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The results of this paper are not incompatible with the industry-equilibrium view put forward by Shleifer and Vishny (1992) and others, but it unmasks a channel of transmission from the macroeconomy.By Michal Kowalik (RWP 11-02 March 2011; Revised October 2012)The paper derives optimal capital requirements, when the bank’s quality is private information.
By Michal Kowalik (RWP 14-18, December 2014)This paper studies banks' decision whether to borrow from the interbank market or to sell assets in order to cover liquidity shortage in presence of credit risk. On the one hand, tradable assets decrease the cost of liquidity management.
On the other hand, uncertainty about credit risk of tradable assets might spread from the secondary market to the interbank market, lead to liquidity shortages and socially inefficient bank failures.
Over time, this increased emphasis on credit scoring coincided with deterioration in FICO performance largely due to the fact that higher credit score originations of later cohorts were more likely to have riskier attributes.
However, controlling for other attributes on originations and changes in economic conditions, we find that, as measures of borrower ranking, FICO performance on subprime loans over the years remains fairly stable.
Our findings suggest, however, that once banks issue equity under TARP, they are more likely to issue to private investors in the future.
Indeed, in some cases, banks issued equity to private investors to repurchase equity under TARP.Macroeconomic effects matter but they operate differentially at the industry level.I find that industries whose sales growth is more correlated with GDP growth recover less during recessions.By Lamont Black, Ioannis Floros and Rajdeep Sengupta (RWP 16-05, June 2016) We study bank equity issuance during 2001–14 by publicly traded U. banks through seasoned equity offerings (SEOs), private investment in public equity (PIPEs), and the Troubled Asset Relief Program (TARP).Our results show that private investors were an active and important source of bank recapitalization in the United States as issuance through SEOs and PIPEs peaked in the recent crisis.The paper shows that liquidity injections and liquidity requirements are effective in eliminating liquidity shortages and the asset purchases are not.The paper explains how collapse of markets for securitized assets contributed to the distress of the interbank markets in August 2007.Parametric and nonparametric estimates of credit score performance reveal different trends, especially on originations with low credit scores.The data suggest a trend of increased emphasis on higher credit scores accompanying a trend of increased riskiness in other origination attributes.We claim that poorer individuals are safer borrowers because they place more value on the relationship with the bank.We study the dynamics of a monopolistic bank granting loans and taking deposits from overlapping generations of entrepreneurs with different levels of expected income.