scholarly journals The US banking system: does the size of the institution matter to its economic-financial situation?

2020 ◽  
pp. 19-19
Author(s):  
José Alejandro Fernández Fernández ◽  
Virginia Vázquez ◽  
Juan Antonio Vicente Virseda
Keyword(s):  
Neural Network ◽  
Moral Hazard ◽  
Deposit Insurance ◽  
Banking System ◽  
Factorial Analysis ◽  
Financial Situation ◽  
Financial Variables ◽  
The Us ◽  
Federal Deposit Insurance ◽  
The Relationship

This paper analyzes the relationship between the size of the entities in the US banking system and their economic-financial situation. The objective of this study is to group different economic and financial variables of the entities together into factors that characterize the US banking system and identify and identify how the factors vary according to the size of the entities. To do this, we start from the values taken by 32 economic-financial and regulatory ratios, obtained directly from the Federal Deposit Insurance Corporation (FDIC), for a period between the first quarter of 1990 and the penultimate of 2016. With this data it is performed a factorial analysis that allows synthesizing the 32 variables in 7 factors and, at the same time, obtaining relationships between these variables and the size and between themselves. Finally, through a neural network, the previous factors are hierarchized according to the influence that the size of the entities exerts on them. Among the conclusions reached, it should be noted that the loan structure is the factor that best classifies the size. It also determines the existence of a negative ?profitability-solvency? relationship with larger entities, (Assets> $ 250 B.) and smaller ones (Assets <$ 100 M.), as well as demonstrating the existence of moral hazard and the need for regulation that limits said risk (because the largest entities are the least solvent and assume the most risks).

scholarly journals The paradoxical genesis of too-big-to-fail

2014 ◽  
Vol 3 (1) ◽  
pp. 28-41
Author(s):  
Thomas Umlauft
Keyword(s):  
Financial Crisis ◽  
Deposit Insurance ◽  
Banking System ◽  
Political Support ◽  
Too Big To Fail ◽  
Small Unit ◽  
The Public ◽  
The Us ◽  
Small Banks ◽  
Federal Deposit Insurance

At least since the Global Financial Crisis of 2007-2009, the problem of too-big-to-fail (TBTF) has received widespread attention. The research conducted in this context has, however, generally focused on the econometric aspect and the contribution of the TBTF doctrine to the financial crisis of 2007-2009, while the economic historical approach has been confined to tracing the doctrine to its first appearance. This paper attempts to fill this gap in the academic literature by offering an explanation for why, as opposed to how, the TBTF doctrine has developed. This paper identifies the US population’s distrust and at times hostility against the prospect of concentration of power in large financial institutions as the causal factor leading to the TBTF phenomenon. The resulting socially non-optimal regulation favoured a fragmented and fragile banking system based on small unit banks at the cost of more diversified branch banks. The Great Depression impressively highlighted the deep structural flaws of the US banking system. At the same time, however, it caused a shift in the public opinion, which had generally been opposed to deposit insurance, and thereby aligned the public interest with that of small banks, which would profit most from deposit insurance. The newly acquired public and political support enabled weak unit banks to lobby successfully against reforming the banking structure and instead for the adaption of federal deposit insurance. However, the Federal Deposit Insurance Corporation (FDIC) only addressed the symptoms of the weak banking industry but not its causes. Moreover, the strongly biased FDIC policies have generally favoured creditors at large banks, which ultimately led to the TBTF doctrine which, in turn, provided banks with a non-technical incentive to grow in size in order to gain TBTF protection. Initially aimed at preserving the US financial landscape based on small unit banks, the FDIC as the main conduit for TBTF rescues thus became the main driver for big bank corporate welfare. Deposit insurance gave rise to TBTF and, at the same time, put small banks deemed “too-small-to-safe” at a competitive disadvantage, further accelerating the trend towards increasingly large and complex banks.

Competitive aggressiveness, community banking and performance

2020 ◽  
Vol 13 (2) ◽  
pp. 221-240
Author(s):  
Jeff Stambaugh ◽  
G. T. Lumpkin ◽  
Ronald K. Mitchell ◽  
Keith Brigham ◽  
Claudia Cogliser
Keyword(s):  
Structural Equation ◽  
Deposit Insurance ◽  
Equation Modeling ◽  
Hierarchical Regression ◽  
Content Type ◽  
The Us ◽  
Competitive Aggressiveness ◽  
And Performance ◽  
Federal Deposit Insurance ◽  
Competitive Actions

PurposeThe purpose of this paper is to develop and empirically test a conceptualization of competitive aggressiveness (CA), a dimension of entrepreneurial orientation.Design/methodology/approachStructural equation modeling and hierarchical regression are employed on responses from 182 banks in the southwestern US Performance data on the banks are drawn from the US Federal Deposit Insurance Corporation's (FDIC's) Call reports.FindingsThe results indicate awareness, motivation and capability are antecedents of CA, which itself is positively related to increased market share and, in more dense markets, profitability.Practical implicationsAggressive firms exhibit certain routines that can lead to competitive actions, which assists performance in some contexts. Managers who wish to increase (or decrease) their firms' overall competitive posture can encourage (or discourage) employees from performing competitive routines such as monitoring their rivals or talking about their rivals' strategies.Originality/valueBy developing CA' conceptualization, the study advances the understanding of the antecedents of competitive behavior and makes it easier to study competition in smaller firms.

13 Resolution in the UK and US: Variations to the Same Goals

2016 ◽  
Author(s):  
Krimminger Michael
Keyword(s):  
Deposit Insurance ◽  
Global Financial Crisis ◽  
Single Point ◽  
Insurance Fund ◽  
Troubled Asset Relief Program ◽  
Point Of Entry ◽  
The Us ◽  
The Uk ◽  
Federal Deposit Insurance ◽  
National Governments

This chapter explores the US and UK’s response to the 2007–9 Global Financial Crisis. In both cases, funding for the resolution and restructuring of failing financial companies came from public sources-generally national governments and central banks funded by the private creditors or other private sources. In the UK, the resolution actions relied solely on taxpayer financing. In the US, the government’s actions relied on Federal Reserve funding, Treasury funding through the Troubled Asset Relief Program (TARP), and Federal Deposit Insurance Corporation (FDIC) funding from the Deposit Insurance Fund. The chapter also assesses the role of bail-in under the Resolution Authorities and concludes with a brief summary of the UK and EU approach to single point of entry (SPOE) strategy.

scholarly journals Building Econometric Model for Inflation and Unemployment Rate in Viet Nam and Myanmar

2019 ◽  
Vol 1 (1) ◽  
pp. 64
Author(s):  
Dinh TrAn Ngoc Huy, MBA
Keyword(s):  
Economic Crisis ◽  
Unemployment Rate ◽  
Econometric Model ◽  
Banking System ◽  
Viet Nam ◽  
Economic Factors ◽  
Unemployment Rates ◽  
The Us ◽  
Global Economic Crisis ◽  
The Relationship

<p><em>After the global economic crisis 2007-2011, Viet Nam and Myanmar economies experienced indirect and direct impacts on their economic, finance and banking system, and especially on unemployment rate. Although some economists have done researches on the relationship among macro economic factors such as: </em><em>C</em><em>onsumer </em><em>P</em><em>rice </em><em>I</em><em>ndex (CPI), inflation, GDP…, this paper aims to consider the interaction between macro economic factors such as Viet Nam inflation, US inflation and Viet Nam and Myanmar unemployment rates in the context Viet Nam and Myanmar economics receive impacts from global economic crisis. This is one main objective of this research paper. And the below chart shows us the fluctuation of Viet nam unemployment rate comparing to fluctuations of inflation in the US and in Viet Nam.</em><em></em></p>

scholarly journals FDICIA and Risk Shifting 1n the Banking Industry

2006 ◽  
Vol 7 (1) ◽  
pp. 87-116
Author(s):  
Seok-Weon Lee
Keyword(s):  
Moral Hazard ◽  
Risk Taking ◽  
Deposit Insurance ◽  
Banking Industry ◽  
Systematic Risk ◽  
Full Sample ◽  
Risk Taking Behavior ◽  
Federal Deposit Insurance ◽  
Asset Size ◽  
The U.S

This is an empirical study that examines how the Federal Deposit Insurance Corporation Improvement Act (FDICIA) of 1991 in the U.S. banking industry affects the moral hazard risk-taking incentives of banks. We find that FDICIA appears to be effective in significantly reducing the systematic risk-taking incentives of the banks. Considering that the banks' asset portfolios are necessarily largely systematic risk-related, the significant decrease in their systematic risk-taking incentives provides some evidence of the effectiveness of FDICIA. However, with respect to the nonsystematic risk-taking behavior, the results generally indicate statistically insignificant decreases in the risk-taking incentives after FDICIA. To well-diversified investors who can diversify nonsystematic risk away, nonsystematic risk may not be a risk any more. However, to maintain a sound banking environment and to reduce the risk to individual banks, this result implies that regulatory agents should monitor the banks’ nonsystematic risk-taking behavior more closely, as long as it is positively related to the banks’ failures. We further test the change in the risk-taking incentives by partitioning the full sample into two groups: Banks with higher moral hazard incentives as those with larger asset size and lower capital ratio and banks with lower moral hazard incentives as those with smaller asset size and higher capital ratio. The main result for this test is that, with FDICIA, the decrease in the risk-taking incentives of the banks with higher moral hazard incentives (larger asset-size and lower capital-ratio banks) is less than that of the banks with lower moral hazard incentives (smaller asset-size and higher capital-ratio banks), with respect to both systematic and nonsystematic risk-taking measures. Furthermore, the change in the nonsystematic risk-taking incentives of the banks with higher moral hazard incentives is rather mixed, while their systematic incentives are decreased. These findings imply that the regulatory agents should allocate more time and effort toward monitoring the banks with higher moral hazard incentives with particular emphasis on their nonsystematic risk-taking behavior.

scholarly journals Capital Adequacy, Deposit Insurance, and the Effect of Their Interaction on Bank Risk

2018 ◽  
Vol 11 (4) ◽  
pp. 79 ◽  
Author(s):  
Seksak Jumreornvong ◽  
Chanakarn Chakreyavanich ◽  
Sirimon Treepongkaruna ◽  
Pornsit Jiraporn
Keyword(s):  
Emerging Markets ◽  
Moral Hazard ◽  
Deposit Insurance ◽  
Banking System ◽  
Capital Adequacy ◽  
System Stability ◽  
Bank Risk ◽  
Safety Nets ◽  
Effect Analysis ◽  
Financial Architecture

This paper investigates how deposit insurance and capital adequacy affect bank risk for five developed and nine emerging markets over the period of 1992–2015. Although full coverage of deposit insurance induces moral hazard by banks, deposit insurance is still an effective tool, especially during the time of crisis. On the contrary, capital adequacy by itself does not effectively perform the monitoring role and leads to the asset substitution problem. Implementing the safety nets of both deposit insurance and capital adequacy together could be a sustainable financial architecture. Immediate-effect analysis reveals that the interplay between deposit insurance and capital adequacy is indispensable for banking system stability.

Part II The US Resolution Regime, 5 Fundamentals of Resolution Authority

2016 ◽  
Author(s):  
Gleeson Simon ◽  
Guynn Randall
Keyword(s):  
United States ◽  
Capital Structure ◽  
Deposit Insurance ◽  
Due Process ◽  
The United States ◽  
The Core ◽  
Current State ◽  
The Us ◽  
Insurance Programme ◽  
Federal Deposit Insurance

This chapter looks at the history and fundamental elements of resolution authority as it has been developed and used in the United States. The goal of resolution authority in the United States has been to deal with failed banks and other financial institutions in a manner that stems runs, avoids contagion and preserves critical operations, the same goal as deposit guarantee schemes. First introduced in the United States in 1933 as part of the deposit insurance programme for banks, resolution authority was originally little more than the method by which the Federal Deposit Insurance Corporation honoured its obligations to insured depositors before evolving to its current state. Resolution authority, as conceived in the United States, has two principal components—the core resolution powers and the claims process. The core resolution powers consist of the authority to quickly separate the assets and viable parts of a failed bank's business (the good bank) from its capital structure liabilities (the bad bank), so that its critical operations are preserved and runs and contagion are avoided. It is virtually always completed in the United States over a weekend commonly known as resolution weekend. The claims process involves determining the validity and amount of the claims of individual holders of capital structure liabilities in accordance with ordinary principles of due process and distributing the residual value of the good bank to such holders in satisfaction of their claims. The claims process typically takes at least six to nine months to be completed in order to comply with ordinary principles of due process for potential claimants.

Bank Resolution and Crisis Management

2016 ◽  
Author(s):  
Gleeson Simon ◽  
Guynn Randall
Keyword(s):  
Deposit Insurance ◽  
Global Financial Crisis ◽  
Policy Makers ◽  
The Great Depression ◽  
Bank Resolution ◽  
The Us ◽  
Bankruptcy Code ◽  
The Uk ◽  
Federal Deposit Insurance ◽  
Financial Transactions

The 2008 global financial crisis ushered in the biggest explosion in new bank regulation around the world since the Great Depression. Governments and regulators have sought to put measures in place to prevent the failure of banks, but have acknowledged the need for measures to address what happens when banks fail or are threatened with failure. This book deals with the measures which European, US, and international law and policy-makers have sought to put in place to manage failure of financial institutions. Measures such as ‘bail-out’ (protecting private shareholders and creditors against losses) and ‘bail-in’ (imposing losses on shareholders and long-term creditors without causing contagion among short-term creditors) are discussed. The work includes summaries and commentary on the EU Bank Recovery and Resolution Directive, the UK resolution laws including the Banking Act 2009 and amendments to that Act, the Orderly Liquidation Authority under Title II of the US Dodd‒Frank Act, resolution under Chapter 11 of the US Bankruptcy Code, the proposed new Chapter 14 to the US Bankruptcy Code, and the bank resolution provisions of the US Federal Deposit Insurance Act. Special emphasis is given to the practical effect of such measures on financial transactions and their impact on arrangements, such as netting and set-off. There is also commentary on the role of depositor protection schemes and their role in returning money to the depositors in a failing bank.

scholarly journals TATA KELOLA SISTEM PENJAMINAN SIMPANAN PERBANKAN DI INDONESIA

2020 ◽  
Vol 2 (2) ◽  
pp. 113-125
Author(s):  
Sjafruddin Sjafruddin ◽  
Iskandar Iskandar
Keyword(s):  
Interest Rate ◽  
Moral Hazard ◽  
Risk Taking ◽  
Deposit Insurance ◽  
Banking System ◽  
Public Confidence ◽  
Insurance System ◽  
Deposit Insurance System ◽  
Governance Process ◽  
The Government

The ratification of Law Number 24 of 2004 concerning the Deposit Insurance Corporation (LPS) marks the formal process of institutionalizing the deposit insurance system in Indonesian banking. After the banking systemic crisis in 1997 that hit various countries including Indonesia, the government made various stabilization and reform policies in the financial sector to improve the banking system. The blanket guarantee policy for bank customer deposits in 1998 with no limits (blanket guarantee) restored public confidence in banks, but on the other hand this guarantee also created a moral hazard risk for banks. The existence of the LPS ended the unlimited deposit insurance system by limiting the guarantee in the form of a deposit insurance limit and a guaranteed interest rate known as the LPS interest rate. This article attempts to describe and analyze the institutionalization process and governance process in the deposit insurance system in Indonesia. The results show that the process of institutionalizing the deposit insurance system in Indonesia is carried out in stages by assessing banking risk taking and public perceptions of the banking industry in Indonesia. In the governance process, the LPS carries out its function as guarantor of deposits of depositors, LPS is tasked with determining and formulating policies for implementing deposit insurance and implementing deposit insurance. LPS makes payment of guarantee claims to depositors from banks whose business licenses have been revoked as long as they meet the requirements stipulated by the LPS Law.   Keywords: Deposit Insurance Agency, Institutionalization, Governance.     Abstrak Lahirnya Undang-Undang Nomor 24 Tahun 2004 tentang Lembaga Penjamin Simpanan (LPS) menandai proses formal institusionalisasi sistem penjaminan simpanan pada perbankan di Indonesia. Setelah Krisis sistemik perbankan tahun 1997 yang melanda berbagai negara termasuk Indonesia, pemerintah membuat berbagai kebijakan stabilisasi dan reformasi di sektor keuangan guna menyehatkan sistem perbankan. Kebiijakan penjaminan terhadap jumlah simpanan nasabah perbankan pada tahun 1998 dengan tanpa batasan (blanket guarantee) mengembalikan kepercayaan masyarakat terhadap perbankan, namun disisi lain jaminan tersebut juga menimbulkan risiko moral hazard bagi perbankan. Keberadaan LPS mengakhiri sistem penjaminan simpanan tanpa batas dengan membatasi penjaminan dalam bentuk limit penjaminan simpanan dan suku bunga yang dijamin yang dikenal dengan suku bunga LPS. Artikel ini mencoba memaparkan dan menganlisa proses institusionalisasi dan proses tata kelola (governance) pada sistem penjaminan simpanan di Indonesia. Hasilnya menunjukkan bahwa proses institusionalisasi sistem penjaminan simpanan di Indonesia dilakukan secara bertahap dengan menilai risk taking perbankan dan persepsi masyarakat terhadap industri perbankan di Indonesia. Dalam proses tata kelola, LPS menjalankan fungsinya sebagai penjamin simpanan deposan, LPS bertugas menetapkan dan merumuskan kebijakan pelaksanaan penjaminan simpanan serta melaksanakan penjaminan simpanan. LPS melakukan pembayaran klaim penjaminan kepada deposan dari bank yang dicabut izin usahanya sepanjang telah memenuhi persyaratan yang telah ditetapkan oleh UU LPS.   Kata kunci: Lembaga Penjamin Simpanan, Institusionalisasi, Tata Kelola.

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