Working Paper Archives
Federal Reserve Bank of St. Louis working papers are preliminary materials circulated to stimulate discussion and critial comment.
Banking
Too Big to Cheat: Efficiency and Investment in Partnerships
This paper studies the efficient arrangement among several agents that are subject to idiosyncratic, privately observed taste shocks affecting their marginal utility of current consumption.
The Lender of Last Resort: Lessons from the Fed’s First 100 Years
We review the responses of the Federal Reserve to financial crises over the past 100 years. The authors of the Federal Reserve Act in 1913 created an institution that they hoped would prevent banking panics from occurring.
Bankruptcy and Delinquency in a Model of Unsecured Debt
Limited commitment for the repayment of unsecured consumer debt originates from two places: (i) formal bankruptcy laws granting a partial or complete legal removal of unsecured debts under certain circumstances, and (ii) informal default followed by renegotiation, "delinquency."
Why Doesn’t Technology Flow from Rich to Poor Countries?
What determines the technology that a country adopts? While there could be many factors, the efficiency of the country’s financial system may play a significant role.
Loan Regulation and Child Labor in Rural India
We study the impact of loan regulation in rural India on child labor with an overlapping-generations model of formal and informal lending, human capital accumulation, adverse selection, and differentiated risk types.
Econometric Modeling of Exchange Rate Volatility and Jumps
This chapter reviews the rapid advances in foreign exchange volatility modeling made in the last three decades.
Federal Reserve Lending to Troubled Banks During the Financial Crisis, 2007-10
Numerous commentaries have questioned both the legality and appropriateness of Federal Reserve lending to banks during the recent financial crisis.
Did Affordable Housing Legislation Contribute to the Subprime Securities Boom?
No. In this paper we use a regression discontinuity approach to investigate whether affordable housing policies influenced origination or affected prices of subprime mort- gages.
Basel Accord and Financial Intermediation: The Impact of Policy
This paper studies loan activity in a context where banks must follow Basel Accord-type rules and acquire financing from households. Loan activity typically decreases when entrepreneurs’ investment returns decline, and we study which type of policy could revigorate an economy in a trough.
Credit Scoring and Loan Default
This paper introduces a measure of credit score performance that abstracts from the influence of "situational factors." Using this measure, we study the role and effectiveness of credit scoring that underlied subprime securities during the mortgage boom of 2000-2006.
The Effect of Neighborhood Spillovers on Mortgage Selection
In this paper we analyze how spillovers in mortgage adoption affect mortgage product choice across neighborhoods and across borrowers of different racial or ethnic groups.
Race, Redlining, and Subprime Loan Pricing
We investigate whether race and ethnicity influenced subprime loan pricing during 2005, the peak of the subprime mortgage expansion. We combine loan-level data on the performance of non-prime securitized mortgages with individual- and neighborhood- level data on racial and ethnic characteristics for metropolitan areas in California and Florida.
Did Doubling Reserve Requirements Cause the Recession of 1937-1938? A Microeconomic Approach
In 1936-37, the Federal Reserve doubled the reserve requirements imposed on member banks. Ever since, the question of whether the doubling of reserve requirements increased reserve demand and produced a contraction of money and credit, and thereby helped to cause the recession of 1937-1938, has been a matter of controversy.
The Promise and Performance of the Federal Reserve as Lender of Last Resort 1914-1933
This paper examines the origins and early performance of the Federal Reserve as lender of last resort. The Fed was established to overcome the problems of the National Banking era, in particular an “inelastic” currency and the absence of an effective lender of last resort.
Financing Development: The Role of Information Costs
To address how technological progress in financial intermediation affects the economy, a costly state verification framework is embedded into the standard growth model. The framework has two novel ingredients.
Quantifying the Impact of Financial Development on Economic Development
How important is financial development for economic development? A costly state verification model of financial intermediation is presented to address this question.
The IT Revolution and the Unsecured Credit Market
The information technology (IT) revolution coincided with the transformation of the U.S. unsecured credit market.
This paper examines the impacts of banking market structure and regulation on economic growth using new data on banking market concentration and manufacturing industry-level growth rates for U.S. states during 1899-1929—a period when the manufacturing sector was expanding rapidly and restrictive branching laws segmented the U.S. banking system geographically.
Do Large Banks have Lower Costs? New Estimates of Returns to Scale for U.S. Banks
The number of commercial banks in the United States has fallen by more than 50 percent since 1984. This consolidation of the U.S. banking industry and the accompanying large increase in average (and median) bank size have prompted concerns about the effects of consolidation and increasing bank size on market competition and on the number of banks that regulators deem “too–big–to–fail.”
U.S. Commercial Bank Lending through 2008:Q4: New Evidence from Gross Credit Flows
What was hiding behind the aggregate commercial bank loans through the end of 2008? We use balance sheet data for every insured U.S. commercial bank from 1999:Q1 to 2008:Q4 to construct credit expansion and credit contraction series and provide new evidence on changes in lending.
The Evolution of Cost-Productivity and Efficiency Among U.S. Credit Unions
Advances in information-processing technology have significantly eroded the advantages of small scale and proximity to customers that traditionally enabled community banks and other small-scale lenders to thrive.
U.S. credit unions serve 93 million members, hold 10 percent of U.S. savings deposits, and make 13.2 percent of all non-revolving consumer loans. Since 1985, the share of U.S. depository institution assets held by credit unions has nearly doubled, and the average (inflation-adjusted) size of credit unions has increased over 600 percent.
The Loan Structure and Housing Tenure Decisions in an Equilibrium Model of Mortgage Choice
The objective of this paper is to understand how loan structure affects (i) the borrower’s selection of a mortgage contract and (ii) the aggregate economy. We develop a quantitative equilibrium theory of mortgage choice where households can choose from a menu of long-term (nominal) mortgage loans.
We explore the relationship between disaggregated trading flows, the Canada/U.S. dollar (CAD/USD) market and U.S. macroeconomic announcements with a novel data set of unprecedented breadth and length. <a href="http://research.stlouisfed.org/econ/cneely/Data_Appendix_The_Dynamic_Interaction.pdf">Data Appendix</a>.
Lending to Uncreditworthy Borrowers
We study optimal lending behavior under adverse selection in environments with hetero- geneous borrowers specifically, where the borrower’s reservation payoffs (outside options) increase with quality (creditworthiness).
Affiliated Mutual Funds and Analyst Optimism
Prior studies have shown that investment banking affiliations place pressure on analysts to produce optimistic recommendations on the investment bank’s stock-clients.
Despite the increasing use of electronic payments, currency retains an important role in the payment system of every country. In this article, the authors compare and contrast tradeoffs among currency design features, including those primarily intended to deter counterfeiting and ones to improve usability by the visually impaired.
Social Learning and Monetary Policy Rules
We analyze the effects of social learning in a widely-studied monetary policy context.
Strategic Online-Banking Adoption
In this paper we study the determinants of banks' decision to adopt a transactional web-site for their customers.
Foreign Entry and Bank Competition
Foreign entry and bank competition are modeled as the interaction between asymmetrically informed principals: the entrant uses collateral as a screening device to contest the incumbent's informational advantage. Both better information ex ante and stronger legal protection ex post are shown to facilitate the entry of low-cost outside competitors into credit markets.
