Week 4 Data Exploration Assignments(1)

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Feb 20, 2024

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Week 4 Data Exploration Assignments Chapter 12 D.E. #3: Plot since 1990 the return on equity of small banks (banks with assets of less than $1 billion; FRED code: US1ROE) Large banks (banks with assets of greater than $15 billion; FRED code: USG15ROE). How do you explain the long-run pattern. The ROE of small banks ranged between 10% to 13% during 1990 to 2007. After that, it declined sharply to -0.73% in 2010. After that, it rose steadily and is now around 10.67%. The ROE of large banks experienced a decline from 1990 to 1991 then later ranged between 10% to 12% during 1992 to 2007. After that, it declined sharply to -0.32% until 2010. After that, it

rose steadily to around 10.29% in 2013 and continued steady between 8% to 12% until 2020 it declined to 2.25% and has begun to slowly rise again to 4.57% in quarter three of 2020. The graphs show both ROE during this period has been mostly the same for both small banks and large banks. Following the recession, the ROE of both categories dropped sharply to under zero, before recovering to pre-recession levels. It can also be seen from the graph that the ROE of large banks is more volatile than the ROE of small banks. In the long run, the ROE of small banks and large banks seems to be closely correlated. This can be explained as the close correlation between the financial health of large banks and small banks in the economy. Chapter 14 D.E. #1: When banks failed in the 1929-1933 period, the lack of deposit insurance meant that depositors experienced sizable losses. How big were these losses? For September 1929 through February 1933, plot the deposits in suspended banks (FRED code: M09039USM144NNBR). Download the data and sum the deposits lost to bank failures in 1931. Using this total, compute its ratio to 1931 gross national product of $77.4 billion. Using that ratio, how large would the losses be compared to first-quarter 2016 nominal GDP of $18.3 trillion. The period of 1929 to 1933 was the period of the Greatest Depression. During this period the US economy shrank rapidly, and the unemployment rate was at its peak level. The economy was facing deflation. During this, there were several banks that failed. When banks failed in the 1929-1933 period, the lack of deposit insurance meant that depositors experienced sizable losses. From 1929 to 1933, bank failures resulted in losses to depositors of about $1.3 billion. Before the FDIC was in operation, large-scale cash demands of fearful depositors often struck the fatal blow to banks that might otherwise have survived. Ratio of losses to depositors to 1931 gross national product of $77.4 billion= 1.3/77.4 = 0.0167 or, 1.67% of GNP. Ratio of losses to depositors to first-quarter 2016 nominal GDP of $18.3 trillion= 0.0013/18.3 = 0.007 or 0.007% of nominal GDP.

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