Post Mortem on Federal Reserve's Functional Cost Analysis Program: How Useful Was the FCA?


Review of Financial Economics

2004, vol. 13, n°1-2, pp.121-148

Départements : Finance, GREGHEC (CNRS)

I conduct a postmortem analysis on the now defunct Functional Cost Analysis (FCA) Program. I examine whether FCA banks were representative of U.S. bank population. I assess the costs and benefits of participation in a selection model and test whether participation in the program improves bank cost and profit efficiency. I find that FCA banks are not statistically representative of the universe of U.S. banks, but the differences are economically small. I also find that participation adds little, if any, improvement to performance. It would appear that the Federal Reserve System (the Fed) was justified in ending a subsidized service to community banks