Upon Further Analysis — Archives

  • Baseball’s Black Swans

    A black swan refers to highly improbable but impactful events. While the term is most frequently used in a financial context, it can apply to other fields as well. Baseball is a good example, especially given its long history and emphasis on individual statistics. What were baseball’s greatest black swans? I’ll look at some notable…

  • Consolidating Regulators

    Recent news reports indicate the incoming administration is considering consolidating federal banking regulators as part of a broader effort to improve government efficiency. I went through two such consolidations during my 36-year career in bank supervision. Efficiency gains are likely to be meager, at best.  At the same time, having multiple banking regulators can undermine…

  • Deposit Modeling and Earnings at Risk

    A previous post discussed some of the challenges associated with modeling non-maturity deposits (NMD), especially with respect to economic value of equity (EVE). Deposit modeling for earnings-at-risk (EAR) is more tractable but presents challenges of its own. What is EAR? EAR looks at changes to net interest income from changes in market interest rates. Unlike…

  • Moral Hazard, Market Discipline, and a Tale of Two Banks

    On October 18, 2024, regulators closed First National Bank of Lindsay (FNBL), OK. In a departure from other recent bank closures, the FDIC elected not to fully reimburse uninsured depositors. What does this decision say about moral hazard, market discipline, and which depositors the government chooses to protect? Moral Hazard and Deposit Insurance Regulators took…

  • Why is Risk Modeling of Nonmaturity Deposits So Difficult?

    Assumptions around nonmaturity deposits (NMDs) are key drivers of a bank’s interest rate risk profile. I’ve looked at a host of models over the course of my career. These include market models, credit models, prepayment models, and stress testing models. But NMD modeling presents the most challenges. What makes NMD risk modeling so difficult? Modeling…

  • Is Discount Window “Stigma” a Serious Problem?

    Last year’s failure of Silicon Valley Bank prompted efforts to improve liquidity risk management within the banking system. Much of the attention has focused on improving access to the Federal Reserve’s discount window (DW), including attempts to reduce discount window hesitancy due to its perceived “stigma.” While the DW stigma is treated as an article…

  • A Forgotten Pitcher’s Extraordinary Year

    Dick Selma played for five teams over a largely undistinguished ten-year Major League career. The 1970 Philadelphia Phillies finished fifth in their division, only a half game out of last place. That was also the third in a string of seven straight losing seasons for the Phils. Somehow though, this journeyman pitcher on a mediocre…

  • Decoding Basel Endgame Changes

    Federal Reserve Vice-Chairman Michael Barr recently previewed “broad and material changes” to the Basel Endgame capital proposal. Summarizing changes to a 1,000-page proposal in a 24-minute speech will leave out a lot of details. However, we can get a good sense of the proposed changes based on what we already know about the old proposal…

  • Six Key Points on Bank Capital

    Policy debates about banking regulation often revolve around an understanding (and occasionally misunderstanding) of bank capital. While capital can be the most important indicator of a bank’s financial strength, the concept is not always well understood. Some assumptions about capital adequacy rely more on folk wisdom than evidence. Here are six observations about bank capital.…

  • Regulating Brokered Deposits

    The FDIC stirred up a hornet’s nest with proposed changes to its brokered deposits regulation. The proposal would reverse some changes made back in 2021 that narrowed the scope of deposits subject to brokered deposit restrictions. Some have criticized the proposed changes as lacking a strong empirical basis. However, the same can be said of…