One of the most controversial elements of the Federal Reserve’s implementation of enhanced prudential standards for FBOs was its adoption of a new structural and regulatory requirement for FBOs with $50 billion or more in U.S. non-branch assets.
The dynamic stochastic general equilibrium model (DSGE) marked a major milestone by capturing the dynamic change of economic variables over time. However, many DSGE models were exposed as having omitted critical structural linkages relevant to the financial crisis. To address these deficiencies, existing DSGE models should be enhanced to better incorporate the role of the financial sector and financial markets. In addition, these models should reexamine key micro-foundations of the model and consider behavioral components.
In this issue, BB&T CEO Kelly King argues that, while being in the “sweet spot” should have some advantages for regional banks, the success of an institution will not be dictated solely by its size. Instead, it will be a function of how well an institution manages risks and how well it produces a return for its shareholders.
As regional banks find themselves competing with their larger counterparts in most markets, they must achieve critical mass across the majority of their individual footprints, continue to invest in local specialization and customer experience, and carefully manage their branch presence in order to optimize their performance.