A fixed-rate deposit insurance system provides a moral hazard for excessive risk taking and is not viable absent regulation. Although the deposit insurance system appears to have worked remarkably well over most of its 50-year history, major problems began to appear in the early 1980s. This...

Over the past decade, the banking industry has undergone rapid consolidation; indeed, on average, for the past three years there were more than two bank mergers every business day. Before the 1990s, most bank mergers involved banks with less than $1 billion in assets; more recently, even the...

Under the strong-form of market discipline, publicly traded banks that have constantly available public market signals from their stock (and bond) prices would take less risk than non-publicly traded banks because counterparties, borrowers, and regulators could react to adverse public market...

This paper examines the properties of X-inefficiencies in U.S. banking firms. We find that, after controlling for scale differences, the average small size banking firm is less efficient than the aerate large firm. Smaller firms also exhibit higher variation in X-inefficiencies than their larger...

This paper takes the parameters in central bank loss functions as fundamental preferences to be estimated from the data. It is these preferences (along with target values) that define the policy regime in operation and that potentially change with senior central bank appointments. Optimizing...

An “expansionary” monetary policy that increases the growth rate of bank reserves is generally believed by policy makers to induce a “liquidity effect”, or a persistent decline in short-term nominal interest rates, that stimulates real activity. Christiano, et al. (1991,1995,1997) have...

We examine a concerted debt reduction deal between a sovereign debtor, a private creditor, and an official creditor, who insures the deposits of the commercial bank. Our results show that a weakening of the financial position of the commercial bank reduces the contribution of the commercial bank...

The case for an independent central bank is becoming increasingly accepted. This new orthodoxy is based on three foundations: the success of the Bundesbank and the German economy over the past forty years; the theoretical academic literature on the inflationary bias of discretionary...