The Future of Payments

Research Rundown 108 BANKING PERSPECTIVES QUARTER 4 2018 and regulatory capital using a recursive ratings-migration model. The model is used to analyze the effectiveness of potential policy responses to the procyclicality problem. TREASURY MARKET PRACTICES GROUP WORKING PAPER: DO YOU KNOW HOW YOUR TREASURY TRADES ARE CLEARED AND SETTLED? (Copeland et al.) This paper describes the clearing and settlement structure of the secondary market for U.S. Treasury securities and identifies potential risk and resiliency issues. The paper is intended to rectify the lack of understanding of recent structural changes to the market on the part of market participants and facilitate public discussion of clearing and settlement practices. WHY HAVE NEGATIVE NOMINAL INTEREST RATES HAD SUCH A SMALL EFFECT ON BANK PERFORMANCE? (Lopez, Rose & Spiegel) This paper uses a data set that covers all advanced economies that have experienced negative nominal interest rates to explore what effects negative rates have had on banks. The authors find that losses in interest income are offset by non-interest income and savings on deposit expenses, showing that banks have been relatively unaffected by negative rates. THE SALIENCE THEORY OF CONSUMER FINANCIAL REGULATION (Sarin) This article offers an empirical evaluation of three consumer finance reforms that restrict banks’ ability to generate fee revenue. Applying the shrouded pricing model, the author finds evidence that regulation of non-salient prices is more effective than that of salient prices. The author also suggests behavioral tools as an alternative to price regulation. THE REAL EFFECTS OF THE FINANCIAL CRISIS (Bernanke) Former Federal Reserve Chairman Ben Bernanke reviews the post-crisis literature on the role of credit in economic behavior, arguing for the inclusion of credit factors in mainstream macroeconomic analysis. He also applies factor analysis to daily financial data, then compares the ability of factors to forecast macroeconomic indicators from 2006 to 2012. The analysis finds that factors associated with financial panic better predict adverse economic changes than those associated with household leverage. THE SPREAD OF DEPOSIT INSURANCE AND THE GLOBAL RISE IN BANK ASSET RISK (Calomiris & Chen) The authors of this paper develop a new measure of changing generosity of deposit insurance and empirically model the adoption and generosity of deposit insurance. They find that the expansion of deposit insurance generosity has increased bank asset risk, partly explaining the correlation between deposit insurance and systemic banking crises. COMPETITION, STABILITY, AND EFFICIENCY IN FINANCIAL MARKETS (Corbae & Levine) Using both a dynamic model of the banking system under imperfect competition and regression analyses of U.S. data, the authors find that greater competition among banks increases both their efficiency and fragility and that the costs of fragility can be mitigated by enhancing bank governance and tightening leverage requirements. They also find that greater competition increases the responsiveness of bank lending to a central bank’s changes in interest rates. VILLAINS OR SCAPEGOATS? THE ROLE OF SUBPRIME BORROWERS IN DRIVING THE U.S. HOUSING BOOM (Conklin et al.) This paper analyzes the geography of housing price and subprime mortgage lending changes during the U.S. housing boom. It shows that increases in housing prices and subprime lending occurred in different parts of the country, challenging the narrative that the increase in subprime mortgage lending in the early 2000s contributed directly to the housing price bubble and subsequent crisis. n