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100 posts on "Financial Institutions"

December 03, 2014

Why Do Banks Keep All That “Fracking” Money?



Blog_fracking2_iStock_000048579590_450x350
Second in a two-part series

In a recent post, I discussed the significant impact that “fracking” and other unconventional energy development has had on bank deposits. Using this deposit windfall, I estimated how banks allocate these funds, finding that over the recent business cycle they reduced the portion used for loans. In this post, I will discuss what may have influenced the decision to lend these funds or to hold liquid assets like cash or securities.

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

December 01, 2014

What Do Banks Do with All That "Fracking" Money?



Blog_fracking1b_iStock_00004857888_450x225
First in a two-part series

Banks play a crucial role in the economy by channeling funds from savers to borrowers. The ability of banks to accomplish this intermediation has become an important element in understanding the causes and consequences of business cycles. In a recent staff report, I investigate how a positive deposit windfall translates into investments by banks. This post, the first of two, shows how the development of new energy resources has led to deposit inflows to banks and how that can be used to estimate banks’ investment decisions over the recent business cycle. The second post will look at factors that might explain the business cycle patterns observed below.


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Posted by Blog Author at 7:00 AM in Financial Institutions | Permalink | Comments (2)

November 03, 2014

Evolution of S-Corporation Banks



Commercial banks didn’t become eligible for S-Corporation status until 1997, when President Bill Clinton signed legislation (the Small Business Job Protection Act of 1996) that allowed commercial banks to select S-Corporation as their preferred tax status. In this post, we discuss the features and history of S-Corporations, as well as the effect of lifting the restriction on banks’ organizational tax choice.


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

October 20, 2014

Don’t Be Late! The Importance of Timely Settlement of Tri-Party Repo Contracts



Tri-party repo is popular among securities dealers as a way to raise short-term funding. The tri-party repo settlement process has been improved, and continues to be improved, with the implementation of a set of recent reforms. Two main goals of these reforms are to sharply reduce the amount of liquidity needed to facilitate the settlement of tri-party repo contracts, and to increase the use of more resilient sources of liquidity (for example, term financing and committed credit) to ensure that settlement can occur in good and bad times. In this post, we detail how the reforms have affected the sources of liquidity that dealers can use to facilitate settlement of tri-party repo contracts. We then explain cash investors’ role in the settlement process, and highlight how their current practice of sending principal payments late in the day disrupts the timely settlement of tri-party repo contracts.


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Posted by Blog Author at 7:00 AM in Financial Institutions, Financial Markets | Permalink | Comments (1)

October 15, 2014

How Do Liquidity Conditions Affect U.S. Bank Lending?



The recent financial crisis underscored the importance of understanding how liquidity conditions for banks (or other financial institutions) influence the banks’ lending to domestic and foreign customers. Our recent research examines the domestic and international lending responses to liquidity risks across different types of large U.S. banks before, during, and after the global financial crisis. The analysis compares large global U.S. banks—that is, those that have offices in foreign countries and are able to move liquidity from affiliates across borders—with large domestic U.S. banks, which have to rely on financing raised in capital markets and from depositors to extend credit and issue loans. One key result of our study, detailed below, is that the internal liquidity management by global banks has, on average, mitigated the effects of aggregate liquidity shocks on domestic lending by these banks.

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

October 01, 2014

Cross-Country Evidence on Transmission of Liquidity Risk through Global Banks

Claudia M. Buch, James Chapman, and Linda Goldberg

Over the past thirty years, the typical large bank has become a global entity with subsidiaries in many countries. In parallel, financial liberalization has increased the interconnectedness of banking systems, with domestic banking systems becoming more exposed to shocks transmitted through foreign banks. This globalization of banking propagated liquidity risk during the global financial crisis and subsequent euro area crisis. Unfortunately, little is known about how cross-border operations of global banks transmit liquidity shocks between countries. The seminal work by Peek and Rosengren (1997, 2000) provides early examples of how bank-level data can help identify the specific transmission channels. There are, however, two limitations to conducting this line of research. First, there is a lack of public data on the balance sheets of global banks. Second, it is difficult to compare the results of different research projects that use sensitive supervisory data collected by banking supervisors and central banks. Together with other scholars, we established the International Banking Research Network (IBRN) to overcome these limitations.

Continue reading "Cross-Country Evidence on Transmission of Liquidity Risk through Global Banks" »

September 29, 2014

Direct Purchases of U.S. Treasury Securities by Federal Reserve Banks

Kenneth D. Garbade

From time to time, and most recently in the April 2014 meeting of the Treasury Borrowing Advisory Committee, U.S. Treasury officials have questioned whether the Treasury should have a safety net that would allow it to continue to meet its obligations even in the event of an unforeseen depletion of its cash balances. (Cash balances can be depleted by an unanticipated shortfall in revenues or a spike in disbursements, an inability to access credit markets on a timely basis, or an auction failure.) The original version of the Federal Reserve Act provided a robust safety net because the act implicitly allowed Reserve Banks to buy securities directly from the Treasury. This post reviews the history of the Fed’s direct purchase authority. (A more extensive version of the post appears in this New York Fed staff report.)

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Posted by Blog Author at 7:00 AM in Financial Institutions, Monetary Policy | Permalink | Comments (2)

September 19, 2014

What Explains the June Spike in Treasury Settlement Fails?



In June of this year—as we noted in the preceding post—settlement fails in U.S. Treasury securities spiked to their highest level since the implementation of the fails charge in May 2009. Our first post reviewed what fails are, why they arise, and how they can be measured. In this post, we dig into the fails data to identify possible explanations for the high level of fails in June. We observe that sequential fails of several benchmark securities accounted for the lion’s share of fails in June, but that fails in seasoned securities—which have been trending upward for some time—were also elevated.


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Posted by Blog Author at 7:05 AM in Financial Institutions, Financial Markets | Permalink | Comments (3)

Measuring Settlement Fails



In June 2014, settlement fails of U.S. Treasury securities reached their highest level since the implementation of the Treasury fails charge in May 2009, attracting significant attention from market participants. In this post, we review what fails are, why they are of interest, and how they can be measured. In a companion post following this one, we evaluate the particular circumstances of the June 2014 fails.


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

August 25, 2014

Turnover in Fedwire Funds Has Dropped Considerably since the Crisis, but It’s Okay

Rodney Garratt, Antoine Martin, and James McAndrews

The Fedwire® Funds Service is a large-value payment system, operated by the Federal Reserve Bank of New York, that facilitates more than $3 trillion a day in payments. Turnover in Fedwire Funds, the value of payments made for every dollar of liquidity provided, has dropped nearly 75 percent since the crisis. Should we be concerned? In this post, we explain why turnover has dropped so much and argue that it is, in fact, a good thing.

Continue reading "Turnover in Fedwire Funds Has Dropped Considerably since the Crisis, but It’s Okay" »

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