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Resolving large financial intermediaries: banks versus housing enterprises

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  • Robert A. Eisenbeis
  • W. Scott Frame
  • Larry D. Wall

Abstract

This paper examines the policy issues with respect to resolving the possible failure of housing enterprises Fannie Mae or Freddie Mac. The authors compare and contrast these issues with those raised in the context of large bank failures and also identify important differences in the extant supervisory authorities. Based on these discussions, they offer a number of policy suggestions designed to minimize the cost of resolution and protect taxpayers from loss should a large bank or housing enterprise fail.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Atlanta in its series Working Paper with number 2004-23.

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Date of creation: 2004
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Handle: RePEc:fip:fedawp:2004-23

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References

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  1. George J. Benston, 2004. "What's Special About Banks?," The Financial Review, Eastern Finance Association, vol. 39(1), pages 13-33, 02.
  2. Honohan, Patrick & Klingebiel, Daniela, 2003. "The fiscal cost implications of an accommodating approach to banking crises," Journal of Banking & Finance, Elsevier, vol. 27(8), pages 1539-1560, August.
  3. Larry D. Wall & Ellis W. Tallman & Peter A. Abken, 1997. "The impact of a dealer's failure on OTC derivatives market liquidity during volatile periods," Proceedings 555, Federal Reserve Bank of Chicago.
  4. Robert A. Eisenbeis, 1997. "International settlements: a new source of systemic risk?," Economic Review, Federal Reserve Bank of Atlanta, issue Q 2, pages 44-50.
  5. René M. Stulz, 2004. "Should We Fear Derivatives?," Journal of Economic Perspectives, American Economic Association, vol. 18(3), pages 173-192, Summer.
  6. George G. Kaufman, 1990. "Are Some Banks Too Large To Fail? Myth And Reality," Contemporary Economic Policy, Western Economic Association International, vol. 8(4), pages 1-14, October.
  7. Edward J. Kane, 1987. "Who should learn what from the failure and delayed bailout of the ODGF?," Proceedings 162, Federal Reserve Bank of Chicago.
  8. W. Scott Frame & Lawrence J. White, 2004. "Fussing and fuming over Fannie and Freddie: how much smoke, how much fire?," Working Paper 2004-26, Federal Reserve Bank of Atlanta.
  9. Brewer, Elijah III & Genay, Hesna & Hunter, William Curt & Kaufman, George G., 2003. "The value of banking relationships during a financial crisis: Evidence from failures of Japanese banks," Journal of the Japanese and International Economies, Elsevier, vol. 17(3), pages 233-262, September.
  10. John Murray & James Powell, 2002. "CLS Bank: Managing Foreign Exchange Settlement Risk," Bank of Canada Review, Bank of Canada, vol. 2002(Autumn), pages 3-11.
  11. Lawrence J. White, 2002. "Focusing on Fannie and Freddie: The Dilemmas of Reforming Housing Finance," Working Papers 02-01, New York University, Leonard N. Stern School of Business, Department of Economics.
  12. Roberto Perli & Brian Sack, 2003. "Does mortgage hedging amplify movements in long-term interest rates?," Finance and Economics Discussion Series 2003-49, Board of Governors of the Federal Reserve System (U.S.).
  13. Martin Gervais, 1998. "Housing Taxation and Capital Accumulation," UWO Department of Economics Working Papers 9807, University of Western Ontario, Department of Economics.
  14. William F. Bassett & Egon Zakrajsek, 2003. "Recent developments in business lending by commercial banks," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Dec, pages 477-492.
  15. Ongena, Steven & Smith, David C. & Michalsen, Dag, 2003. "Firms and their distressed banks: lessons from the Norwegian banking crisis," Journal of Financial Economics, Elsevier, vol. 67(1), pages 81-112, January.
  16. Alden L. Toevs, 2001. "A critique of the CBO's sponsorship benefit analysis," Proceedings 722, Federal Reserve Bank of Chicago.
  17. George Kaufman, 2004. "Bank regulation and foreign-owned banks," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 67, june.
  18. George P. Kaufman, 2004. "FDIC losses in bank failures: has FDICIA made a difference?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q III, pages 13-25.
  19. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 393-414, July.
  20. Painter, Gary & Redfearn, Christian L, 2002. "The Role of Interest Rates in Influencing Long-Run Homeownership Rates," The Journal of Real Estate Finance and Economics, Springer, vol. 25(2-3), pages 243-67, Sept.-Dec.
  21. Franklin R. Edward, 1999. "Hedge Funds and the Collapse of Long-Term Capital Management," Journal of Economic Perspectives, American Economic Association, vol. 13(2), pages 189-210, Spring.
  22. Adam B. Ashcraft, 2003. "Are banks really special? New evidence from the FDIC-induced failure of healthy banks," Staff Reports 176, Federal Reserve Bank of New York.
  23. George G. Kaufman, 2004. "Depositor Liquidity and Loss Sharing in Bank Failure Resolutions," Contemporary Economic Policy, Western Economic Association International, vol. 22(2), pages 237-249, 04.
  24. Edwin S. Mills, 1987. "Dividing up the investment pie: have we overinvested in housing?," Business Review, Federal Reserve Bank of Philadelphia, issue Mar, pages 13-23.
  25. Kane, Edward J, 1990. " Principal-Agent Problems in S&L Salvage," Journal of Finance, American Finance Association, vol. 45(3), pages 755-64, July.
  26. Lori L. Taylor, 1998. "Does the United States still overinvest in housing?," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q II, pages 10-18.
  27. Robert A. Eisenbeis & Larry D. Wall, 2002. "The major supervisory initiatives post-FDICIA: Are they based on the goals of PCA? Should they be?," Working Paper 2002-31, Federal Reserve Bank of Atlanta.
  28. Frame, W Scott & Srinivasan, Aruna & Woosley, Lynn, 2001. "The Effect of Credit Scoring on Small-Business Lending," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(3), pages 813-25, August.
  29. Dwight Jaffee, 2003. "The Interest Rate Risk of Fannie Mae and Freddie Mac," Journal of Financial Services Research, Springer, vol. 24(1), pages 5-29, August.
  30. Robert R. Bliss, 2003. "Bankruptcy law and large complex financial organizations: a primer," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q I, pages 48-58.
  31. Edwin S. Mills, 1987. "Has the United States Overinvested in Housing?," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 15(1), pages 601-616.
  32. Wayne Passmore, 2003. "The GSE implicit subsidy and value of government ambiguity," Finance and Economics Discussion Series 2003-64, Board of Governors of the Federal Reserve System (U.S.).
  33. Edward Kane, 2001. "Using disaster planning to optimize expenditures on financial safety nets," Atlantic Economic Journal, International Atlantic Economic Society, vol. 29(3), pages 243-253, September.
  34. Paul Miller & Carol Ann Northcott, 2002. "CLS Bank: Managing Foreign Exchange Settlement Risk," Bank of Canada Review, Bank of Canada, vol. 2002(Autumn), pages 13-25.
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Citations

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Cited by:
  1. W. Scott Frame & Larry D. Wall & Lawrence J. White, 2012. "The devil's in the tail: residential mortgage finance and the U.S. Treasury," Working Paper 2012-12, Federal Reserve Bank of Atlanta.
  2. W. Scott Frame & Diana Hancock & Wayne Passmore, 2007. "Federal Home Loan Bank advances and commercial bank portfolio composition," Working Paper 2007-17, Federal Reserve Bank of Atlanta.
  3. Brack, Estelle, 2009. "États-Unis,“soupe primitive” de la crise financière
    [The United-States : "primitive soup" of the financial turmoil]
    ," MPRA Paper 23480, University Library of Munich, Germany.
  4. W. Scott Frame & Lawrence J. White, 2005. "Fussing and Fuming over Fannie and Freddie: How Much Smoke, How Much Fire?," Journal of Economic Perspectives, American Economic Association, vol. 19(2), pages 159-184, Spring.
  5. Robert Eisenbeis & W. Frame & Larry Wall, 2007. "An Analysis of the Systemic Risks Posed by Fannie Mae and Freddie Mac and An Evaluation of the Policy Options for Reducing Those Risks," Journal of Financial Services Research, Springer, vol. 31(2), pages 75-99, June.
  6. Matej Marinc & Razvan Vlahu, 2011. "The Economic Perspective of Bank Bankruptcy Law," DNB Working Papers 310, Netherlands Central Bank, Research Department.

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