This paper investigates the incentives for banks to bias their internally generated risk estimates. We are able to estimate bank biases at the credit level by comparing bank-generated risk estimates within loan syndicates. The biases are positively correlated with measures of regulatory capital,...

Pierret (2015) presents empirical analysis of the solvency-liquidity nexus for the banking system, documenting that a shock to the level of banks' solvency risk is followed by lower short-term debt. Conversely, higher short-term debt Granger-causes higher solvency risk. These results point...

Bank capital requirements are based on a mix of market values and book values. We investigate the effects of a policy change that ties regulatory capital to the market value of the "available-for-sale" investment securities portfolio for some banking organizations. Our analysis is based on...

The Basel I Accord introduced a discontinuity in required capital for undrawn credit commitments. While banks had to set aside capital when they extended commitments with maturities in excess of one year, short-term commitments were not subject to a capital requirement. The Basel II Accord...

We find evidence that the Federal Reserve stress tests (CCAR and DFAST) produce information about the stress-tested firms as well as other, non-stress-tested banking companies. Although standard event studies do not always show abnormal returns for the stress-tested sample on average, we argue...

Many large U.S. bank holding companies (BHCs) continued to pay dividends during the recent financial crisis, even as financial market conditions deteriorated, large losses accumulated, and emergency capital and liquidity were being provided by the official sector. In contrast, share repurchases...

The supplementary leverage ratio (SLR) rule recently imposed on the very largest U.S. banks has revived the question of whether banks sidestep such rules by shifting toward riskier, higher-yielding assets. Using difference-in-difference analysis, we find that, after the SLR was finalized in...

This paper explores the advantages of a new financial charter for large, complex, internationally active financial institutions that would address the corporate governance challenges of such organizations, including incentive problems in risk decisions and the complicated corporate and...

We study how monetary policy affects the funding composition of the banking sector. When monetary tightening reduces the retail deposit supply owing to, for example, a decrease in bank reserves or in money demand, banks try to substitute the deposit outflows with more wholesale funding in order...

In moral hazard models, bank shareholders have incentives to transfer wealth from the deposit insurer - that is, maximize put option value - by pursuing riskier strategies. For safe banks with large charter value, however, the risk-taking incentive is outweighed by the possibility of losing...