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146 posts on "Financial Institutions"

July 08, 2016

Hey, Economist! Why—and When—Did the Treasury Embrace Regular and Predictable Issuance?



LSE_Why—and When—Did the Treasury Embrace Regular and Predictable Issuance?

Few people know the Treasury market from as many angles as Ken Garbade, a senior vice president in the Money and Payments Studies area of the New York Fed’s Research Group. Ken taught financial markets at NYU’s graduate school of business for many years before heading to Wall Street to assume a position in the research department of the primary dealer division of Bankers Trust Company. At Bankers, Ken conducted relative-value research on the Treasury market, assessing how return varies relative to risk for particular Treasury securities. For a time, he also traded single-payment Treasury obligations known as STRIPS—although not especially successfully, he notes.

Continue reading "Hey, Economist! Why—and When—Did the Treasury Embrace Regular and Predictable Issuance?" »

June 20, 2016

Risky Business: Government Mortgage Insurance Programs



Editors’ note: The column headings in the final table in this post have been corrected from an earlier version.

LSE_Risky Business: Government Mortgage Insurance Programs

Homeownership has long been a U.S. public policy goal. One of the many ways that the federal government subsidizes homeownership is through mortgage insurance programs operated by the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), and the USDA’s Rural Housing Service (RHS). These programs facilitate home financing opportunities for first-time and low- and moderate-income homebuyers. Virtually all of these government-insured mortgages are securitized by Ginnie Mae, a government agency that guarantees the timely payment of principal and interest of these loans to investors that purchase the securities. That is, the U.S. taxpayers assume the credit risk on these mortgages. In this post, we assess the riskiness of these loans.

Continue reading "Risky Business: Government Mortgage Insurance Programs" »

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

June 03, 2016

At the N.Y. Fed: The Transatlantic Economy: Convergence or Divergence?



LSE_At the N.Y. Fed: The Transatlantic Economy: Convergence or Divergence?

On April 18, 2016, the New York Fed hosted a conference on current and future policy directions for the linked economies of Europe and the United States. "The Transatlantic Economy: Convergence or Divergence?"—organized jointly with the Centre for Economic Policy Research and the European Commission—brought together U.S. and Europe-based policymakers, regulators, and academics to discuss a series of important issues: Are the economies of the euro area and the United States on a convergent or divergent path? Are financial regulatory reforms making the banking and financial structures more similar? Will this imply a convergence in macroprudential policies? Which instruments do the United States and the euro area have at their disposal to raise investment, spur productivity, and avoid secular stagnation? In this post, we summarize the principal themes and findings of the conference discussion.

Continue reading "At the N.Y. Fed: The Transatlantic Economy: Convergence or Divergence?" »

May 16, 2016

Did the Supervisory Guidance on Leveraged Lending Work?



LSE_Did the Supervisory Guidance on Leveraged Lending Work?

Financial regulatory agencies issued guidance intended to curtail leveraged lending—loans to firms perceived to be risky—in March of 2013. In issuing the guidance, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation highlighted several facts that were reminiscent of the mortgage market in the years preceding the financial crisis: rapid growth in the volume of leveraged lending, increased participation by unregulated investors, and deteriorating underwriting standards. Our post shows that banks, in particular the largest institutions, cut leveraged lending while nonbanks increased such lending after the guidance. During the same period of time, nonbanks increased their borrowing from banks, possibly to finance their growing leveraged lending activity.

Continue reading "Did the Supervisory Guidance on Leveraged Lending Work?" »

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

May 05, 2016

Borrowing, Lending, and Swapping Collateral in GCF Repo®



Borrowing, Lending, and Swapping Collateral in GCF Repo®

In the third post in this series, we examined GCF Repo® traders’ end-of-day strategies. In this final post, we further our understanding of dealers’ behavior by looking at their trading pattern within the day.

Continue reading "Borrowing, Lending, and Swapping Collateral in GCF Repo®" »

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

May 04, 2016

Why Dealers Trade in GCF Repo®



Editors’ note: The original version of this post had the terms “borrowers” and lenders” reversed and had some figures wrong. The corrected figures do not suggest, as before, that dealers who switch between borrowing and lending are pursing collateral swapping strategies. We regret the error. (August 16)

LSE_2016_GCF-repo-series-3_460_art


In this post, the third in a series on GCF Repo®, we describe dealers’ trading strategies. We show that most dealers exhibit highly regular strategies, using the GCF Repo service either to borrow or to lend, on net, on almost all the days in which they are active. Moreover, dealers’ strategies are highly persistent over time: Dealers that use GCF Repo to borrow (or to lend) in a given quarter are highly likely to continue to do so in the following quarter. Understanding how dealers trade in the GCF Repo market may provide insight about the role of the repo market more generally and about how recent regulations and market reforms can affect dealers’ trading strategies.

Continue reading "Why Dealers Trade in GCF Repo®" »

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

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.

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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?



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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



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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)
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