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Lakshmi Balasubramanyan |

Research Economist

Lakshmi Balasubramanyan, Research Economist

Lakshmi Balasubramanyan is a research economist in the Supervision and Regulation Department of the Federal Reserve Bank of Cleveland. She is primarily interested in the industrial organization of banking, the impact of banking regulation, and applied financial economics.

Prior to joining the Federal Reserve Bank of Cleveland in 2011, Dr. Balasubramanyan taught finance at Indiana State University. She earned her undergraduate and master of social science degrees in economics from the National University of Singapore. She holds an MS in finance and a PhD in applied economics, both from the Pennsylvania State University.

  • Fed Publications
  • Other Publications
Title Date Publication Author(s) Type

 

 April, 2012 Federal Reserve Bank of Cleveland, working paper no. 12-09 ; David D VanHoose; Working Papers
Abstract: This paper presents a dynamic model of a bank's optimal choices of imposing a binding liquidity-coverage-ratio (LCR) constraint. Our baseline balance-sheet dynamics starts with portfolio separation and no LCR constraint. Under a scenario in which regulators prohibit banks from applying securities to fulfill the LCR constraint, portfolio separation continues to hold, but deposit holdings depend on the extent to which the LCR constraint is binding. When banks are allowed to apply securities toward satisfying the constraint, portfolio separation can break down and lead to ambiguous effects on optimal dynamic loan and deposit paths. Our results indicate that under special cases in which portfolio separation holds, the LCR constraint affects bank-sheet dynamics in ways not previously recognized. As regulators move forward in implementing Basel III style LCR, it is imperative to understand the effects of the LCR constraint on bank balance-sheet dynamics.
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Title Date Publication Author(s) Type
Declining Cost Efficiency as a Signal of Increasing Bank Vulnerability: An Entropy Based Approach

 

 July, 2010 Applied Economics Letters, vol. 17, no. 18, pp 1769-1778 ; Spiro Stefanou; Jeffery R Stokes; Journal Article
Abstract: The mortgage crisis of 2007/08 has impacted the health of both small and large commercial banks in the financial services industry. The pressing question is how do regulators and bank monitors identify the warning signals of bank vulnerability and bank risk because of weakening credit and asset markets. Linking poor bank performance and efficiency, we employ an information theoretic approach to derive the cost efficiency scores and evaluate the effects of crisis signalling factors such as different types of loans on cost efficiency of the smallest and largest commercial banks.
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Generalized Maximum Entropy Approach to Commercial Bank Size and Variance Heterogeneity in Risk

 

 April, 2010 Journal of Economics and Finance, forthcoming ; Spiro Stefanou; Jeffery R Stokes; Journal Article
Abstract: In this paper, we investigate the effect of bank size differences on cost efficiency heterogeneity using a heteroskedastic stochastic frontier model. This model is implemented by using an information theoretic maximum entropy approach. We explicitly model both bank size and variance heterogeneity simultaneously. We find that non-performing loans, federal insurance premium, legal expenses and director fees drive bank inefficiency as the bank becomes larger.
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How Well Is Productivity Being Priced?

 

 November, 2009 Journal of Economics and Finance, vol. 34, no. 4, pp 415-429 ; Ramesh Mohan; Journal Article
Abstract: By understanding how productivity shocks affect firm value, an entrepreneur can better compute the risk premium associated with uncertainty in production. This study explores the link between plant-level productivity and firm value for the baking and confectionary sector. From the impulse response analysis, the study finds that there is a lag in the firm's response to productivity shocks at the plant level. Further, the paper employs Tobin's Q as a valuation metric that acts as a link between a firm's manufacturing plant productivity and firm value. Empirical estimations indicate that there is comovement between firm valuation and plant-level productivity.
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Credit Risk Rating Migration and Unobserved Borrower Heterogeneity

 

 May, 2008 Agricultural Finance Review, vol 8, no. 2, pp 237-253. ; Jonathan B Dressler; Jeffery R Stokes; Journal Article
Abstract: Some past studies of credit risk ratings migration have found trend reversals and evidence that the data-generating process is nonstationary. Using a sample of Farm Credit System mortgages, we find no compelling statistical evidence of either phenomenon. We do find evidence that our sample of loans may be characterized by two types of borrowers—namely, movers and stayers. This type of borrower heterogeneity is unobserved because movers who do not migrate are indistinguishable from stayers who never migrate. We report on the development of a flexible nonparametric model for estimating transition probabilities. The model can also be used to estimate nonstationary transition probabilities and an example is provided.
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