Liberty Street Economics
Return to Liberty Street Economics Home Page

140 posts on "Financial Institutions"

April 18, 2016

What’s behind the March Spike in Treasury Fails?



U.S. Treasury security settlement fails—whereby market participants are unable to make delivery of securities to complete transactions—spiked in March 2016 to their highest level since the financial crisis. As noted in this post, fails delay the settlement of transactions and can therefore lead to illiquidity, create operational risk, and increase counterparty credit risk. Fails in the Treasury market attract particular attention because of the market’s key role for global investors as a pricing benchmark, hedging instrument, and reserve asset. So what drove the March spike? In this post, we show that much of it reflected sequential fails of benchmark ten-year notes and thirty-year bonds, but that fails in seasoned issues—which have been trending upward for several years—were also elevated.

Continue reading "What’s behind the March Spike in Treasury Fails?" »

Posted by Blog Author at 7:00 AM in Financial Institutions | Permalink | Comments (4)

April 14, 2016

A Peek behind the Curtain of Bank Supervision



Blog_supervision_4_460x288px

Since the financial crisis, bank regulatory and supervisory policies have changed dramatically both in the United States (Dodd-Frank Wall Street Reform and Consumer Protection Act) and abroad (Third Basel Accord). While these shifts have occasioned much debate, the discussion surrounding supervision remains limited because most supervisory activity— both the amount of supervisory attention and the demands for corrective action by supervisors—is confidential. Drawing on our recent staff report “Parsing the Content of Bank Supervision,” this post provides a peek behind the scenes of bank supervision, presenting a statistical linguistic analysis based on confidential communications from Fed supervisors to the banks they supervise. Our analysis tackles several fundamental questions: What are the precise supervisory issues being raised? What drives the issues supervisors bring up? How does bank supervision relate to the other two pillars of the Basel Accord: capital regulations and market discipline?

Continue reading "A Peek behind the Curtain of Bank Supervision" »

Posted by Blog Author at 7:00 AM in Financial Institutions | Permalink | Comments (0)

April 13, 2016

How Does Supervision Affect Banks?



Blog_supervision_3_460x288px

Supervisors monitor banks to assess the banks’ compliance with rules and regulations but also to ensure that they engage in safe and sound practices (see our earlier post What Do Banking Supervisors Do?). Much of the work that bank supervisors do is behind the scenes and therefore difficult for outsiders to measure. In particular, it is difficult to know what impact, if any, supervisors have on the behavior of banks. In this post, we describe a new Staff Report in which we attempt to measure the impact that supervision has on bank performance. Does more attention by supervisors lead to lower risk at banks and, if so, at what cost to profitability or growth?

Continue reading "How Does Supervision Affect Banks?" »

Posted by Blog Author at 7:00 AM in Financial Institutions | Permalink | Comments (0)

April 12, 2016

The Economics of Bank Supervision: So Much to Do, So Little Time



Blog_supervision_2_460x288px

While bank regulation and supervision are the two main components of banking policy, the difference between them is often overlooked and the details of supervision can appear shrouded in secrecy. In this post, which is based on a recent staff report, we provide a framework for thinking about supervision and its relation to regulation. We then use data on supervisory efforts of Federal Reserve bank examiners to describe how supervisory efforts vary by bank size and risk, and to measure key trade-offs in allocating resources.

Continue reading "The Economics of Bank Supervision: So Much to Do, So Little Time" »

Posted by Blog Author at 7:00 AM in Financial Institutions | Permalink | Comments (0)

April 11, 2016

Supervising Large, Complex Financial Institutions: Defining Objectives and Measuring Effectiveness



Supervising Large, Complex Financial Institutions: Defining Objectives and Measuring Effectiveness

Last month the New York Fed held a conference on supervising large, complex financial institutions. The event featured presentations of empirical and theoretical research by economists here, commentary by academic researchers, and panel discussions with policymakers and senior supervisors. The conference was motivated by the recognition that supervision is distinct from regulation, but that the difference between them is often not well understood. The discussion focused on defining objectives for supervising the large, complex financial companies that figure so prominently in our financial system and ways of measuring how effectively supervision achieves these goals. This post summarizes the key themes from the conference and introduces the more in-depth posts that will follow in this blog series.

Continue reading "Supervising Large, Complex Financial Institutions: Defining Objectives and Measuring Effectiveness" »

Posted by Blog Author at 10:07 AM in Financial Institutions | Permalink | Comments (0)

April 06, 2016

Bank Regulation and Bank Complexity



LSE_2016_bank-regulation_460_art

U.S. Bank Holding Companies (BHCs) currently control about 3,000 subsidiaries that provide community housing services—such as building low-income housing units, maintaining shelters, and providing housing services to the elderly and disabled. This aspect of U.S. BHC activity is intriguing because it departs from the traditional deposit-taking and loan-making operations typically associated with banks. But perhaps most importantly, the sheer number of these subsidiaries makes one think about the organizational complexity of U.S. BHCs. This is an issue that has generated much discussion in recent years. In this post we describe the emergence and growth of community housing subsidiaries and discuss to what extent they contribute to the complexity of their parent organizations.

Continue reading "Bank Regulation and Bank Complexity" »

Posted by Blog Author at 7:00 AM in Financial Institutions, Housing | Permalink | Comments (0)

April 04, 2016

Are Stress Tests Still Informative?



Are Stress Tests Still Informative?

Since the height of the financial crisis, each year the Federal Reserve has disclosed the results of its stress tests, and stress testing has become “business as usual” in the U.S. banking industry. In this post, we assess whether market participants find supervisory stress test disclosures informative. After half a decade, do the disclosures still contain information that the market finds valuable?

Continue reading "Are Stress Tests Still Informative?" »

Posted by Blog Author at 7:00 AM in Financial Institutions | Permalink | Comments (0)

March 07, 2016

Banking Deserts, Branch Closings, and Soft Information



LSE_2016_bank-deserts_morgan_460_art

U.S. banks have shuttered nearly 5,000 branches since the financial crisis, raising concerns that more low-income and minority neighborhoods may be devolving into “banking deserts” with inadequate, or no, mainstream financial services. We investigate this issue and also ask whether such neighborhoods are particularly exposed to branch closings—a development that, according to recent research, could reduce credit access, even with other branches present, by destroying “soft” information about borrowers that influences lenders’ credit decisions. Our findings are mixed, suggesting that further study of these concerns is warranted.

Continue reading "Banking Deserts, Branch Closings, and Soft Information " »

Posted by Blog Author at 7:00 AM in Financial Institutions, Household Finance | Permalink | Comments (0)

February 19, 2016

Did Third Avenue’s Liquidation Reduce Corporate Bond Market Liquidity?



Liquidity Series III, eleventh of eleven posts

The announced liquidation of Third Avenue’s high-yield Focused Credit Fund (FCF) on December 9, 2015, drew widespread attention and reportedly sent ripples through asset markets. Events of this kind have the potential to increase the demand for market liquidity, as investors revise expectations, reassess risk exposures, and fulfill the need to trade. Moreover, portfolio effects and general fears of contagion may increase the demand for liquidity in assets only remotely related to a liquidating firm’s direct holdings. In this post, we examine whether FCF’s announced liquidation affected liquidity and returns in broader corporate bond markets.

Continue reading "Did Third Avenue’s Liquidation Reduce Corporate Bond Market Liquidity?" »

Quantifying Potential Spillovers from Runs on High-Yield Funds



Liquidity Series III: Tenth of eleven posts

On December 9, 2015, Third Avenue Focused Credit Fund (FCF) announced a “Plan of Liquidation,” effectively halting investor redemptions. This announcement followed a period of poor performance and large outflows. Assets at the fund had declined from a peak of $2.5 billion in May of 2015 to $942 million in November. Investors had redeemed more than $1.1 billion in shares since April 2015, and the fund’s year-to-date performance as of November had fallen below -21 percent. The FCF “run” highlights the need to quantify the potential for systemic risk among open-end mutual funds and the potential for contagion in the event of more widespread runs on other vulnerable funds. In this post, we first characterize open-end mutual funds that seem vulnerable to redemptions in much the same way as FCF. We then analyze the potential for fire-sale spillovers to other mutual funds if large redemptions in “at-risk” funds were to occur.


Continue reading "Quantifying Potential Spillovers from Runs on High-Yield Funds" »

Posted by Blog Author at 7:00 AM in Financial Institutions, Financial Markets | Permalink | Comments (1)
About the Blog
Liberty Street Economics features insight and analysis from economists working at the intersection of research and policy.

The views expressed are those of the authors, and do not necessarily reflect the position of the New York Fed or the Federal Reserve System.


Economic Research Tracker for iPad®

Liberty Street Economics is now available on the iPad® and can be customized by economic research topic or economist.

Most Viewed

Last 12 Months
LSE in the News

Access to linked content may require a subscription.


Useful Links
Feedback & Comment Guidelines
Liberty Street Economics invites you to comment on a post.
Comment Guidelines
We encourage you to submit comments, queries and suggestions on our blog entries. We will post them below the entry, subject to the following guidelines:
Please be brief: Comments are limited to 1500 characters.
Please be quick: Comments submitted more than 1 week after the blog entry appears will not be posted.
Please try to submit before COB on Friday: Comments submitted after that will not be posted until Monday morning.
Please be on-topic and patient: Comments are moderated and will not appear until they have been reviewed to ensure that they are substantive and clearly related to the topic of the post. The moderator will not post comments that are abusive, harassing, or threatening; obscene or vulgar; or commercial in nature; as well as comments that constitute a personal attack.  We reserve the right not to post a comment; no notice will be given regarding whether a submission will or will not be posted.
Disclosure Policy
The LSE editors ask authors submitting a post to the blog to confirm that they have no conflicts of interest as defined by the American Economic Association in its Disclosure Policy. If an author has sources of financial support or other interests that could be perceived as influencing the research presented in the post, we disclose that fact in a statement prepared by the author and appended to the author information at the end of the post. If the author has no such interests to disclose, no statement is provided. Note, however, that we do indicate in all cases if a data vendor or other party has a right to review a post.
Archives