Financial Crisis

Financial Crisis

Research

Hester Peirce, Ian Robinson, Thomas Stratmann | Feb 27, 2014
This paper presents the results of the Mercatus Center’s Small Bank Survey, which include responses from approximately 200 banks across 41 states with less than $10 billion in assets each, serving mostly rural and small metropolitan markets.
James R. Barth, Apanard Prabha | Mar 07, 2013
Banks have failed throughout US history. The worst years for such failures were during the Great Depression: roughly 9,000 of about 25,000 banks failed, with nearly half of the failures occurring in 1933 alone. Depositors everywhere became concerned that their banks were on the verge of insolvency, and they rushed to withdraw their funds. This forced banks to sell off their assets at fire sale prices, thereby turning illiquidity problems into insolvency problems throughout the banking industry. The result was a major disruption in the payments system and a severe tightening of available credit, with a devastating impact on economic activity.
Bruce Yandle | Mar 01, 2013
There was only one lane open as I made my trip to Atlanta; the other three were blocked with those unhappy yellow and black make-believe barrels used by the highway folks. Traffic flow was constrained by efforts to repair potholes and broken pavement. We in the slow lane had little choice in the matter. Instead of 70, we were slowed to 20 miles per hour. We had to accept our fate, or find another route at the next exit.
Todd Zywicki | Jan 15, 2013
This paper describes the current economic and regulatory landscape for prepaid cards. The market appears to be robustly competitive, as recent years have seen declining costs and increasing functionality as well as entry of major players such as American Express and several large banks. Nor is there any evidence that consumers systematically err in the cards that they choose. Absent a demonstrable competitive market failure or systematic consumer abuse, prescriptive regulation of the terms and substance of prepaid cards would likely have unintended consequences that would exceed the benefits to consumers. On the other hand, there are some regulations that might be enacted that could promote competition and consumer welfare in this rapidly evolving market.
Hester Peirce, Robert Greene | Jan 15, 2013
The Volcker Rule prohibits financial institutions reliant on deposit insurance from engaging in proprietary trading and limits their relationships with hedge funds and other private funds. These activities were not central to the most recent financial crisis,[1] but former Federal Reserve chairman Paul Volcker championed the rule’s inclusion in the Dodd- Frank Act in response to legitimate concerns that the federal deposit insurance umbrella was being stretched beyond its intended purpose. Bad trading bets by these financial institutions could cause losses for which the deposit insurance fund (and ultimately taxpayers) would be on the hook.
Lawrence H. White, George Selgin, William D. Lastrapes | Sep 24, 2012
As the 100th anniversary of the 1913 Federal Reserve Act approaches, we assess whether the nation’s experiment with the Federal Reserve has been a success or a failure. Drawing on a wide range of recent empirical research, we find the following: (1) The Fed’s full history (1914 to present) has been characterized by more rather than fewer symptoms of monetary and macroeconomic instability than the decades leading to the Fed’s establishment. (2) While the Fed’s performance has undoubtedly improved since World War II, even its postwar performance has not clearly surpassed that of its undoubtedly flawed predecessor, the National Banking system, before World War I. (3) Some proposed alternative arrangements might plausibly do better than the Fed as presently constituted. We conclude that the need for a systematic exploration of alternatives to the established monetary system is as pressing today as it was a century ago.

Testimony & Comments

Hester Peirce | Jul 18, 2013
Chairman Jordan, Ranking Member Cartwright, and members of the Subcommittee, thank you for the opportunity to be part of today’s hearing on the effect of Dodd-Frank on community banks. Dodd-Frank was the product of desperation in the face of a deeply painful financial crisis and outrage at the big financial institutions that were at the center of the trouble. Not only does Dodd-Frank fail to effectively address the problems that precipitated the crisis, but it also imposes costly burdens on many businesses that were not central causes of the crisis. Among these are community banks.
Hester Peirce | May 06, 2013
The proposed rules would implement sections 806(a) and (c) of Dodd-Frank, which allow the Board to authorize Reserve Banks to establish and maintain accounts for, provide certain services to,[1] and pay interest on balances maintained by or on behalf of financial market utilities (FMUs) that are designated by the Financial Stability Oversight Council (FSOC) as systemically important or likely to become systemically important.
Arnold Kling | Apr 24, 2013
I do not believe that the 30-year fixed-rate mortgage can be issued in large volume without taxpay- ers becoming liable for interest-rate risk. Conversely, if we reform the housing system so that the private sector truly bears the risk, then borrowers would encounter a large differential between the cost of a 30-year fixed-rate mortgage and the cost of a loan with an interest rate that is fixed for only 5 years. Borrowers should be making their choices based on this true cost differential.
| Dec 15, 2011
Anthony Sanders testified before the U.S. House Committee on Oversight and Government Reform Subcommittee on TARP, Financial Services and Bailouts of Public and Private Programs on the role of the U.S. in addressing the European debt crisis.
| May 25, 2011
Anthony Sanders testified before the House Committee on Financial Services about steps to end the GSE bailout.
| May 12, 2011
Anthony Sanders testified before the Senate Subcommittee on Housing, Transportation and Community Development…

Expert Commentary

Mar 20, 2014

Small banks didn't cause the financial crisis that led to the Dodd-Frank Wall Street Reform and Consumer Protection Act - and the act's framers said they didn't intend for the law's burdensome requirements to hit smaller institutions. But the results of our recent small-bank survey published through the Mercatus Center demonstrate the futility of these good intentions. Small banks are facing rising compliance costs and are finding it harder to serve their customers.
Jan 29, 2014

The Federal Reserve on January 24 issued guidance for "eight domestic bank holding companies that may pose elevated risk to U.S. financial stability." The guidance, which is part of Dodd-Frank resolution planning, is intended to "clarify" expectations for these companies and guide the Federal Reserve staff charged with supervising them. But the fact that such guidance is necessary illustrates what is wrong with our financial system and its regulatory framework.
By Nita Ghei |
Jan 23, 2014

The chorus of optimistic forecasts is growing. The Federal Reserve’s Beige Book reported moderate growth from November to the end of 2013, and that “the economic outlook is positive in most districts.” The World Bank predicted the developed world is on the brink of “self-sustained recovery” for the first time in five years, and expects the U.S economy to grow as much as 3.2 percent this year.
Real Clear Markets
Jan 02, 2014

Last year was a busy one for financial regulators. Their rulemaking schedules were packed, and the impact of Dodd-Frank began to emerge from the resulting web of new regulations. Dodd-Frank abstractions even created painful realities for entities that had thought they were safely beyond the law's reach. The limits of Dodd-Frank's "solutions" began to emerge. The flurry of regulatory actions that marked the year's end gives a glimpse of the busy year that has passed and a sense of what is coming in 2014.
Oct 01, 2013

Only one U.S. state, North Dakota, owns a bank. But that bank has been so successful – and the financial systems elsewhere have been so problematic – that 22 other legislatures have considered starting similar state banks. Would government-owned banks distort the free market, or complement private lending? If states or the federal government set up banks, should they lend directly to consumers and businesses?
Sep 25, 2013

Last week the Financial Stability Oversight Council designated Prudential Financial as a systemically important financial institution in need of regulation by the Federal Reserve. The FSOC's careless decision to slap a too-big-to-fail label on Prudential undermines-rather than secures-financial stability.

Charts

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) significantly expanded the regulatory authority of the Federal Reserve Board of Governors (the Board) over banking institutions, financial firms, and their subsidiaries.

Experts

Podcasts

Hester Peirce | August 22, 2013
Hester Peirce discusses the Push to Implement Dodd-Frank on Eye on Your Money

Recent Events

Books

Media Clippings

Benjamin M. Blau | Oct 27, 2013
Benjamin Blau cited at The Washington Examiner.
Hester Peirce | Jul 31, 2013
The Fed was probably the most effective lobbyist during Dodd-Frank and they managed to expand their jurisdiction quite a lot.
Patrick McLaughlin, Robert Greene | Jul 22, 2013
The researchers examined data from the Code of Federal Regulations and determined that over 7,000 new financial rules were implemented between 1999 and 2008, bringing the total number of regulations to 47,494 just before the crash.
| Jul 12, 2013
"It appears that the big banks are growing in volume while mid – and small banks are… not," Sanders concluded.
Todd Zywicki | Jan 24, 2013
Todd Zywicki cited at the National Review Online.
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