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Upon Further Analysis — Archives

  • Key Takeaways from the Republic First Bank Failure

    Regulators closed Philadelphia-based Republic First Bank on April 26, 2024. Fulton Bank, NA assumed most of Republic First’s deposits and assets in an FDIC-assisted transaction. The FDIC’s Inspector General will likely conduct a Failed Bank Review that will try to identify the causes of Republic First’s failure. In the meantime, here are some takeaways based…

  • Do Higher Interest Rates Benefit banks?

    It’s practically an article of faith in some quarters that higher interest rates benefit banks. But is this really the case? Recent experience has led some to challenge this assumption. Rates have started to trend up again with 2024 rate cuts looking less frequent and less likely.  A closer look at the evidence suggests that…

  • The 2024 Stress Test Scenarios

    The stress test scenarios don’t just ignore IRR, they reward it. As of December 31, 2023, Charles Schwab had unrealized losses on its investment portfolio of $21 billion, more than 50% of Tier 1 capital. BAC has unrealized losses of more than $100 billion, or more than 45% of Tier 1. The supposedly stressed rate…

  • The (Supposedly) Favored Status of Home Ownership

    An oft-repeated truism is that government grants special treatment to homeowners and favors the housing industry. Discussions of the “housing lobby” inevitably preface with the word “powerful.” But is this truism, well, true? Upon closer inspection, the record is more mixed than many assume. Several government programs and incentives promote home ownership. The government explicitly…

  • The Chevron Deference and Banking Regulation

    The United States Supreme Court is considering overturning Chevron USA vs. Natural Resource Defense Council, a long-standing precedent that generally defers to an administrative agency’s interpretation of the law. What impact would overturning the Chevron Deference have on banking regulation and supervision? The Chevron Deference The 1984 Chevron case centered on the EPA’s definition of…

  • Expected Shortfall vs. VaR as Risk Measures

    Proposed new capital standards for large banks (Basel Endgame) include some fundamental changes in measuring market risk. The new standards would replace the current value-at-risk (VaR) approach with the expected shortfall approach. The market risk proposal is exceptionally complex, and I don’t intend to get into the gory details. Instead, I’ll focus on broad conceptual…

  • Operational Risk, Fungible Capital Requirements, and the Basel Endgame

    The Basel Endgame proposal would ditch the AA’s models-based approach to credit and operational risk and replace it with an amped-up version of the SA. By moving credit risk weightings under the AA closer to what already exists under the SA, the proposal would result in a real capital charge for operational risk. 

  • FHLBank Reform and Concentration Risk

    National banks must generally limit their extensions of credit to a single borrower to 15% of capital. This limit increases to 25% for loans secured by “readily marketable collateral.” …In contrast, the Pittsburgh FHLB’s advances to PNC represent 637% of FHLB’s capital. The San Francisco FHLB’s extensions to JPMC were 397% of capital.

  • Measuring Systemic Risk in Banking

    The FDIC must resolve bank failures at the least cost to the insurance fund. However, a systemic risk exception allows resolutions that are more costly, at least in the short run. The SVB resolution provides a case in point. The FDIC estimates a resolution cost of $17.8 billion (on total assets of $209 billion). However,…

  • Gil Hodges’s Long Road to Cooperstown

    Gil Hodges was elected to the Baseball Hall of Fame in 2022.  More than 20,000 have played major league baseball, but only 271 reached the Hall of Fame as a player.  While making the Hall is certainly a big deal, his road to Cooperstown was a long one, especially considering the strong early support for…