered thrift institutions, concluding that these forbearances increase the stock-market value of thrift institutions.Stocks ; Savings and loan associations ; Federal Savings and Loan Insurance Corporation

PSAF, economic capital, and the new Basel Accord

The 1980 Monetary Control Act requires Reserve Banks to recover their costs of providing payments services over time, including a normal return on capital-that is, the same after-tax return on equity that a private firm would require. To date, this private-sector adjustment factor has been estimated and applied as a single hurdle rate for all Reserve Bank payments services. Capital budgeting theory suggests that firms should use a different hurdle rate for each distinct type of activity according to its risks. For Reserve Bank payments services, this might entail estimating separate private-sector adjustment factors for paper-based services and for electronic services. Alternatively, a single hurdle rate of capital could be used for all services if capital were allocated to each service according to its risk.Bank capital ; Banks and banking - Accounting

The use of market information in pricing deposit insurance

An argument that information about the value of the deposit-insurance guarantee is available from market-generated data.Deposit insurance

On systemically important financial institutions and progressive systemic mitigation

One of the most important issues in the regulatory reform debate is that of systemically important financial institutions. This paper proposes a framework for identifying and supervising such institutions; the framework is designed to remove the advantages they derive from becoming systemically important and to give them more time-consistent incentives. It defines criteria for classifying firms as systemically important: size (the classic doctrine of too big to let fail) and the four C’s of systemic importance (contagion, concentration, correlation, and conditions); it also discusses the concept of progressive systemic mitigation.Systemic risk ; Financial stability ; Financial institutions

The national depositor preference law

A critical analysis of the probable effects of national depositor preference--a provision of the Omnibus Budget Reconciliation Act of 1993--showing that although the FDIC may experience some cost savings in the short term, the long-term benefits are likely to be greatly diminished.Bank failures ; Federal Deposit Insurance Corporation