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…

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…

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…

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…

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.…

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…

McGill University scholar John A. Hall describes civility as the “glue that holds society together.” Civility, or the lack thereof, comes up in politics, the workplace, and our personal lives. The role of civility in bank supervision presents an interesting case in point. The relationship between banks and their supervisors is inherently adversarial, but also…

July 27, 2024 will mark the one-year anniversary of the Basel Endgame proposal. The negative response to the proposal means that a revised version isn’t likely until sometime next year. Meanwhile the Basel Endgame will remain in regulatory limbo. Finalizing regulations can take time, but some get enacted more quickly than others. The speed of…

The Federal Reserve’s post-mortem following the Silicon Valley Bank failure stressed the “need to evaluate how we supervise and regulate a bank’s management of interest rate risk.” Other bank regulators have noted similar concerns. It’s now 16 months since SVB’s failure. What actions have regulators taken (or not taken) to address interest rate risk? SVB…

Baseball enthusiasts may be the nerdiest of sports fans. From the development of the box score in 1858, there has long been an obsession with statistics. These statistics have grown increasingly complex with the advent of sabermetrics, aka Moneyball. OPS, WHIP, and FIP have replaced old school stats like batting average, RBIs, and won-loss records.…