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Postmortem on the Federal Reserve's Functional Cost Analysis Program: how useful was the FCA?

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  • Evren Ors

Abstract

I conduct a postmortem analysis on the now defunct Functional Cost Analysis (FCA) Program. I examine whether FCA banks were representative of U.S. bank population. I assess the costs and benefits of participation in a selection model and test whether participation in the program improves bank cost and profit efficiency. I find that FCA banks are not statistically representative of the universe of U.S. banks, but the differences are economically small. I also find that participation adds little, if any, improvement to performance. It would appear that the Federal Reserve System (the Fed) was justified in ending a subsidized service to community banks.

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  • Evren Ors, 2004. "Postmortem on the Federal Reserve's Functional Cost Analysis Program: how useful was the FCA?," Review of Financial Economics, John Wiley & Sons, vol. 13(1-2), pages 121-148.
    • Handle: RePEc:wly:revfec:v:13:y:2004:i:1-2:p:121-148
    DOI: 10.1016/j.rfe.2003.06.002
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