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Banking's Final Exam: Stress Testing and Bank-Capital Reform
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Banking's Final Exam: Stress Testing and Bank-Capital Reform
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Overview
Product Details
ISBN-13: | 9780881327052 |
---|---|
Publisher: | Peterson Institute for International Economics |
Publication date: | 05/30/2017 |
Series: | Policy Analyses in International Economics , #105 |
Pages: | 350 |
Sales rank: | 747,409 |
Product dimensions: | 6.00(w) x 8.90(h) x 1.10(d) |
Age Range: | 18 Years |
About the Author
Table of Contents
Preface xi
Acknowledgments xv
Abbreviations xvii
Introduction: Scene Setting, Preliminaries, Outline, and Main Findings 1
Setting the Scene 1
Preliminaries: Measurement of Bank Capital, the US Comprehensive 4
Capital Analysis and Review, and the Dodd-Frank Act Stress Tests Outline of the Study 9
Main Findings 14
Appendix 1 Event and Impact Studies of US and EU-Wide Stress Tests 33
1 Why Were the EU-Wide Stress Tests Not Better Received? 39
Weak Supervisory Authority 39
No Critical Mass on EU Banking Union, and a More Serious Too Big to Fail Problem 39
A Weak Supporting Crisis Management Cast 40
Higher Outside Estimates of Capital Shortfalls 43
Poor Design of the EU-Wide Stress Tests 46
Appendix 1A Indicators of Too Big to Fail in EU and US Banks 65
Appendix 1B The Weak Supporting Crisis Management Cast for the EU-Wide Stress Tests 67
2 Operational Features and Evolution of the US and EU-Wide Tests 77
Operational Features 77
Evolution of Stress Testing, 2009-16 97
3 Criticisms of Stress Testing Methodology and the Measurement of Bank Capital 103
Stress Tests as Poor Early Warning Indicators of Banking Crises 103
Failure of Stress Tests to Capture the Dynamics of Actual Financial Crises 107
Shortcomings of Risk-Weighted Measures of Bank Capital 119
4 What We Have Learned-or Should Have Learned-about the Right Level of Bank-Capital Ratios 135
Bank Losses during the 2007-09 Crisis 137
Macroprudential Approach to Banking Supervision 152
Benefits and Costs of Much Higher Bank-Capital Requirements 155
Conclusions 174
5 Estimating Capital Surcharges for Global Systemically Important Banks 187
Capital Ratios Relative to Systemic Importance Indicators for G-SIBs versus Non-G-SJBs 187
The Bank of England's "Symmetry and Proportionality Approach" 205
The Federal Reserve's "Estimated-Impact" Approach 228
Conclusions 240
6 Lessons from the US and EU-Wide Tests 247
7 A Plan for Bank-Capital Reform 257
Outline of the Plan 258
Features of the Plan 259
Advantages of the Plan 273
8 Potential Objections to the Plan for Bank-Capital Reform and Closing Remarks 285
10/11-13/14-18 Percent Minimum Leverage Ratios: A Step Too Far? 285
Large Banks, Larger Banking Systems, and Too Little/Too Much Finance 290
Shadow Banking and the Migration Problem 297
Are Higher Equity Minimum Capital Requirements Still Needed After TLAC? 307
Closing Remarks 317
9 Postscript 325
The Trump Administration and Financial Deregulation 325
Next Steps for the US Stress Tests 330
References 339
Index 363
Tables
1.1 Cost of US federal government response to the financial crisis 41
1.2 Actual and projected recovery to previous real GDP peak in the euro area 44
1.3 Risk-weighted capital ratios and leverage ratios for large EU banks 53
2.1 US bank stress tests, 2009-16 78
2.2 EU-wide bank stress tests, 2009-16 84
4.1 Basel III minimum requirements and phase-in arrangements 136
4.2 Summary of the estimates of implicit too big to fail subsidies 163
4.3 Profitability of major global banks 165
5.1 Global systemically important banks, as of November 2015, allocated to buckets corresponding to required level of additional loss absorbency 189
5.2 Risk-based capital surcharges for US global systemically important banks 190
5.3 Systemic importance indicators reported by large US bank holding companies 191
5.4 FDIC Global Capital Index, December 31, 2015 194
7.1 Leverage ratio targets and implied adjustments for G-SIBs, non-G-SIBs, and small banks 262
7.2 Leverage ratios for US G-SIBs: Starting position and implied adjustments for 10-year phase-in 263
Figures
3.1 Risk-based capital ratios and leverage ratios for major global banks, end-2006: Surviving banks versus failed banks 121
4.1 Lending spreads in selected economies, 2007-14 166
4.2 Ratio of bank credit to GDP, 2006 and 2013 167
4.3 Occurrence of banking crises 172
5.1 Tier I leverage ratios 193
5.2 The critical risk weight 206
5.3 Commercial bank two-year loan loss rates, 1921-2008 216
5.4 Net income for US and EU banks, 2006-13 218
8.1 Estimated scale economies 291
8.2 Shadow banking and traditional banking in the United States, 1960-2014 299
Box
3.1 Financial-sector interdependence and contagion risk 113