This paper presents a tabletop exercise designed to analyze macroprudential policy. Several senior Federal Reserve officials were presented with a hypothetical economy as of 2020:Q2 in which commercial real estate and nonfinancial debt valuations were very high. After analyzing the economy and...

A multi-agent, moral-hazard model of a bank operating under deposit insurance and limited liability is used to analyze the connection between compensation of bank employees (below CEO) and bank risk. Limited liability with deposit insurance is a force that distorts effort down. However, the need...

Roddy Boyd's Fatal Risk: A Cautionary Tale of AIG's Corporate Suicide and Greg Farrell's Crash of the Titans: Greed, Hubris and the Fall of Merrill Lynch and the Near Collapse of Bank of America are reviewed to analyze why AIG and Merrill Lynch nearly failed during the financial crisis of...

Two of the most significant banking reforms to come out of the banking problems in the late 1980s and early 1990s were the increase in capital requirements from Basel 1 and the prompt corrective action (PCA) provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991...

An unresolved issue regarding the implementation of 'contingent capital' bonds regards identifying the best mechanism for triggering the conversion of debt into equity. This paper reports a laboratory experiment that builds on previous work to evaluate the relative desirability of two leading...

We document the effects of the recent financial crisis on the size distribution of U.S. commercial banks. There was a 14 percent drop in the number of banks from 2007 to 2013. Proportionally, the largest declines were to the smallest banks, those with less than $100 million in assets. This drop...

Various laws and policy proposals call for regulators to make use of the information reflected in market prices. We focus on a leading example of such a proposal, namely that bank supervision should make use of the market prices of traded bank securities. We study the theoretical underpinnings...

This paper studies bank capital regulation under deposit insurance when bank attributes and actions are private information. Banks are heterogenous in quality and choose both the mean and variance of their investment strategy. Regulatory tools include capital regulation and state-contingent...

A moral hazard model with exogenous bank franchise value is used to analyze bank capital regulation. Banks choose their capital structure as well as the riskiness and mean of their portfolio. The portfolio mean is determined by the level of costly screening. Screening and portfolio risk are...