Previous studies of the announcement effects of relaxing administrative and legislative restraints show that signal events leading up to the enactment of the Financial Services Modernization Act (FSMA) increased the prices of several classes of financial-institution stocks. An unsettled question...

This paper investigates whether there is any consistency between banks' financial strength ratings (bank rating) and their risk-return profiles. It is expected that banks with high ratings tend to earn high expected returns for the risks they assume and thereby have a low probability of...

Growth in developing Asia will need to rely more on improvements in productivity growth and less on capital deepening. Although there is no single reform path to spur productivity growth, financial system deepening is central to a more efficient allocation of capital across sectors and can...

We study the effects of a bank’s engagement in trading. Traditional banking is relationship-based: not scalable, long-term oriented, with high implicit capital, and low risk (thanks to the law of large numbers). Trading is transactions-based: scalable, short-term, capital constrained, and with...

• This paper provides a specific proposal to limit the financial activities that are covered and thus subsidized by the government safety net in order to protect the financial system and the economy. The U.S. safety net, which consists of central bank loans to solvent but liquidity strained...

The application, or to be more precise, the misapplication of securitization in the mortgage market had fatal consequences for the financial sector worldwide. More over securitization techniques enabled single banks to reduce their individual risk while at the same time transferred greater risk...

The headline numbers appear to show that even as banks and financial intermediaries suffered large credit losses in the financial crisis of 2007-09, they raised substantial amounts of new capital, both from private investors and through government-funded capital injections. However, on closer...

The current financial crisis has been characterized as a “Minsky” moment, and as such provides the conditions required for a reregulation of the financial system similar to that of the New Deal banking reforms of the 1930s. However, Minsky’s theory was not one that dealt in moments but...

The extension of the subprime mortgage crisis to a global financial meltdown led to calls for fundamental reregulation of the United States financial system. However, that reregulation has been slow in implementation and the proposals under discussion are far from fundamental. One explanation...

The paper presents an econometric study of the two bank ratings assigned by Moody's Investors Service. We find the models based solely on public information can approximate the ratings reasonably well. It is demonstrated that Moody’s has a special approach for banks in developing countries and...