The dramatic rise in bank failures over the last decade has led to a search for leading indicator... more The dramatic rise in bank failures over the last decade has led to a search for leading indicators so that costly bailouts might be avoided. While the quality of a bank's management is generally acknowledged to be a key contributor to institutional collapse, it is usually excluded from early-warning models for lack of a metric. This paper describes a new approach for quantifying a bank's managerial efficiency, using a data- envelopment-analysis model that combines multiple inputs and outputs to compute a scalar measure of efficiency. This new metric captures an elusive, yet crucial, element of institutional success: management quality. New failure-prediction models for detecting a bank's troubled status which incorporate this explanatory variable have proven to be robust and accurate, as verified by in-depth empirical evaluations, cost sensitivity analyses, and comparisons with other published approaches
In 1995, the value of U.S. bank mergers and acquisitions reached a record $73 billion, with conso... more In 1995, the value of U.S. bank mergers and acquisitions reached a record $73 billion, with consolidation among the largest banks surging. Using an event study methodology and data from the largest bank mergers of 1995, I find that acquiring banks in mergers with the highest percentage of office overlaps received significant positive and higher abnormal returns than banks in mergers with fewer office overlaps. However, I find no evidence that acquiring banks in mergers resulting in the largest increases in market concentration received higher abnormal returns. These results suggest that as the banking industry continues to consolidate, expected cost reductions and efficiency improvements, as opposed to potential gains in market power, are rewarded in the financial market at the merger announcement date.
rom the mid-1960s through the mid-1980s, the number of commercial banks in the United States did ... more rom the mid-1960s through the mid-1980s, the number of commercial banks in the United States did not change much, fluctuating generally in the range from 13,500 to 14,500. But in 1984, the number of commercial banks peaked at 14,470 and has gradually declined to around 6,100 today. Chart 1 shows that, during the same time, the average inflation-adjusted bank size increased from under $200 million in the mid-1980s to more than $900 million today.
The simplest way to date the onset of expansions and contractions in U.S. economic activity, or b... more The simplest way to date the onset of expansions and contractions in U.S. economic activity, or business-cycle troughs and peaks, is to examine the change in real GDP—that is, the inflationadjusted value of all economic output. A popular marker used to define an economic recession is the presence of two or more consecutive quarters of decline in real GDP. But this rule-of-thumb indicator has some drawbacks: It is a quarterly instead of monthly measure, and it may not fully reflect all changes in economic activity that impact the business cycle.
New information technologies and e-business solutions have transformed supply chain operations fr... more New information technologies and e-business solutions have transformed supply chain operations from mass production to mass customization. This paper assesses the impact of these innovations on economic productivity, focusing on the macroeconomic benefits as supply chain operations have evolved from simple production and planning systems to today's real-time performance-management information systems using advanced e-business technologies. While many factors can influence macroeconomic variables, the impact of IT-enabled supply chains should not be overlooked. We find evidence that the impact of e-business technologies on supply chain operations have resulted in a reduced "bullwhip effect," lower inventory, reduced logistics costs, and streamlined procurement processes. These improvements, in turn, have likely helped to lower inflation, reduce economic volatility, strengthen productivity growth, and improve standards of living.
According to the National Bureau of Economic Research (NBER), the most recent recession lasted 18... more According to the National Bureau of Economic Research (NBER), the most recent recession lasted 18 months and output contracted by 5.1 percent from peak (December 2007) to trough (June 2009). Since the end of World War II and prior to the 2008 downturn, there were 10 official recessions, lasting an average 10.4 months and contracting an average 1.8 percent from peak to trough. These 10 downturns ranged from six to 16 months in length and from +0.4 to –3.2 percent in depth, as measured by real gross domestic product (GDP).
For more information about these events, email FIRM at Dallas_Fed_Firm@dal.frb.org. hat is your a... more For more information about these events, email FIRM at Dallas_Fed_Firm@dal.frb.org. hat is your assessment of current business and employment conditions? What are your expectations regarding business, employment and your family's income six months from now? The Conference Board's Consumer Confidence Index (CCI) was created in 1967 to gather responses to these questions and ultimately measure consumers' perceptions about the health of the U.S. economy. Chart 1 shows that while the CCI has increased recently, a confidence crisis seems to continue to plague U.S. consumers. The good news is that the CCI has improved from its deep trough during the recent Great Recession. 1 The bad news is that the rebound has been drawn out and sluggish. The latest CCI reading, at 68.1 (1985 = 100), is lower than 88 percent of the observations computed between 1967 and the start of the Great Recession. Based on comments we have received from financial institution leaders throughout the Eleve...
uring the economic recovery following the 2008–09 Great Recession, the official, or headline, U.S... more uring the economic recovery following the 2008–09 Great Recession, the official, or headline, U.S. unemployment rate has fallen steadily. The unemployment rate peaked at 10.0 percent in October 2009 and is now, thankfully, very close to the “natural” rate of unemployment as inferred by the Congressional Budget Office (Chart 1). The CBO’s natural rate of unemployment is the unemployment rate that corresponds with full employment, meaning no cyclical unemployment and stable wage pressures. The CBO’s natural rate of unemployment has ranged between 5 and 6 percent since 1986 and currently stands at 5.4 percent.
uch has been discussed and written regarding what to do about the so-called “too-big-tofail” bank... more uch has been discussed and written regarding what to do about the so-called “too-big-tofail” banks and their role in the 2008–09 Great Recession. But now, more than five years after passage of legislation designed to create a new regulatory framework to promote financial stability and protect American consumers, smaller community banks are finding it increasingly tough to survive, due in part to the compliance costs needed to deal with the new regulations. This article focuses on the importance of community banks, examines the trends in banks exiting and entering the financial industry and highlights the apparent rising regulatory burden confronting banks today.
ABSTRACT In the business-to-business (B2B) sector, new electronic commerce (e-commerce) initiativ... more ABSTRACT In the business-to-business (B2B) sector, new electronic commerce (e-commerce) initiatives like Internet-enabled supply chains and electronic marketplaces (e-marketplaces) offer firms significantly lower procurement costs, increased operating efficiencies, and expanded market opportunities. Using an event-study methodology, we find that the capital markets respond favorably to firms announcing new B2B e-commerce initiatives and alliances. For B2B e-marketplaces, we find slightly higher, though statistically insignificant, average abnormal returns associated with vertical markets than with horizontal markets. When examining the data by the type of partner the e-commerce provider aligns with, we find that the capital markets reward firms the greatest when they form alliances with a competitor or a computer industry giant. The abnormal returns associated with these announcements are on average more than three times greater than returns from announcing a B2B e-commerce initiative alone or with Old Economy industry leaders.
The dramatic rise in bank failures over the last decade has led to a search for leading indicator... more The dramatic rise in bank failures over the last decade has led to a search for leading indicators so that costly bailouts might be avoided. While the quality of a bank's management is generally acknowledged to be a key contributor to institutional collapse, it is usually excluded from early-warning models for lack of a metric. This paper describes a new approach for quantifying a bank's managerial efficiency, using a data- envelopment-analysis model that combines multiple inputs and outputs to compute a scalar measure of efficiency. This new metric captures an elusive, yet crucial, element of institutional success: management quality. New failure-prediction models for detecting a bank's troubled status which incorporate this explanatory variable have proven to be robust and accurate, as verified by in-depth empirical evaluations, cost sensitivity analyses, and comparisons with other published approaches
In 1995, the value of U.S. bank mergers and acquisitions reached a record $73 billion, with conso... more In 1995, the value of U.S. bank mergers and acquisitions reached a record $73 billion, with consolidation among the largest banks surging. Using an event study methodology and data from the largest bank mergers of 1995, I find that acquiring banks in mergers with the highest percentage of office overlaps received significant positive and higher abnormal returns than banks in mergers with fewer office overlaps. However, I find no evidence that acquiring banks in mergers resulting in the largest increases in market concentration received higher abnormal returns. These results suggest that as the banking industry continues to consolidate, expected cost reductions and efficiency improvements, as opposed to potential gains in market power, are rewarded in the financial market at the merger announcement date.
rom the mid-1960s through the mid-1980s, the number of commercial banks in the United States did ... more rom the mid-1960s through the mid-1980s, the number of commercial banks in the United States did not change much, fluctuating generally in the range from 13,500 to 14,500. But in 1984, the number of commercial banks peaked at 14,470 and has gradually declined to around 6,100 today. Chart 1 shows that, during the same time, the average inflation-adjusted bank size increased from under $200 million in the mid-1980s to more than $900 million today.
The simplest way to date the onset of expansions and contractions in U.S. economic activity, or b... more The simplest way to date the onset of expansions and contractions in U.S. economic activity, or business-cycle troughs and peaks, is to examine the change in real GDP—that is, the inflationadjusted value of all economic output. A popular marker used to define an economic recession is the presence of two or more consecutive quarters of decline in real GDP. But this rule-of-thumb indicator has some drawbacks: It is a quarterly instead of monthly measure, and it may not fully reflect all changes in economic activity that impact the business cycle.
New information technologies and e-business solutions have transformed supply chain operations fr... more New information technologies and e-business solutions have transformed supply chain operations from mass production to mass customization. This paper assesses the impact of these innovations on economic productivity, focusing on the macroeconomic benefits as supply chain operations have evolved from simple production and planning systems to today's real-time performance-management information systems using advanced e-business technologies. While many factors can influence macroeconomic variables, the impact of IT-enabled supply chains should not be overlooked. We find evidence that the impact of e-business technologies on supply chain operations have resulted in a reduced "bullwhip effect," lower inventory, reduced logistics costs, and streamlined procurement processes. These improvements, in turn, have likely helped to lower inflation, reduce economic volatility, strengthen productivity growth, and improve standards of living.
According to the National Bureau of Economic Research (NBER), the most recent recession lasted 18... more According to the National Bureau of Economic Research (NBER), the most recent recession lasted 18 months and output contracted by 5.1 percent from peak (December 2007) to trough (June 2009). Since the end of World War II and prior to the 2008 downturn, there were 10 official recessions, lasting an average 10.4 months and contracting an average 1.8 percent from peak to trough. These 10 downturns ranged from six to 16 months in length and from +0.4 to –3.2 percent in depth, as measured by real gross domestic product (GDP).
For more information about these events, email FIRM at Dallas_Fed_Firm@dal.frb.org. hat is your a... more For more information about these events, email FIRM at Dallas_Fed_Firm@dal.frb.org. hat is your assessment of current business and employment conditions? What are your expectations regarding business, employment and your family's income six months from now? The Conference Board's Consumer Confidence Index (CCI) was created in 1967 to gather responses to these questions and ultimately measure consumers' perceptions about the health of the U.S. economy. Chart 1 shows that while the CCI has increased recently, a confidence crisis seems to continue to plague U.S. consumers. The good news is that the CCI has improved from its deep trough during the recent Great Recession. 1 The bad news is that the rebound has been drawn out and sluggish. The latest CCI reading, at 68.1 (1985 = 100), is lower than 88 percent of the observations computed between 1967 and the start of the Great Recession. Based on comments we have received from financial institution leaders throughout the Eleve...
uring the economic recovery following the 2008–09 Great Recession, the official, or headline, U.S... more uring the economic recovery following the 2008–09 Great Recession, the official, or headline, U.S. unemployment rate has fallen steadily. The unemployment rate peaked at 10.0 percent in October 2009 and is now, thankfully, very close to the “natural” rate of unemployment as inferred by the Congressional Budget Office (Chart 1). The CBO’s natural rate of unemployment is the unemployment rate that corresponds with full employment, meaning no cyclical unemployment and stable wage pressures. The CBO’s natural rate of unemployment has ranged between 5 and 6 percent since 1986 and currently stands at 5.4 percent.
uch has been discussed and written regarding what to do about the so-called “too-big-tofail” bank... more uch has been discussed and written regarding what to do about the so-called “too-big-tofail” banks and their role in the 2008–09 Great Recession. But now, more than five years after passage of legislation designed to create a new regulatory framework to promote financial stability and protect American consumers, smaller community banks are finding it increasingly tough to survive, due in part to the compliance costs needed to deal with the new regulations. This article focuses on the importance of community banks, examines the trends in banks exiting and entering the financial industry and highlights the apparent rising regulatory burden confronting banks today.
ABSTRACT In the business-to-business (B2B) sector, new electronic commerce (e-commerce) initiativ... more ABSTRACT In the business-to-business (B2B) sector, new electronic commerce (e-commerce) initiatives like Internet-enabled supply chains and electronic marketplaces (e-marketplaces) offer firms significantly lower procurement costs, increased operating efficiencies, and expanded market opportunities. Using an event-study methodology, we find that the capital markets respond favorably to firms announcing new B2B e-commerce initiatives and alliances. For B2B e-marketplaces, we find slightly higher, though statistically insignificant, average abnormal returns associated with vertical markets than with horizontal markets. When examining the data by the type of partner the e-commerce provider aligns with, we find that the capital markets reward firms the greatest when they form alliances with a competitor or a computer industry giant. The abnormal returns associated with these announcements are on average more than three times greater than returns from announcing a B2B e-commerce initiative alone or with Old Economy industry leaders.
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Papers by Thomas Siems