https://www.federalreserve.gov/pubs/feds/2003/200302/200302pap.pdf

The institutional memory hypothesis and the procyclicality of bank lending behavior

Organizational Transparency A New Perspective on Managing Trust in Organization-Stakeholder Relationships

We assess the market microstructure properties of U.S. banking firms? equity, to determine whether they exhibit more or less evidence of asset opaqueness than similar-sized nonbanking firms. The evidence strongly indicates that large banks (traded on the NYSE) have very similar trading properties to their matched nonfinancial firms, but smaller banks (traded on NASDAQ) trade much less frequently despite having very similar spreads. We also find strong empirical support for the hypothesis that bank asset categories differ in their opacity. Analysis of IBES earnings forecasts indicates that banks assets are not opaque; they are simply boring. The implications for regulatory policy and future market microstructure research are discussed.

/pdf/market-evidence-on-the-opaqueness-of-banking-firms-assets-383t6hdsu0.pdf

Market Evidence on the Opaqueness of Banking Firms' Assets

The overall impact of financial globalization on the domestic financial sector is profound. Liberalization of capital flows has effectively made domestic financial repression obsolete. The consequences have not been uniformly favorable. Following liberalization, domestic interest rates in developing countries have moved to a premium over industrial country rates, and can surge at times of currency speculation. Heightened interest rate and exchange rate volatility pose practical risk management difficulties for financial intermediaries and reinforce the need for appropriate infrastructures and incentives for risk containment, as well as for good macropolicies. On the other hand, the cost of equity capital has been reduced by allowing foreign investor access to local equity markets and allowing local firms to list abroad. Increased international flows through the equity markets have not been the major contributor to increased international sources of volatility. In addition to opening access to foreign-sourced financial services, more and more countries have been permitting foreign-owned banks and other financial firms to operate locally. Although this can represent a threat to domestic owners of financial firms, the drawback is outweighed by improved service quality. On all three fronts--debt, equity, and services--the costs and risks as well as the benefits of increased financial globalization. knowledges

https://mpra.ub.uni-muenchen.de/9929/1/mpra_paper_9929.pdf

Finance for Growth: Policy Choices in a Volatile World

One of the most feared events in banking is the cry of systemic risk. It matches the fear of a cry of fire in a crowded theater or other gatherings. But unlike "fire," the term "systemic risk" is less clearly defined. Moreover, unlike fire fighters, who are rarely accused of sparking or spreading rather than extinguishing fires, bank regulators have at times been accused of, albeit unintentionally, contributing to rather than retarding systemic risk. This paper discusses the alternative definitions and sources of systemic risk, reviews briefly the historical evidence of systemic risk in banking, describes how financial markets have traditionally protected themselves from systemic risk, evaluates the regulations adopted by bank regulators to reduce both the probability of systemic risk and the damage caused by it if and when it may occur, and makes recommendations for efficiently curtailing systemic risk in banking. I Systemic Risk Systemic risk refers to the risk or probability of breakdowns in an entire system, as opposed to breakdowns in individual parts or components, and is evidenced by comovements (correlation) among most or all the parts. Thus, systemic risk in banking is evidenced by high correlation and clustering of bank failures in a country, a number of countries, or globally. Systemic risk may also

What Is Systemic Risk, and Do Bank Regulators Retard or Contribute to It?

The Market Reaction to the Disclosure of Supervisory Actions: Implications for Bank Transparency

Operational risk is currently receiving significant media attention, as financial scandals have appeared regularly and multiple events have exceeded
one billion dollars in impact. Regulators have also been devoting attention
to this risk and are finalizing proposals that would require banks to hold
capital for potential operational losses. This paper uses newly available
loss data to model operational risk at internationally active banks. Our
results suggest that the amount of capital held for operational risk will
often exceed capital held for market risk and that the largest banks could
choose to allocate several billion dollars in capital to operational risk.

/pdf/capital-and-risk-new-evidence-on-implications-of-large-17fk6tjf3l.pdf

Capital and Risk: New Evidence on Implications of Large Operational Losses

Quantification of operational risk has received increased attention with the inclusion of an explicit capital charge for operational risk under the new Basle proposal. The proposal provides significant flexibility for banks to use internal models to estimate their operational risk, and the associated capital needed for unexpected losses. Most banks have used variants of value at risk models that estimate frequency, severity, and loss distributions. This paper examines the empirical regularities in operational loss data. Using loss data from six large internationally active banking institutions, we find that loss data by event types are quite similar across institutions. Furthermore, our results are consistent with economic capital numbers disclosed by some large banks, and also with the results of studies modeling losses using publicly available “external” loss data.

Implications of alternative operational risk modeling techniques

Quantification of operational risk has received increased attention with the inclusion of an explicit capital charge for operational risk under the new Basle proposal. The proposal provides significant flexibility for banks to use internal models to estimate their operational risk, and the associated capital needed for unexpected losses. Most banks have used variants of value at risk models that estimate frequency, severity, and loss distributions. This paper examines the empirical regularities in operational loss data. Using loss data from six large internationally active banking institutions, we find that loss data by event types are quite similar across institutions. Furthermore, our results are consistent with economic capital numbers disclosed by some large banks, and also with the results of studies modeling losses using publicly available "external" loss data.

Implications of Alternative Operational Risk Modeling Techniques

We examine the stock market reaction to announcements of formal supervisory actions. We find that the variation in the quality and timeliness of disclosure by U.S. banks explains much of the variation in the market's reactions. We also find that these announcements can cause spillover effects. However, rather than representing contagion, these spillover effects are consistent with enhanced transparency. Only banks in the same region as the announcing bank, with similar exposures, are affected. Thus, enhanced disclosure can improve the allocation of resources in the banking system.

John S. Jordan

Papers

The Market Reaction to the Disclosure of Supervisory Actions: Implications for Bank Transparency

Capital and Risk: New Evidence on Implications of Large Operational Losses

Implications of alternative operational risk modeling techniques

Implications of Alternative Operational Risk Modeling Techniques

The Market Reaction to the Disclosure of Supervisory Actions: Implications for Bank Transparency