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Several recent studies have recommended greater reliance on subordinated debt as a tool to discipline bank risk taking. Some of these proposals recommend using sub-debt yield spreads as triggers for supervisory discipline under prompt corrective action (PCA). Currently such action is prompted by capital adequacy measures. This paper provides the first(More)
In recent years there has been a growing realization that there are significant problems with the current bank risk-based capital guidelines. As financial firms have become more sophisticated and complex they have effectively arbitraged the existing capital requirements. They have become so good at avoiding the intent of capital regulation that the(More)
In recent years there has been a growing realization that there are significant problems with the current bank risk-based capital guidelines. As financial firms have become more sophisticated and complex they have effectively arbitraged the existing capital requirements. They have become so good at avoiding the intent of capital regulation that the(More)
This article examines competition and investor behavior in the mutual fund industry for the universe of US mutual funds during 1976–2009. Over this period, industry assets increased by a factor of 200, the number of active fund families quadrupled, and the average market share of a family declined by four-fifths. We find that price competition and product(More)
We develop a simple approach to valuing stocks in the presence of learning about average pro ̄tability. The market-to-book ratio (M/B) increases with uncertainty about average pro ̄tability, especially for ̄rms that pay no dividends. M/B is predicted to decline over a ̄rm's lifetime due to learning, with steeper decline when the ̄rm is young. These(More)
G E R A L D P . D W Y E R J R . A N D R . W . H A F E R Dwyer is vice president in charge of the financial section of the Atlanta Fed’s research department. Hafer is an Atlanta Fed visiting scholar and a professor of economics at Southern Illinois University-Edwardsville. They thank Lucy Ackert, Mark Fisher, Larry Wall, Warren Weber, and David C. Wheelock(More)
The Lehman bankruptcy highlights the potential for interconnectedness among financial firms to cause a financial crisis. However, the negative externalities may also arise from information contagion. We examine bankrupt and distressed financial firms to evaluate the roles of counterparty contagion and information contagion and find that both have(More)