In January 1994, the Federal Reserve Board permitted a commercial bank to begin using a new type of computer software that dynamically reclassifies balances in its customer accounts from transaction deposits to a type of personal-saving deposit, the money market deposit account (MMDA).1 This reclassification reduces the bank’s statutory required reserves while leaving unchanged its customers’ p...

This paper uses micro-level historical data to examine the causes of bank failure. For statecharactered Kansas banks during 19 10-28, time-to-failure is explicitly modeled using a proportional hazards framework. In addition to standard financial ratios, this study includes membership in the voluntary state deposit insurance system and measures of technical efficiency to explain bank failure. Th...

Conventional wisdom contends that in order to assure financial stability, commercial banks require an elaborate federal regulatory and insurance structure and direct access to the central bank. Nonbank financial institutions apparently pose no threat and, therefore, merit less regulatory attention, no insurance, and no direct access to the central bank. Until relatively recently, the convention...

The goal of financial regulation is to enable banks to improve liquidity and solvency. Stricter regulation may be good for bank stability, but not for bank efficiency. This research aims to examine whether banks have met the CBRC’s standard of financial regulations and explores how the previously implemented financial regulations have affected bank efficiency and risk in the past. In addition, ...

We demonstrate that the common view according to which an increase in competition leads banks to increased risk taking fails to hold in an environment where homogeneous loss averse consumers can choose in which bank to make a deposit based on their knowledge of the riskiness incorporated in the banks’ outstanding loan portfolios. With an exclusive focus on imperfect competition we find that ban...

following changes in economic fields, monetary transmission mechanism has been equipped with different approaches. for example, introducing and then applying the first draft of basel committee’s capital requirement has portrayed new horizon in the monetary transmission mechanism discussions. while as the first step, it has been emphasized on the static role of bank’s capital; as the second step...

This paper reviews the main results of the economic literature explaining the existence of deposit insurance in its modern form. It is shown that deposit insurance is not the only means to cope with the problem of bank runs. Yet it is a prevailing solution for the banks dominate the credit channels in most economies the world over, and the modern payment systems are based on the convertibility ...

In this paper we study dollarization as a commitment device that the Central Bank could use to avoid getting involved in an undesirable banking-sector bailout. We show how a political process could induce an equilibrium outcome that differs from the one that a benevolent Central Bank would want to implement. Dollarization then could be used to restore the economy to the benevolent outcome. In s...

The question of whether private investors can discriminate between the risk taken by banks is empirically investigated by testing the risk sensitivity of European banks’ subordinated notes and debentures (SND) spreads. A unique dataset of spreads, ratings, accounting and market measures of bank risk is used for a sample of SND issued during the 1991-2000:Q1 period. Moody’s Bank Financial Streng...

Failure in bank corporate governance has been seen as a contributing factor to excessive risk-taking pre-crisis with devastating implications as risks realised during the financial crisis. Unfortunately, the empirical evidence on the impact of managerial incentives on bank crisis performance is scarce. Moreover, bank strategy has not previously been accounted for. Hence, this paper presents nov...