Sources of bank charter values
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Sources of Bank Charter Values. Frederick Furlong and Simon H. Kwan Federal Reserve Bank of San Francisco Disclaimer: Do not represent the views of the Federal Reserve. Rebound in BHC charter value ratios. Outline. Potential reasons for positive charter values in banking

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Sources of bank charter values

Sources of Bank Charter Values

Frederick Furlong

and

Simon H. Kwan

Federal Reserve Bank of San Francisco

Disclaimer: Do not represent the views of the Federal Reserve



Outline
Outline

  • Potential reasons for positive charter values in banking

  • Developments in U. S. banking that may have affected charter values

  • Data and empirical model

  • Empirical findings on factor affecting charter value ratios


Bank specific factors affecting cv
Bank-specific factors affecting CV

  • Funding

    • Federal safety net, reliance on insured deposits

    • Other sources of funding

  • Transactions services (access to payments system)

  • Portfolio lending

    • Synergies in deposit taking and lending

  • Other Non-interest income

    • Credit services—e.g. loan commitments

    • Economies of scope in financial services

  • Operational efficiency

    • Economies of scale

    • X efficiency


  • Developments in u s banking that may have affected charter values
    Developments in U. S. banking that may have affected charter values

    • Restructuring

    • Financial innovation

    • Adoption of technology affecting operational efficiency

    • Legislative, regulatory, supervisory initiatives to limit conjectural guarantees from federal safety net






    Data values

    • Federal Reserve Y-9C data

    • Sample period: 1986 Q2 to 2003 Q4

      • Sub-periods: 1986 Q2 to 1994 Q4

        1995 Q1 to 2003 Q4

    • BHC stock price data from CRSP

    • Final sample: 624 BHCs with 22,338 firm-quarter obs.

    • Size classes: Large (top 10th percentile by assets)

      Medium (50th to 90th percentile )

      Small (bottom 50th percentile)














    Conclusions
    Conclusions values

    • Bank-specific characteristics

      • Deposits: consistent positive effects from transactions and core deposits on CV ratios

        • No change in marginal effects, decline in shares

      • Portfolio lending: only consistent positive effect on CV ratios from consumer lending for large BHCs

      • Non-interest revenues: consistent positive effect on CV ratio for large BHCs

        • Increase in marginal effect, rise in share

      • CV ratios related to measure of efficiency

        • No change in marginal effect, rise in measured efficiency

    • Macro financial variable appear to have contributed to movements and some of the net rise in measured CV ratios


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