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20 posts on "Crisis"

February 07, 2014

Crisis Chronicles: The Commercial Credit Crisis of 1763 and Today’s Tri-Party Repo Market

James Narron and David Skeie

During the economic boom and credit expansion that followed the Seven Years’ War (1756-63), Berlin was the equivalent of an emerging market, Amsterdam’s merchant bankers were the primary sources of credit, and the Hamburg banking houses served as intermediaries between the two. But some Amsterdam merchant bankers were leveraged far beyond their capacity. When a speculative grain deal went bad, the banks discovered that there were limits to how much risk could be effectively hedged. In this issue of Crisis Chronicles, we review how “fire sales” drove systemic risk in funding markets some 250 years ago and explain why this could still happen in today’s tri-party repo market.

Continue reading "Crisis Chronicles: The Commercial Credit Crisis of 1763 and Today’s Tri-Party Repo Market" »

Posted by Blog Author at 7:00 AM in Credit, Crisis, Crisis Chronicles , Fed Funds, Inflation | Permalink | Comments (5)

October 16, 2013

A Look at Bank Loan Performance

Tara Sullivan and James Vickery

U.S. banks experienced a rapid rise in loan delinquencies and defaults during the 2007-09 recession, driven by rising unemployment and falling real estate prices, among other factors. More than four years on from the official end of the recession, how do things look now?

Continue reading "A Look at Bank Loan Performance" »

Posted by Blog Author at 7:00 AM in Crisis, Financial Institutions | Permalink | Comments (3)

October 02, 2013

Capital Flight inside the Euro Area: Cooling Off a Fire Sale

Matthew Higgins and Thomas Klitgaard

Countries in the euro area periphery such as Greece, Italy, Portugal, and Spain saw large-scale capital flight in 2011 and the first half of 2012. While events unfolded much like a balance of payments crisis, the contraction in domestic credit was less severe than would ordinarily be caused by capital flight of this scale. Why was that? An important reason is that much of the capital flight was financed by credits to deficit countries’ central banks, with those credits extended collectively by other central banks in the euro area. This balance of payments financing was paired with policies to supply liquidity to periphery commercial banks. Absent these twin lifelines, periphery countries would have had to endure even steeper recessions from the sudden withdrawal of foreign capital.

Continue reading "Capital Flight inside the Euro Area: Cooling Off a Fire Sale" »

March 21, 2012

Just Released: January’s Indexes of Coincident Economic Indicators Show Fairly Robust Activity across the Region

Jason Bram and James Orr

The January Indexes of Coincident Economic Indicators (CEIs) for New York State, New York City, and New Jersey, released today, show fairly robust economic growth entering 2012. Importantly, this month’s release incorporates the annual benchmark employment revisions for 2010 and 2011, with the revised indexes revealing that the regional economy had more momentum in the second half of 2011 than previously thought.

Continue reading "Just Released: January’s Indexes of Coincident Economic Indicators Show Fairly Robust Activity across the Region" »

October 24, 2011

Using Crisis Losses to Calibrate a Regulatory Capital Buffer

Beverly Hirtle

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.

Continue reading "Using Crisis Losses to Calibrate a Regulatory Capital Buffer" »

Posted by Blog Author at 10:00 AM in Crisis, Financial Institutions | Permalink | Comments (0)

October 17, 2011

Back to the Future: Revisiting the European Crisis

Paolo Pesenti

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.

Continue reading "Back to the Future: Revisiting the European Crisis" »

October 12, 2011

Short-Term Debt, Rollover Risk, and Financial Crises

Tanju Yorulmazer

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.

Continue reading "Short-Term Debt, Rollover Risk, and Financial Crises" »

October 11, 2011

Did the Fed’s Term Auction Facility Work?

James McAndrews, Asani Sarkar, and Zhenyu Wang

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.

Continue reading "Did the Fed’s Term Auction Facility Work? " »

Posted by Blog Author at 10:00 AM in Crisis, Fed Funds, Financial Institutions, Financial Markets | Permalink | Comments (0)

June 29, 2011

Did Trade Finance Contribute to the Global Trade Collapse?

Mary Amiti and David Weinstein*

The financial crisis of 2008-09 brought about one of the largest collapses in world trade since the end of World War II. Between the first quarter of 2008 and the first quarter of 2009, the value of real global GDP fell 4.6 percent while exports plummeted 17 percent, as can be seen in the chart below. The dramatic decline in world trade—a loss of $761 billion in nominal exports—came through two channels: decreased demand for imports and supply effects, most likely arising from financial constraints. In this post, we look at evidence that supply effects, including curtailed funding for export-related activities, played a key role in the trade collapse—and thus in the transmission of the financial crisis from Wall Street to “Main Street,” here and abroad.

Continue reading "Did Trade Finance Contribute to the Global Trade Collapse?" »

April 04, 2011

CoVaR: A Measure of Systemic Risk

Tobias Adrian and Markus K. Brunnermeier*

Wonk alert: technical content
During the 2007-09 financial crisis, we saw that losses spread rapidly across institutions, threatening the entire financial system. Distress spread from structured investment vehicles to traditional deposit-taking banks and on to investment banks, and the failures of individual institutions had outsized impacts on the financial system. These spillovers were realizations of systemic risk—the risk that the distress of an individual institution, or a group of institutions, will induce financial instability on a broader scale, distorting the supply of credit to the real economy. In this post, we draw on our working paper “CoVaR”—issued in the New York Fed’s Staff Reports series—to do two things: first, propose a new measure of systemic risk and, second, outline a method that can help bring about the early detection of systemic risk buildup.

Continue reading "CoVaR: A Measure of Systemic Risk" »

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