More than 5% of consumers who eliminate their debts in Chapter 7 have the ability to completely repay creditors within five years, according to two business school professors. John M. Barron of Purdue University and Michael E. Staten of Georgetown University also find that one-quarter of Chapter 7 filers could repay at least 30% of their debts within five years.
Of borrowers who agreed to repay some debts by filing for Chapter 13, the researchers find half could pay off two-thirds of their debts and still cover housing costs.
They also find that Chapter 7 filers earn about 25% less, on average, than Chapter 13 filers, although they have nearly identical living expenses. More than half of Chapter 7 filers had no income left after subtracting living expenses, but 10% had more than $9,300 extra per month.
The study is based on a sample of 4,000 bankruptcy petitions filed in 1996. For a copy of "Personal Bankruptcy: A Report on Petitioners' Ability- to-Pay," call 202-687-3737.
Market-risk capital requirements that take effect Jan. 1 will require major trading banks to hold slightly more in reserves, according to two Federal Reserve Bank of New York economists.
Darryll Hendricks and Beverly Hirtle say they expect the value-at-risk models will require major trading banks to increase their market-risk capital by 1.5 percentage point, to 7.5%. But this should be mostly offset by a decrease in capital for "specific risk," or the reserves needed to cover price movements of individual securities.
The rules will benefit investors by making it easier to compare the value-at-risk scores of competing banks, they say. Currently, banks use different formulas that make comparisons difficult.
Finally, the economists conclude examiners should not have trouble validating these models. Besides interviewing the bank's computer experts, regulators can back-test the models to see if they match the portfolio's actual performance.
For a copy of "Bank Capital Requirements for Market Risk: An Internal Models Approach," call 212-720-6134.
Banks get a subsidy from the federal safety net, although they offset almost all of the benefit by paying for deposit insurance and other regulatory costs.
That's the conclusion of Frederick Furlong, vice president at the Federal Reserve Bank of San Francisco. The subsidy exists because deposit insurance and the discount window allow banks to pay below-market rates for funds, he writes. Also, the Fed underprices the cost of the payments system's intra-day credit.
Because of the subsidy, policymakers should maintain the legal separation between commercial banking and securities firms, he concludes. For a copy of "Federal Subsidy in Banking: The Link to Financial Modernization," call 415-974-2163 or visit www.sf.frb.org.
Stock prices are unlikely to continue their double-digit growth of the last decade, according to two researchers. "If official estimates of the growth of capital, labor, and total factor production are approximately correct, macroeconomic effect could actually reduce returns a little below their 10% historical average," write Federal Reserve Bank of Kansas City senior economist John E. Golob and Sprint Corp. product specialist David G. Bishop.
They note that the stock market historically declines about 5% once every five years, but the current market has risen steadily since 1974, with the single exception of the 1987 drop.
For a copy of "What Long-Run Returns Can Investors Expect?" call 816- 881-2683 or visit www.kc.frb.org.
