45th Annual Conference on Bank Structure and Competition

The Federal Reserve Bank of Chicago hosted its 45th Annual Conference on Bank Structure and Competition at the Hotel InterContinental in Chicago. The conference has a rich tradition as a leading forum for dialogue on public policy issues affecting the financial services industry.

 

The conference theme this year dealt with financial regulatory reform. Federal Reserve Chairman Ben Bernanke, via satellite, provided the opening keynote address. Sheila Bair, Chairman of the Federal Deposit Insurance Corporation and John Allison, Chairman of the Board at BB&T Corporation presented their perspectives at the luncheons on Thursday and Friday, respectively. We also had a panel of industry experts discuss the conference theme, and additional sessions where topics ranging from the current financial crisis, the performance of U.S. mortgage markets, personal bankruptcy trends, the future role (if any) of market discipline in financial markets and other policy relevant issues will be debated.

The conference theme was particularly timely. At the 2008 Bank Structure Conference, a number of speakers emphasized the need for reform of regulation and oversight of the financial services industry. Subsequently, the U.S. Treasury proposed a blueprint for reform, both presidential candidates stressed the need for reform during their campaigns and the calls for regulatory reform intensified, with problems in financial markets cited as a major cause for the deterioration of the economy. Leaders in both houses of Congress have indicated that regulatory reform will be a high priority item.

 

Proposals for reform have been quite varied ranging from a significant move back toward the policies implemented during the 1930s (based on the argument that the current crisis is mainly a result of the unwinding of those policies) to calls for minor tweaks of the current framework (based on the position that the crisis was driven by a relatively few, fixable, regulatory problems, such as the lack of transparency and distorted incentives.) There were an array of issues that needed to be seriously considered during the policy debate.

 

  • How can we efficiently address the tradeoff between too-big-to-fail policies and moral hazard?
  • Can too-big-to-fail be effectively managed with new failure resolution processes?
  • Should banks be run as public utilities?
  • Do we need a regulator whose major (sole?) responsibility is managing systemic risk in financial markets?
  • Should that regulator's responsibilities expand beyond financial markets?
  • Do we need a thorough revamping of the complex, multilayered structure of financial regulation in the U.S.?
  • Do we need a new product approval process in finance similar to that for the pharmaceutical industry to avoid the introduction of potentially destructive new products?
  • What is the appropriate role of the financial government sponsored enterprises (GSEs) in the future?
  • What is the responsibility of the rating agencies?
  • Is there a concern that the push for reform may be an overreaction and result in a significantly less efficient process of credit allocation (a position argued by those who show evidence that the most inefficient regulation is put in place during times of crises).

 

Each year, we bring together industry leaders, scholars and regulatory authorities to address current economic issues. The first day of the conference was more technical in nature and typically attended by an "academic" audience.


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05/06/09
7:30 AM
Registration

Continental Breakfast

8:15 AM
Welcoming Remarks
Douglas D Evanoff, Senior Financial Economist and Vice President, Federal Reserve Bank of Chicago
8:30 AM
The Evolution of a Crisis
Moderator and Discussant
Charles M Kahn, University of Illinois at Urbana–Champaign
Speakers
Arvind Krishnamurthy, Northwestern University
Ran Duchin, University of Michigan
Oguzhan Ozbas, University of Southern California
Stochastic House Appreciation and Optimal Mortgage Lending
Tomasz Piskorski, Columbia University
Alexei Tchistyi, University of California, Berkeley
10:00 AM
Break
10:15 AM
Banking Relationships in Loan Markets
Moderator and Discussant
Gregory F Udell, Indiana University
Speakers
Jian Cai, Washington University
Robert M Bushman, University of North Carolina
Abbie J Smith, University of Chicago
Regina Wittenberg-Moerman, University of Chicago
Anthony Saunders, New York University
Sascha Steffen, University of Mannheim
12:00 PM
Luncheon
1:15 PM
Banking Structure and Competition
Moderator and Discussant
Evren Örs, HEC School of Management
Speakers
Nicola Cetorelli, Federal Reserve Bank of New York
João A C Santos, Federal Reserve Bank of New York
Andrew Winton, University of Minnesota
Rebecca Zarutskie, Duke University
James S Linck, University of Georgia
James A Brickley, University of Rochester
Clifford W Smith, University of Rochester
3:15 PM
Break
3:30 PM
Addressing Bank Risk
Moderator and Discussant
Ravi Jagannathan, Northwestern University
Xin Huang, University of Oklahoma
Hao Zhou, Board of Governors of the Federal Reserve System
Haibin Zhu, Bank for International Settlements
Anna Chernobai, Syracuse University
Philippe Jorion, University of California, Irvine
Fan Yu, Claremont McKenna College
Do Government Loan Guarantees Lower, or Raise, Banks' Nonguaranteed Lending?
James A Wilcox, University of California, Berkeley
Yukihiro Yasuda, Tokyo Keizai University
5:15 PM
Reception
05/07/09
7:00 AM
Registration

Continental Breakfast

8:15 AM
Welcoming Remarks

Charles L. Evans, President and Chief Executive Officer, Federal Reserve Bank of Chicago

8:30 AM
Keynote Address
Introduction
Charles L Evans, President and Chief Executive Officer, Federal Reserve Bank of Chicago
Speaker
Ben S Bernanke, Chairman, Board of Governors of the Federal Reserve System (via satellite)
9:30 AM
Break
9:45 AM
Theme Panel—Reforming Financial Regulation
Moderator
Daniel G Sullivan, Senior Vice President and Director of Research, Federal Reserve Bank of Chicago
Panelists
Raghuram Rajan, Eric J. Gleacher Distinguished Service Professor of Finance, University of Chicago
Diane Casey-Landry, Chief Operating Officer and Senior Executive Vice President, American Bankers Association
Robert Kuttner, Co-editor, The American Prospect & Distinguished Senior Fellow, Demos
Hal S Scott, Nomura Professor and Director of the Program on International Financial Systems, Harvard Law School
Thomas H Stanton, Fellow, Center for the Study of American Government, Johns Hopkins University
12:15 PM
Luncheon & Keynote Address
Introduction
Gordon Werkema, First Vice President and Chief Operating Officer, Federal Reserve Bank of Chicago
Speaker
Sheila C Bair, Chairman, Federal Deposit Insurance Corporation
2:00 PM
Disrupted Credit Markets
Moderator
, Loyola University Chicago & Federal Reserve Bank of Chicago
Amir Sufi, University of Chicago
Atif Mian, University of Chicago
Francesco Trebbi, University of Chicago
Adam Ashcraft, Federal Reserve Bank of New York
Morten L Bech, Federal Reserve Bank of New York
W Scott Frame, Federal Reserve Bank of Atlanta
Song Han, Board of Governors of the Federal Reserve System
Dan Li, Board of Governors of the Federal Reserve System
3:30 PM
Break
3:45 PM
Addressing Credit Market Problems?
Moderator
Richard J Rosen, Federal Reserve Bank of Chicago
Geetesh Bhardwaj, Vanguard
Rajdeep Sengupta, Federal Reserve Bank of St. Louis
Adam Ashcraft, Federal Reserve Bank of New York
Paul Goldsmith-Pinkham, Federal Reserve Bank of New York
James Vickery, Federal Reserve Bank of New York
5:15 PM
Reception
05/08/09
7:15 AM
Continental Breakfast
8:15 AM
Mortgage Markets
Moderator
Anna Paulson, Federal Reserve Bank of Chicago
Nathan B Anderson, University of Illinois at Chicago
Jane K Dokko, Board of Governors of the Federal Reserve System
Sumit Agarwal, Federal Reserve Bank of Chicago
Gene Amromin, Federal Reserve Bank of Chicago
Itzhak Ben-David, Ohio State University
Souphala Chomsisengphet, U.S. Office of the Comptroller of the Currency
Douglas D Evanoff, Federal Reserve Bank of Chicago
Andrew Cohen, Board of Governors of the Federal Reserve System
Rating Shopping in CMBS Issuance
9:45 AM
Break
10:00 AM
Responding to the Financial Crises: Lessons Learned
Moderator
Douglas D Evanoff, Federal Reserve Bank of Chicago
Panelists
Anil K Kashyap, Edward Eagle Brown Professor of Economics and Finance, Booth School of Business, University of Chicago
Kiyohiko G Nishimura, Deputy Governor, Bank of Japan
Andy Haldane, Executive Director, Financial Stability, Bank of England
Vincent R Reinhart, Resident Scholar, American Enterprise Institute
12:15 PM
Luncheon & Keynote Address
Introduction
Charles L Evans, President and Chief Executive Officer, Federal Reserve Bank of Chicago
Speaker
John A Allison IV, Chairman of the Board, BB&T Corporation (Branch Banking & Trust Company)
1:45 PM
Session A

Personal Bankruptcy

Moderator
Luca Benzoni, Federal Reserve Bank of Chicago
Donald P Morgan, Federal Reserve Bank of New York
Benjamin Iverson, Harvard Business School
Matthew Botsch, University of California, Berkeley
Song Han, Board of Governors of the Federal Reserve System
Geng Li, Board of Governors of the Federal Reserve System
Ethan Cohen-Cole, Federal Reserve Bank of Boston
Pariahs or Pals: Understanding Peer Influences on the Bankruptcy Decision
Burcu Duygan-Bump, Federal Reserve Bank of Boston
1:45 PM
Session B

Market Discipline and Signals in Banking?

Moderator
Hesna Genay, Federal Reserve Bank of Chicago
Martin Cihák, International Monetary Fund
Andrea M Maechler, International Monetary Fund
Klaus Schaeck, Bangor Business School, Bangor University
Stéphanie Stolz, International Monetary Fund
Bhanu Balasubramnian, Emporia State University
Ken B Cyree, University of Mississippi
Martin Knaup, Tilburg University
Wolf Wagner, Tilburg University

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A Brief History of the Conference

Since the early 1960s, the Federal Reserve Bank of Chicago's conference on bank structure and competition has served as a forum for academics, regulators and industry participants to debate current issues affecting the financial services industry. Each year, the purpose of the conference is to continue that tradition. This retrospective on the history and evolution of the conference reviews the past four decades of conferences.

 

The primary motivating factor for the conference was the passage of the 1960 Bank Merger Act and the U.S. versus Philadelphia National Bank supreme court decision. Suddenly, bank regulatory agencies were required to consider competitive factors in addition to banking factors when evaluating bank merger applications. Each of the Federal Reserve Banks was encouraged to survey the existing literature on bank structure and develop its own research agendas on these issues.

 

In January 1963, the Chicago Fed held a meeting with local academics to discuss current research in the microeconomics of financial markets and to encourage future research efforts. About 20 academics met and, following a thorough analysis of the issues, agreed that a follow-up meeting was merited. Those follow-up meetings continue to this day.

 

In the early years of the conference, the primary focus was on evaluating bank performance. How did one measure competition? What was the relevant banking market? What was the relationship between market structure and bank performance? What were the effects of bank mergers? While the issues facing the banking industry have obviously changed through the years, it is amazing how many of these traditional, fundamental issues have continued to resurface as conference themes.

 

During the early 1970s, the emphasis of the conference was on the need for industry deregulation and potential risks imposed by existing regulatory arrangements. The costs and benefits of restrictions such as Regulation Q, service limitations and bank product and geographic limitations generated intense annual debates. These debates preceded by many years the actual relaxation of the regulatory restrictions.

 

The late 1970s witnessed problems within the industry that led the conference away from its emphasis on deregulation and improved industry efficiency toward a broader array of issues including risk management, measurement of bank soundness and the causes and consequences of bank failures. Perhaps most importantly, these years also witnessed a movement toward an analysis of the broader financial services industry instead of banking per se. Once again, the conference debate preceded the actual implementation of public policy by a number of years. For example, during this period conference sessions were organized on topics such as community reinvestment, gender discrimination in lending, pricing of Federal Reserve correspondent banking services and analysis of the reserve requirement burden.

 

The overriding issues during the 1980s were the industry safety net, distortions resulting from its mispricing and alternative means for both financial institutions and regulators to better manage risk. Sessions on moral hazard issues were numerous. There was significant emphasis on the need to, when possible, replace or supplement regulatory discipline with market discipline. The merits of alternative regulatory structures and optimal means to reprice the safety net were debated. However, the conference continued to feature analyses of the potential benefits of deregulating product powers and geographic expansion. It was also during the 1980s that the conference expanded to its current format, which combines academics, regulators and industry participants. This combination of financial industry researchers and practitioners has made for better, more relevant policy discussions.

 

In recent years, the conference has emphasized the changing nature of the financial services industry and the increase in nonbank competition. Conference themes have focused on banks' role in the broader financial industry, strategic and financial market innovations, the impact of the Gramm–Leach–Bliley Act, the structure of the financial safety net, the behavior and regulation of banks over the business cycle, the means to address recent corporate governance problems, innovations in real estate markets and the potential impact on bank performance and the advantages and disadvantages of mixing banking and commerce (following the Wal-Mart industrial loan corporation application). The past few years have concentrated on developing problems in mortgage markets and turmoil in credit markets. Those recent problems led to the theme for this year's conference: Financial Regulatory Reform.

 

The effectiveness of the conference through the years in affecting public policy and academic research was evaluated in The Bank Structure Conference Impact Study, Journal of Financial Services Research, Vol. 34, December 2008, by Douglas Evanoff, Philip Bartholomew, Robert DeYoung, Cosmin Lucaci-Oprea and Ronnie Phillips.


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