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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
slide10
Data
  • 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
  • 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