The 42nd Annual Conference on Bank Structure & Competition

The Federal Reserve Bank of Chicago's 42nd Annual Conference on Bank Structure and Competition was held on May 17–19, 2006. The theme of this year's conference was "Innovations in Real Estate Markets: Risks, Rewards, and the Role of Regulation." Over the past decade, the U.S. real estate sector has been an important engine for macroeconomic growth with innovations in home mortgage finance playing a central role. As the real estate markets have evolved, a number of public policy issues have arisen that require serious consideration.

Recent innovations in mortgage production methods have greatly enhanced household access to home mortgage credit. Coupled with historically low interest rates, these innovations have driven home ownership rates to all-time highs. Adjustable rate mortgage products have supplanted traditional fixed rate mortgages in many local markets, allowing households to leverage the long decline in mortgage rates into larger homes and/or greater disposable income. Similarly, more and cheaper refinancing options—especially cash-out options—have allowed consumers to unlock the equity value stored in their homes. These developments have supported consumer spending growth, which in turn dampened the most recent recession and fueled the recovery that followed.

However, some observers see dark economic clouds on the housing horizon as they believe that increases in home prices in coastal markets look like asset price bubbles. If and when these bubbles burst, the negative effect on wealth from falling home prices could slow economic growth. Speculative buying in especially hot housing markets could exacerbate these outcomes. Other observers worry about households' increased exposures to interest rate risk. As interest rates rise, they are concerned that delinquent payments and loan defaults could increase among homeowners, especially those who relied on adjustable rate mortgages to afford their homes. If these potential events were to unfold together, a worst-case scenario could put stress on the huge mortgage portfolios held by housing government sponsored enterprises, with potential systemic effects for financial markets.

These ongoing changes have important implications for the structure and performance of the financial industry, for innovation and risk in the financial system, and for macroeconomic growth and stability. To consider these issues we gathered some of the most qualified and respected members of the financial community. The discussion began on Thursday with a keynote address by Federal Reserve Board Chairman Ben S. Bernanke. This was one of the first opportunities for the new Chairman to present his views on regulatory policy, and we were pleased to have him participate. We were also fortunate to have Robert Shiller, Stanley B. Resor Professor of Economics at Yale University—known for his analysis and explication of speculative pricing bubbles—deliver the keynote address to open the proceedings on Friday. And we were especially fortunate to have luncheon addresses from Ken Thompson, Chairman, President, and Chief Executive Officer, Wachovia Corporation, and John Dugan, Comptroller of the Currency.

The conference hosted an impressive group of experts on Thursday and Friday. On Thursday we explored the conference theme in depth in a morning panel discussion. On Thursday afternoon, we discussed recent trends in real estate markets and targeted lending activity. On Friday, we strayed from the discussion of real estate topics to debate a timely financial issue facing banks: the preemption of state banking laws.

Michael H. Moskow
President and Chief Executive Officer


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05/17/06
7:30 AM
Registration

Continental Breakfast

8:25 AM
Welcoming Remarks
Douglas D Evanoff, Senior Financial Economist and Vice President, Federal Reserve Bank of Chicago
8:30 AM
Lender–Firm Relationships: Bank "Specialness"
Moderator and Discussant
Haluk Ünal, University of Maryland
Douglas O Cook, University of Alabama
Loan Rates versus Public Debt Rates: Do Loan Rates Reflect Special Values to the Borrower or Information Intensive Lending Reflect Special Values to the Borrower or Information Intensive Lending
Lewis J Spellman, University of Texas
Bank Loan Supply, Lender Choice and Corporate Capital Structure
Mark T Leary, Duke University
Amiyatosh Purnanandam, University of Michigan
The Effect of Banking Crisis on Bank-Dependent Borrowers
Sudheer Chava, University of Michigan
10:15 AM
Break
10:20 AM
The Impact of Banking Market Competition
Moderator and Discussant
Nicola Cetorelli, Federal Reserve Bank of New York
Bank Market Power and Small- and Medium-sized Enterprise Financing Constraints
Francisco Rodríguez Fernández, University of Granada
Gregory F Udell, Indiana University
Santiago Carbó-Valverde, University of Granada
Cross-Country Comparisons of Competition and Pricing Power in European Banking
David B Humphrey, Florida State University
Joaquín Maudos-Villaroya, University of Valencia and Valencian Institute of Economic Research (Instituto Valenciano de Investigaciones Económicas–Ivie)
Philip Molyneux, University of Wales
Santiago Carbó-Valverde, University of Granada
Allen N Berger, Board of Governors of the Federal Reserve System
The Effects of Banks on "Debt Sensitive" Small Businesses
Philip Ostromogolsky, Board of Governors of the Federal Reserve System
12:00 PM
Luncheon
1:20 PM
Federal Reserve Bank of Chicago Bank
Douglas D Evanoff, Senior Financial Economist and Vice President, Federal Reserve Bank of Chicago
The Impact of a Research Conference
1:30 PM
Bank Products and Efficiency
Moderator and Discussant
Robert DeYoung, Federal Deposit Insurance Corporation
Evan Gatev, Carroll School of Management, Boston College
Managing Bank Liquidity Risk: How Deposit–Loan Synergies Vary with Market Conditions
Til Schuermann, Federal Reserve Bank of New York
Philip E Strahan, Carroll School of Management, Boston College
Does Securitization Affect Bank Lending? Evidence from Bank Responses to Funding Shocks
Elena Loutskina, Boston College
David A Becher, Drexel University
Reconsidering the Degree of Inefficiency of Financial Institutions
George Deltas, University of Illinois at Urbana–Champaign
George Pinteris, University of Illinois at Urbana–Champaign
3:00 PM
Break
3:30 PM
Bank Loans
Moderator and Discussant
Mark J Flannery, University of Florida
Amar Gande, Vanderbilt University
Are Banks Still Special When There Is a Secondary Market for Loans?
Anthony Saunders, New York University
The Role of Information Asymmetry and Financial Reporting Quality in Debt Contracting: Evidence from the Secondary Loan Market
Regina Wittenberg Moerman, University of Chicago
Joseph G Haubrich, Federal Reserve Bank of Cleveland
Who Holds the Toxic Waste? An Investigation of Collateralized Mortgage Obligation Holdings
Deborah J Lucas, Northwestern University
5:15 PM
Reception
05/18/06
7:00 AM
Registration and Continental Breakfast
8:15 AM
Welcoming Remarks
Michael H Moskow, President and Chief Executive Officer, Federal Reserve Bank of Chicago
8:30 AM
Keynote Address
Ben S Bernanke, Chairman, Board of Governors of the Federal Reserve System
9:25 AM
Break
9:50 AM
Theme Panel: Innovations in Real Estate Markets: Risks, Rewards and the Role of Regulation
Moderator
Gordon Werkema, First Vice President, Federal Reserve Bank of Chicago
Speakers
Douglas G Duncan, Senior Vice President and Chief Economist, Mortgage Bankers Association of America
Lyle E Gramley, Senior Economic Advisor, Stanford Washington Research Group
John P McMurray, Senior Managing Director and Chief Credit Officer, Countrywide Financial Corporation
John C Weicher, Director, Hudson Institute Center for Housing and Financial Markets
David M Wright, Board of Governors of the Federal Reserve System
12:10 PM
Luncheon
Introduction
William A Osborn, Chairman and Chief Executive Officer, Northern Trust Corporation and Northern Trust Company, and Board of Directors, Federal Reserve Bank of Chicago
Keynote
G Kennedy (Ken) Thompson, Chairman, President and Chief Executive Officer, Wachovia Corporation
1:55 PM
Analyzing Real Estate Markets
Moderator
George G Kaufman, John F. Smith Professor of Economics and Finance, Loyola University and Federal Reserve Bank of Chicago
Government Sponsored Enterprises, Mortgage Rates, and Secondary Market Activities
Wayne Passmore, Board of Governors of the Federal Reserve System
Gillian Burgess, New York University Law School
Diana Hancock, Board of Governors of the Federal Reserve System
Andreas Lehnert, Board of Governors of the Federal Reserve System
Shane M Sherlund, Board of Governors of the Federal Reserve System
Housing Activity and Values and Consumer Spending
Jonathan McCarthy, Federal Reserve Bank of New York
Charles Steindel, Federal Reserve Bank of New York
Richard J Rosen, Federal Reserve Bank of Chicago
What's Up (or Down) with Housing Prices
3:25 PM
Break
3:50 PM
Targeted Financial Markets
Moderator
Charles L Evans, Senior Vice President and Director of Research, Federal Reserve Bank of Chicago
Community Reinvestment Act Agreements and Small Business Lending: Is There a "There" There?
Raphael W Bostic, University of Southern California
Breck L Robinson, University Of Delaware
Edward L Bachelder, Dove Consulting
Payments Innovations in Serving Low- and Moderate-Income Households: Policy, Practice and Evidence from a New Survey
Michael S Barr, University of Michigan
Jane Dokko, University of Michigan
Patterns in Higher-Priced Mortgage Loans by Race and Ethnicity
Robert B Avery, Board of Governors of the Federal Reserve System
Kenneth Brevoort, Board of Governors of the Federal Reserve System
Glenn B Canner, Board of Governors of the Federal Reserve System
5:30 PM
Reception
05/19/06
7:30 AM
Continental Breakfast
8:30 AM
Keynote Address
Introduction
Michael H Moskow, President and Chief Executive Officer, Federal Reserve Bank of Chicago
Keynote<br />Asset Prices, Monetary Policy and Bank Regulation
Robert J Shiller, Stanley B. Resor Professor of Economics, Yale University
9:20 AM
Break
9:50 AM
Federal Preemption of State Banking Regulation

 Session co-sponsored with the University of Chicago, George J. Stigler Center for the Study of the Economy and the State.

Moderator
Douglas D Evanoff, Senior Financial Economist and Vice President, Federal Reserve Bank of Chicago
Hal S Scott, Nomura Professor of International Financial Systems, Harvard University
What Is the Proper Role of the States in the Regulation of Financial Firms?
, George Washington University
Banking Report
Financial Openness and Regulatory Competition
Philip E Strahan, Boston College, Carroll School of Management
James Roselle, Associate General Counsel, Northern Trust Corporation
Arthur J Murton, Director, Federal Deposit Insurance Corporation
12:00 PM
Luncheon
Introduction
Michael H Moskow, President and Chief Executive Officer, Federal Reserve Bank of Chicago
Keynote
John C Dugan, Comptroller of the Currency
1:45 PM
Concurrent Sessions<br />Session A: Lessons from Banking History
Moderator
Hesna Genay, Federal Reserve Bank of Chicago
Carlos D Ramirez, George Mason University
Do Bank Failures Affect Real Economic Activity? State-Level Evidence from the Pre-Depression Era
Philip A Shivley, Federal Deposit Insurance Corporation
Gary Richardson, University of California at Irvine
Monetary Intervention Mitigated Banking Panics during the Great Depression
William Troost, University of California at Irvine
Efraim Benmelech, Harvard University
The Political Economy of Financial Regulation: Evidence from U.S. Usury Laws in the 19th Century
Tobias J Moskowitz, University of Chicago
1:45 PM
Session B: Underwriting Markets
Moderator
Craig H Furfine, Federal Reserve Bank of Chicago
Ayako Yasuda, University of Pennsylvania
Bank Relationships and Underwriter Competition: Evidence from Japan
Banks and Bubbles: How Good Are Bankers at Spotting Winners?
Laura Gonzalez, University of Florida
Christopher James, University of Florida
Craig Brown, University of Michigan
Self-Dealing in Securities Issuance

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