Frederick T. Furlong, Group Vice President, Economic Research

Frederick T. Furlong

Group Vice President

Financial Markets and Institutions Research

Financial markets, Institutions, Regulation

Frederick.Furlong (at) sf.frb.org

CV

Working Papers
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Mortgage Choice in the Housing Boom: Impacts of House Price Appreciation and Borrower Type

2014-05 | With Takhtamanova and Lang | March 2014

abstract (+)
The U.S. housing boom during the first part of the past decade was marked by rapid house price appreciation and greater access to mortgage credit for lower credit-rated borrowers. The subsequent collapse of the housing market and the high default rates on residential mortgages raise the issue of whether the pace of house price appreciation and the mix of borrowers may have affected the influence of fundamentals in housing and mortgage markets. This paper examines that issue in connection with one aspect of mortgage financing, the choice among fixed-rate and adjustable-rate mortgages. This analysis is motivated in part by the increased use of adjustable-rate mortgage financing, notably among lower credit-rated borrowers, during the peak of the housing boom. Based on analysis of a large sample of loan level data, we find strong evidence that house price appreciation dampened the influence of a number of fundamentals (mortgage pricing terms and other interest rate related metrics) that previous research finds to be important determinants of mortgage financing choices. With regard to the mix of borrowers, the evidence indicates that, while low risk-rated borrowers were affected on the margin more by house price appreciation, on balance those borrowers tended be at least as responsive to fundamentals as high risk rated borrowers. The higher propensity of low credit-rated borrowers to choose adjustable-rate financing compared with high credit-rated borrowers in the housing boom appears to have been related to borrower credit risk metrics. Given the evidence related to loan pricing terms, other interest rate metrics and fixed effects, the relation of credit risk to mortgage financing choice seems more consistent with considerations such as credit constraints, risk preferences, and mortgage tenor than just a systematic lack of financial sophistication among higher credit risk borrowers.

Subprime Mortgage Delinquency Rates

2007-33 | With Doms and Krainer | November 2007

abstract (+)
We evaluate the importance of three different channels for explaining the recent performance of subprime mortgages. First, the riskiness of the subprime borrowing pool may have increased. Second, pockets of regional economic weakness may have helped push a larger proportion of subprime borrowers into delinquency. Third, for a variety of reasons, the recent history of local house price appreciation and the degree of house price deceleration may have affected delinquency rates on subprime mortgages. While we find a role for all three candidate explanations, patterns in recent house price appreciation are far and away the best single predictor of delinquency levels and changes in delinquencies. Importantly, after controlling for the current level of house price appreciation, measures of house price deceleration remain significant predictors of changes in subprime delinquencies. The results point to a possible role for changes in house price expectations for explaining changes in delinquencies.

Regional Economic Conditions and the Variability of Rates of Return in Commercial Banking

2007-21 | With Krainer | September 2007

abstract (+)
We develop new techniques to assess the relationship between commercial bank performance and the economic conditions in the markets in which they operate. In the analysis, we allow for heterogeneity in the responses of banks to regional economic conditions. We find a statistically significant relationship between bank performance and shocks to the regional markets in which they operate. We find that region-specific shocks have a significant and persistent effect on the cross-sectional variance of bank performance in the market. That is, shocks affecting average performance of banks in a region also tend to increase the dispersion of their performance. We demonstrate that this effect is due to heterogeneity in the banks’ exposures to their regional economies. Moreover, by allowing for this heterogeneity, we find that systematic responses to regional economic effects are notably more important in explaining the variation in bank performance than suggested by analysis in which responses are constrain to be the same for all banks.
Published Articles (Refereed Journals and Volumes)
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Comment: Reducing Risk at Small Community Banks: Is It Size or Geographic Diversification That Matters?

Journal of Financial Services Research 25(2-3), April 2004, 283-289

Financial Modernization and Regulation

Journal of Financial Services Research 16 (2/3), September 1999, 5-10 | With Kwan

A Re-examination of Mean-Variance Analysis of Bank Capital Regulation

Journal of Banking and Finance 14, 1990 | With Keeley

Capital Regulation and Bank Risk-Taking: A Note

Journal of Banking and Finance 13, 1989 | With Keeley

Shoring Up the Deposit Insurance System

American Banker, 1988

Regulating Bank Capital

In Annual Editions: Macroeconomics | Guilford, CT: The Dushkin Publishing Group, 1988 | With Keeley

The Search for Financial Stability: Postscript

In The Search for Financial Stability: The Past Fifty Years, ed. by Furlong and Keeley, 1985. 213-234 | With Keeley

Books
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Financial Modernization and Regulation

2000 | Norwell, MA: Kluwer Academic Publishers | Editors Eisenbeis Furlong Kwan

The Search for Financial Stability: The Past Fifty Years

1985 | San Francisco: FRB San Francisco | Editors Furlong Keeley

Basic Concepts in Economics

1983 | Culver City: Zenger Publications | Furlong Furlong

FRBSF Publications
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Drivers of Mortgage Choices by Risky Borrowers

Economic Letter 2014-01 | January 6, 2014 | With Lang and Takhtamanova

Did the Housing Boom Affect Mortgage Choices?

Economic Letter 2012-33 | November 5, 2012 | With Takhtamanova

Stress Testing and Bank Capital Supervision

Economic Letter 2011-20 | June 27, 2011

Loss Provisions and Bank Charge-offs in the Financial Crisis: Lesson Learned

Economic Letter 2010-16 | May 24, 2010 | With Knight

Regional Economic Conditions and Community Bank Performance

Economic Letter 2007-22 | July 27, 2007 | With Krainer

House Prices and Subprime Mortgage Delinquencies

Economic Letter 2007-14 | June 8, 2007 | With Doms and Krainer

Financial Market Signals and Banking Supervision: Are Current Practices Consistent with Research Findings?

Economic Review | 2006 | With R. Williams

Gains in U.S. Productivity: Stopgap Measures or Lasting Change?

Economic Letter 2005-05 | March 11, 2005 | With Daly

Deposit Insurance Reform–When Half a Loaf Is Better

Economic Letter 2002-14 | May 10, 2002 | With Kwan

Profile of a Recession: The U.S. and California

Economic Letter 2002-04 | February 22, 2002 | With Daly

Productivity in Banking

Economic Letter 2001-22 | July 27, 2001

Rising Price of Energy

Economic Letter 2001-11 | April 20, 2001 | With Daly

California IPO Wealth Effects: What’s Left?

Economic Letter 2000-36 | December 8, 2000 | With Mattey

Tech Stocks and House Prices in California

Economic Letter 2000-27 | September 15, 2000 | With Krainer

The Gramm-Leach-Bliley Act and Financial Integration

Economic Letter 2000-10 | March 31, 2000

FRBSF Publications Prior to 2000
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Capital regulation and bank lending
Frederick T. Furlong in Economic Review, Federal Reserve Bank of San Francisco, 1992

M2 and the business cycle
Frederick T. Furlong & John P. Judd in FRBSF Economic Letter, Federal Reserve Bank of San Francisco, 1991

Can bank capital regulation work? research revisited
Frederick T. Furlong in Economic Review, Federal Reserve Bank of San Francisco, 1991

Capital regulation and bank risk-taking: a note (reprinted from Journal of Banking and Finance)
Frederick T. Furlong & Michael C. Keeley in Economic Review, Federal Reserve Bank of San Francisco, 1991

A reexamination of mean-variance analysis of bank capital regulation ( reprinted from Journal of Banking and Finance)
Michael C. Keeley & Frederick T. Furlong in Economic Review, Federal Reserve Bank of San Francisco, 1991

Corporate cash flow and investment
Frederick T. Furlong & Michael R. Weiss in FRBSF Economic Letter, Federal Reserve Bank of San Francisco, 1990

Regional effects of the thrift bailout
Frederick T. Furlong in FRBSF Economic Letter, Federal Reserve Bank of San Francisco, 1990

Tax incentives for corporate leverage in the 1980s
Frederick T. Furlong in Economic Review, Federal Reserve Bank of San Francisco, 1990

The yield curve and recessions
Frederick T. Furlong in FRBSF Economic Letter, Federal Reserve Bank of San Francisco, 1989

Corporate debt
Frederick T. Furlong in FRBSF Economic Letter, Federal Reserve Bank of San Francisco, 1989

Commodity prices as a guide for monetary policy
Frederick T. Furlong in Economic Review, Federal Reserve Bank of San Francisco, 1989

International dimensions of U.S. economic policy in the 1980s
Frederick T. Furlong in Economic Review, Federal Reserve Bank of San Francisco, 1989

Changes in bank risk
Frederick T. Furlong in FRBSF Economic Letter, Federal Reserve Bank of San Francisco, 1988

Changes in bank risk-taking
Frederick T. Furlong in Economic Review, Federal Reserve Bank of San Francisco, 1988

Assessing bank antitrust standards
Frederick T. Furlong in FRBSF Economic Letter, Federal Reserve Bank of San Francisco, 1987

Regulating bank capital
Michael C. Keeley & Frederick T. Furlong in FRBSF Economic Letter, Federal Reserve Bank of San Francisco, 1987

A deposit insurance puzzle
Michael C. Keeley & Frederick T. Furlong in FRBSF Economic Letter, Federal Reserve Bank of San Francisco, 1987

FCS: at the crossroad, again
Frederick T. Furlong & John M. Nielsen in FRBSF Economic Letter, Federal Reserve Bank of San Francisco, 1987

Subordinated debt as bank capital
Frederick T. Furlong & Michael C. Keeley in FRBSF Economic Letter, Federal Reserve Bank of San Francisco, 1987

Bank capital regulation and asset risk
Frederick T. Furlong & Michael C. Keeley in Economic Review, Federal Reserve Bank of San Francisco, 1987

Bank capital regulation: a reconciliation of two viewpoints
Michael C. Keeley & Frederick T. Furlong in Working Papers in Applied Economic Theory, Federal Reserve Bank of San Francisco, 1987

Does capital regulation affect bank risk-taking?
Frederick T. Furlong & Michael C. Keeley in Working Papers in Applied Economic Theory, Federal Reserve Bank of San Francisco, 1987

Bank runs
Frederick T. Furlong & Michael C. Keeley in FRBSF Economic Letter, Federal Reserve Bank of San Francisco, 1986

"Recapitalizing" the FSLIC
Frederick T. Furlong in FRBSF Economic Letter, Federal Reserve Bank of San Francisco, 1986

The Wells Fargo-Crocker acquisition
Frederick T. Furlong in FRBSF Economic Letter, Federal Reserve Bank of San Francisco, 1986

Bank regulation and the public interest
Michael C. Keeley & Frederick T. Furlong in Economic Review, Federal Reserve Bank of San Francisco, 1986

Western agriculture and the trade balance
Frederick T. Furlong & Randall J. Pozdena in FRBSF Economic Letter, Federal Reserve Bank of San Francisco, 1985

Agricultural credit conditions
Frederick T. Furlong & Randall J. Pozdena in FRBSF Economic Letter, Federal Reserve Bank of San Francisco, 1985

Savings and loan asset composition and the mortgage market
Frederick T. Furlong in Economic Review, Federal Reserve Bank of San Francisco, 1985

The search for financial stability: postscript
Frederick T. Furlong & Michael C. Keeley in Proceedings, Federal Reserve Bank of San Francisco, 1985

FDIC’s modified payout plan
Frederick T. Furlong in FRBSF Economic Letter, Federal Reserve Bank of San Francisco, 1984

The Federal safety net for commercial banks: pt. I
Frederick T. Furlong & Michael W. Keran in FRBSF Economic Letter, Federal Reserve Bank of San Francisco, 1984

The Federal safety net for commercial banks: pt. II
Frederick T. Furlong & Michael W. Keran in FRBSF Economic Letter, Federal Reserve Bank of San Francisco, 1984

Market responses to Continental Illinois
Frederick T. Furlong in FRBSF Economic Letter, Federal Reserve Bank of San Francisco, 1984

New limits for the New Year
Frederick T. Furlong in FRBSF Economic Letter, Federal Reserve Bank of San Francisco, 1984

A view on deposit insurance coverage
Frederick T. Furlong in Economic Review, Federal Reserve Bank of San Francisco, 1984

Deregulation and withdrawal penalties
Frederick T. Furlong & Gary C. Zimmerman in FRBSF Economic Letter, Federal Reserve Bank of San Francisco, 1983

New deposit instruments
Frederick T. Furlong in Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), 1983

Other Works
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Safe and Sound Banking, 20 Years Later: What Was Proposed and What Has Been Adopted

Forthcoming in FRB Atlanta Economic Review | With Kwan

Financial Turmoil and the Economy

2008 FRBSF Annual Report, 2009, 6-14 | With Kwan

The Subprime Mortgage Market: National and Twelfth District Developments

2007 FRBSF Annual Report, 2008, 6-17 | With Krainer

Shaping the Economy

FRBSF 2003 Annual Report, January 2004

Improving Public Disclosure in Banking

Federal Reserve System Staff Study 173, March 2000 | With Kwan and et al.

Domestic and International U.S. Economic Policy in the 1980s

Paper delivered at the Eighth Pacific Basin Central Bank Conference on Economic Modeling in Kuala Lumpur, Malaysia, November 1988 | With Beebe

New Deposit Instruments

Federal Reserve Bulletin, May 1983

Checkwriting and Other Redemption Activity at Money Market Funds

Federal Reserve Board, August 1982 | With Moran

The Role of the Federal Agencies in Meeting the Liquidity Requirements of Thrift Institutions

In The Report of the Interagency Task Force on Thrift Institutions | Washington, D.C.; U.S. Government Printing Office, 1980