Showing papers by "James R. Barth published in 2014"

The Dodd-Frank Act: Key Features, Implementation Progress, and Financial System Impact

Abstract: The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) of 2010 provides for a wide variety of new regulatory and supervisory initiatives with the goal to promote a safer and sounder banking system. Our paper puts Dodd-Frank into a historical perspective, identifies its key features, discusses the implementation progress, and assesses whether the law will accomplish its objectives. We conclude that the approach in the law to financial regulatory reform is best described as a Band-Aid approach to financial regulation. A better approach in our view is one that strengthens market discipline on bank risk-taking and enhances competition so as to reduce the regulatory burden and enhance the efficiency and stability of the financial system. Dodd-Frank pays lip service to this objective with the creation of an Orderly Liquidation Authority and the Financial Stability Oversight Council, with the effectiveness of both these new bodies being very much in doubt.

Financial Innovations and the Stability of the Housing Market

Abstract: The recent crisis has underlined the importance of the interaction of financial innovations and the housing market. We consider five major innovations relevant to housing finance. These are (i) mortgages; (ii) specialised housing finance institutions; (iii) government interventions in housing finance in the US during the Great Depression; (iv) covered bonds; and (v) securitised mortgages. The history of these innovations and their positive and negative aspects are discussed. Future innovations to help the stability of the housing market are also suggested.

Misdiagnosis: Incomplete Cures of Financial Regulatory Failures

Abstract: In the aftermath of the global financial crisis, U.S. authorities are attempting to improve financial regulation and supervision. This involves a three-step process: (1) diagnosis of what went wrong, (2) design regulatory and supervisory reforms that address these defects, and (3) implement the corrective reforms. In our paper, we argue that ongoing efforts to enhance U.S. financial regulation and supervision have faltered along each of these three dimensions. We support our arguments with several specific example that highlight deficiencies in the diagnosis of and policy response to the financial crisis. The focus is on regulatory and supervisory reforms since 2009. It is documented that the U.S. authorities misdiagnosed the causes of the crisis both by over-emphasizing factors that did not play decisive roles in causing the onset or the severity of the crisis and by under-emphasizing factors that did. As a result of the misdiagnosis, we explain how many of the reforms advanced by the authorities will do little to fix problems with the regulations and supervision of financial markets and institutions and improve the safety and soundness of the U.S. financial system.

An Analysis of Resolving Too-Big-to-Fail Banks Throughout the United States

Abstract: The belief that some banks are too big to fail became reality during the financial crisis of 2007-2009 when the biggest banks in the United States were bailed out. Since then, big banks have grown much bigger and have become increasingly complex. This development has led to far greater attention on the need to resolve the too-big-to fail-problem. This paper examines the way in which the Federal Deposit Insurance Corporation has resolved troubled banks over time and throughout the various regions of the nation. The paper also examines post-crisis regulatory reform by focusing on the new orderly liquidation authority the Dodd-Frank Act provides to the FDIC to serve as the receiver for big banks whose failure poses a significant risk to the country's financial stability. We assess whether this process will indeed eliminate the too-big-to-fail problem.

Banking Structure and Regulation in 1993 and 2013: A Cross-Country Comparison

Abstract: After two decades of extreme turbulence in banking and financial markets around the world, it is reasonable to ask about the current status of banking regulation and supervision. Our unique starting point for answering that question comes from the fact that 20 years ago we developed the first detailed, multi-country database on banking regulation and supervision. We now compare that 1993 data – the oldest of its kind available – for 19 developed market economies to similar data from the most recent (2011-2012) World Bank survey on banking supervision and regulation. Key observations emerging from our intertemporal cross-country analysis include the following: (1) The very largest banks retain the same kind of dominance in 2011 as they did 20 years ago (before the continued occurrence of ever-more serious financial crises). (2) In the case of some basic banking activities, including funding practices, the nature of systemic risks seems to have remained the same, if not worsened, over time. (3) In at least one respect – scope of coverage – deposit insurance schemes have changed in a way that encourages moral hazard behavior. These observations suggest that there is much more work to be done to address banking risks, starting with the collection and analysis of additional data to help us understand how well banking policies and practices are succeeding around the world.

Banks and Payday Lenders: Friends or Foes?

Abstract: We investigate geographic distribution of payday lenders and banks that operate throughout the United States. We examine the relation between the number of payday lender stores and various demographic and economic characteristics.