To infer whether banks really over-tighten lending standards during a credit crunch, this paper examines how future loan performance was related to loan growth and capital ratios during the credit crunch of the early 1990s. The main finding is poorer future loan performance for banks that...

Bank capital requirements would entail large social costs if they made resource allocation suboptimal and banking services costly by unduly limiting the banks' ability to lend. This paper considers three main factors that may make capital requirements relevant, namely, deposit insurance...

Potentially, public-private partnership (PPP) can significantly improve economic efficiency by combining the strengths of the public sector and the private sector. On the other hand, poorly designed PPPs may allow private partners to make excessive profits without making meaningful...

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...

This paper derives conditions under which concerns about relative income cause an individual's optimal share of the risky investment to increase with the aggregate share (rational herding). The model uses a measure of relative income that can flexibly capture the effects of both consumption...

The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 limits thrift goodwill that can be counted as regulatory capital. This paper examines if and why the goodwill clause adversely affected the market value of thrifts. Main findings are that good will had a large negative...

The current review of the 1988 Basel Capital Accord has put the spotlight on the ratios used to assess banks' capital adequacy. This article examines the effectiveness of three capital ratios - the first based on leverage, the second on gross revenues, and the third on risk-weighted assets - in...

This paper constructs a 10-year realized term premium from the 10-year zero coupon Treasury yield in year 0 and the ex post 3-month Treasury yields from years 0 to 10. The realized term premium swung wildly until the mid-1980's, and then fluctuated within a fairly stable range showing no trend....

In the Federal crop insurance program, the Federal Government prices insurance policies, shares the underwriting risk with private insurers, and allows private insurers to choose their risk share for each policy. This paper finds a strong negative relationship between the underwriting loss rate...