Center for Financial Innovation and Stability

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Notes from the Vault

photo of a bank vault door

Should Financial Stability Be a Goal of Monetary Policy?
Larry D. Wall
September 2014

There has been increased debate about using monetary policy to promote financial stability since the financial crisis. This post posits that the theoretical case for using policy to support stability is strong, but practical problems remain.

Bail-in Debt: Will the Supervisors Pull the Trigger in Time?
Larry D. Wall
August 2014

The United States and the European Union are planning on using bail-in debt to help reduce taxpayer exposure to systemically important financial institutions. This post discusses the importance of timely resolution for this approach to be effective.

State of Distress?
Paula Tkac
July 2014

Systemically important financial institutions (SIFIs) like large banks and nonbank financial firms are required to have credible resolution plans in case they fail. Should U.S. states have a similar plan in place?

Was the Third Amendment to the GSE Bailouts Fair?
Larry D. Wall
May 2014

The Treasury amended the terms of its GSE bailouts in August 2012 in a way that effectively terminated private shareholders' interest in the firms. This post analyzes that agreement and its fairness to taxpayers and the GSEs' private shareholders.

Better but Still Imperfect Financial Information
Larry D. Wall
April 2014

The financial crisis highlighted the importance of good information to reduce the frequency and severity of future crises. One session at the Atlanta Fed's recent Financial Markets conference critically analyzed postcrisis changes in the information environment.

Have the Government-Sponsored Enterprises Fully Repaid the Treasury?
Larry D. Wall
March 2014

Fannie Mae and Freddie Mac have paid dividends equal to the Treasury's total purchase of their senior preferred stock. This post contends these payments fall far short of the economic value of the Treasury's support.

Two Drivers of Financial Innovation
Larry D. Wall
February 2014

Financial innovation is likely to accelerate as the postcrisis regulatory environment stabilizes. Two of the biggest drivers of past innovation, technology and regulation, are likely to continue to play an important role in future innovation.

Simple Concept, Complex Regulation
Larry D. Wall
January 2014

Simple regulatory concepts often result in long, complex regulations. The reason why that happens has important implications for the future of prudential regulation.

Basel III and Stress Tests
Larry D. Wall
December 2013

The United States is now committed to the use of two complex and relatively costly measures of capital adequacy: Basel III and stress tests. As currently designed, stress tests could mitigate weaknesses in Basel III's measures of capital and credit risk.

Supervising Bank Compensation Policies
Larry D. Wall
November 2013

Even bankers agree that the compensation structure in the financial services industry was one of the causes of the financial crisis. A recent conference at the Atlanta Fed considered various aspects of banks' compensation policies and regulatory guidance.

SIFI Failure versus Financial System Failure
Larry D. Wall
September 2013

The Financial Stability Oversight Council's recent designation of two nonbank firms as SIFIs likely reduces the expected cost of their failure. However, reducing the expected cost of financial system failure will require a broader focus.

FASB Proposes (Too?) Early Loan Loss Recognition
Larry D. Wall
August 2013

The Financial Accounting Standards Board proposes to give investors more accurate information about expected loan losses, but at the cost of systematically understating the value of unimpaired loans. An economist takes a look at FASB's proposal.

Reducing Systemic Risk or Merely Transforming It?
Paula Tkac
July 2013

Over-the-counter derivatives participants are now required to post higher quality collateral to satisfy the Dodd-Frank Act clearing requirements. Whether the resulting reshuffling of collateral will reduce systemic risk remains unclear.

Value at Risk: A Valuable Tool That Was Greatly Oversold
David M. Rowe
June 2013

Measuring financial risk continues to be a challenge after the financial crisis. Here's a look at one widely used tool, value at risk, exploring both its usefulness and limitations.

Lessons from the Housing GSEs for Resolving Too Big to Fail
Larry D. Wall
May 2013

Fannie Mae and Freddie Mac are back in the headlines, their future under debate. Here are three important lessons these GSEs can provide to policymakers seeking to end too big to fail.

Reflections on the 2013 Financial Markets Conference
Larry D. Wall
April 2013

The Atlanta Fed conference recently brought together economists, academics, and leaders of financial firms to discuss various issues related to financial stability. Here's a look at one presenter's perspective and some alternative views.

Will Taxpayers Get a Truly Fair Deal with Housing Finance Reform?
Larry D. Wall, W. Scott Frame, and Lawrence J. White
March 2013

Since the federal takeover of Fannie Mae and Freddie Mac during the financial crisis, a number of groups have issued proposals to replace the two government-sponsored enterprises. But will taxpayers get a fair deal in the exchange?


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