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The Examiner: October Recap

"Peace, plenty, and contentment reign throughout our borders, and our beloved country presents a sublime moral spectacle to the world."

- James Polk, U.S. President
Born this day in 1795

This Week's Stories

  • October Recap
  • Research Conference Committee Names "Most Significant Contribution to Banking Policy" Paper

October Recap

CSBS had a busy October. From the research conference to litigation, here's a roundup of activities surrounding state supervision in Washington:

  • CSBS sued the OCC over its national bank charter for non-banks. John Ryan, CSBS president and CEO: “Common sense and the law tell us that a nonbank is not a bank. Thus, CSBS is calling on the courts to stop the unlawful, unwarranted expansion of powers by the OCC.”
  • The Federal Reserve and CSBS released findings from the 2018 Survey of Community Banks. Among the findings, community banks reported compliance costs declined for the first time since the survey began.
  • CSBS released the first ever draft community bank sentiment index, finding that a large majority of community banks currently have a positive business sentiment.
  • CSBS's Chairman Charlotte Corley highlighted this positive development during her keynote speech at the research conference.
  • CSBS released the first ever data report on Money Services Businesses.
  • Several federal regulators shared policy initiatives at the research conference. FDIC Chairman McWilliams announced a transparency initiative, Cleveland Fed President Mester addressed CRA reform, and Fed Vice Chairman for Supervision Quarles shared urban and rural community bank trends. 

Research Conference Committee Names "Most Significant Contribution to Banking Policy" Paper

The conference committee has announced the selection of “The Effects of Competition in Consumer Credit Markets,” by Stefan Gissler, Rodney Ramcharan and Edison Yu, as the paper that made the “most significant contribution to banking policy” at the 2018 Community Banking in the 21st Century research and policy conference. The conference, sponsored by CSBS, the Federal Reserve and the FDIC, was held Oct. 3-4, 2018 at the Federal Reserve Bank of St. Louis.

From the paper's abstract: "Using changes in financial regulation that create exogenous entry in some consumer credit markets, we find that increased competition induces banks to become more specialized and efficient, while deposit rates increase and borrowing costs for riskier collateral decline. However, shadow banks change their credit policy when faced with more competition, and aggressively expand credit to riskier borrowers at the extensive margin, resulting in higher default rates. These results show how the form of intermediation can shape economic fluctuations. They also suggest that increased competition can lead to large changes in credit policy at institutions outside the traditional supervisory umbrella, possibly creating a less stable financial system."

Gissler is an economist in the Systemic Financial Institutions and Markets section of the Research and Statistics division of the Federal Reserve Board of Governors. Ramacharan is the associate professor of finance and business Economics with the Marshall School of Business at the University of Southern California and director of research with USC's Lusk Center for Real Estate. Yu is a senior economist with the Federal Reserve Bank of Philadelphia