The Federal Reserve Bank of New York works to promote sound and well-functioning financial systems and markets through its provision of industry and payment services, advancement of infrastructure reform in key markets and training and educational support to international institutions.
The New York Fed engages with individuals, households and businesses in the Second District and maintains an active dialogue in the region. The Bank gathers and shares regional economic intelligence to inform our community and policy makers, and promotes sound financial and economic decisions through community development and education programs.
In response to the enormous losses experienced during the recent financial crisis, the Basel Committee on Banking Supervision reached a new international agreement on the amount of capital banks will be required to hold. The “Basel 3” agreement introduces a new, two-tiered structure for regulatory capital requirements involving much more stringent standards for the amount of common equity banks must hold. In a previous post, I discussed how the minimum capital requirement component of the Basel 3 agreement was calibrated. In this post, I explain how the other component—the common equity buffer—was calibrated using information on losses during the recent and past financial crises.
Reserve requirements—a critical tool available to Federal Reserve policymakers for the implementation of monetary policy—stipulate the amount of funds that banks and other depository institutions must hold in reserve against specified deposits, essentially checking accounts. On October 18, 2011, the Fed proposed to simplify the rules that govern these requirements, with the aim of reducing cost and burden on depository institutions and on the Federal Reserve. The simplifications will also allow the Fed to modernize the infrastructure that supports reserve administration without compromising the role that reserve requirements play in the conduct of monetary policy.
The Federal Open Market Committee (FOMC) recently announced its intention to extend the average maturity of its holdings of securities by purchasing $400 billion of Treasury securities with remaining maturities of six years to thirty years and selling an equal amount of Treasury securities with remaining maturities of three years or less. The nominal size of this maturity extension program, at $400 billion, is smaller than the $600 billion of purchases during the second round of large-scale asset purchases (LSAP 2) completed in June 2011. The two programs are more comparable in size, however, once we consider the characteristics of the securities expected to be purchased and sold under the maturity extension program. In this post, we explain what this means and why it matters.
We have just posted the proceedings of a workshop held on October 7, 2011, which gathered the very latest thinking by academics, central bankers, and practitioners on how the repo market should be reformed to help avoid a recurrence of the recent financial crisis. In this large and important market, securities dealers find short-term funding for a substantial portion of their own and their clients’ assets. The difficulties experienced by Bear Stearns and Lehman Brothers in 2008 clearly owed much to the precipitous declines in the funding that these firms had long obtained from the tri-party repo market.
Recent financial developments are calling into question the future of regional economic integration. Market confidence deteriorates across countries in a contagious way. The place is Europe, the time is . . . now? Or twenty years ago? In fact, in the early 1990s Europe went through a systemic crisis that displays remarkable similarities to today’s events. In this post, we go back to those momentous times and briefly recall how the last Europe-wide crisis started, unfolded, and concluded. The 1992 crisis was eventually resolved, suggesting that there may be some light at the end of the current tunnel as well.
In 1961, the Merchandise National Bank of Chicago produced a film presenting the newest development in leading-edge banking technology: computers.
The computers enabled bank employees to process checks in a fraction of a second as well as access customer information saved in databases. This modern machinery included magnetic reel-to-reel tape and an automatic typewriter, among other space-age tools, and processed 30,000 transactions in three-to-four hours of computing time. This film provides an illuminating view of the early days of electronic banking.
Wonk alert: technical content One of the many striking features of the recent financial crisis was the sudden “freeze” in the market for the rollover of short-term debt. In this post, based on my paper “Rollover Risk and Market Freezes,” I explain how firms may be unable to borrow overnight against high-quality assets even in the absence of the usual frictions (asymmetric information, adverse selection, or moral hazard) that can cause credit rationing.
The Federal Reserve introduced the Term Auction Facility (TAF) in December 2007 to provide term loans to banks during the recent financial crisis. In this post, we report on the effectiveness of the TAF during the early stages of the crisis. We find that the TAF was associated with a decrease in the “liquidity premium,” one component of a bank's borrowing cost. In other words, the TAF worked as intended.
In 1993, a plan hatched by four former economics grad school students helped rescue Brazil from a fifty-year inflationary spiral after all other attempts had failed. Their key idea was to create a virtual currency with a stable value—even though it had no bills, coins, or status as legal tender. Amazingly, this monetary fiction helped an entire nation of consumers and producers act in a manner that put Brazil on a firmer path to economic growth.
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