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48 posts on "Regulation"

November 18, 2016

The Final Crisis Chronicle: The Panic of 1907 and the Birth of the Fed



LSE_The Final Crisis Chronicle: The Panic of 1907 and the Birth of the Fed

The panic of 1907 was among the most severe we’ve covered in our series and also the most transformative, as it led to the creation of the Federal Reserve System. Also known as the “Knickerbocker Crisis,” the panic of 1907 shares features with the 2007-08 crisis, including “shadow banks” in the form high-flying, less-regulated trusts operating beyond the safety net of the time, and a pivotal “Lehman moment” when Knickerbocker Trust, the second-largest trust in the country, was allowed to fail after J.P. Morgan refused to save it.

Continue reading "The Final Crisis Chronicle: The Panic of 1907 and the Birth of the Fed" »

November 09, 2016

Performance Bonds for Bankers: Taking Aim at Misconduct



LSE_Performance_bonds_for_bankers_iStock_671704_460x288

Given the long list of problems that have emerged in banks over the past several years, it is time to consider performance bonds for bankers. Performance bonds are used to ensure that appropriate actions are taken by a party when monitoring or enforcement is expensive. A simple example is a security deposit on an apartment rental. The risk of losing the deposit motivates renters to take care of the apartment, relieving the landlord of the need to monitor the premises. Although not quite as simple as a security deposit, performance bonds for bankers could provide more incentive for bankers to take better care of our financial system.

Continue reading "Performance Bonds for Bankers: Taking Aim at Misconduct" »

October 21, 2016

From the Vault: Funds, Flight, and Financial Stability



The money market industry is in the midst of significant change. With the implementation this month of new Securities and Exchange Commission rules designed to make money market funds (MMFs) more resilient to stress, institutional prime and tax-exempt funds must report more accurate prices reflecting the net asset value (NAV) of shares based on market prices for the funds’ asset holdings, rather than promising a fixed NAV of $1 per share. The rules also permit prime funds, which invest in a mixture of corporate debt, certificates of deposit, and repurchase agreements, to impose fees or set limits on investors who redeem shares when market conditions sharply deteriorate. (Funds investing in government securities, which are more stable, are not subject to the new rules.) These changes, driven by a run on MMFs at the height of the financial crisis, add to earlier risk-limiting rules on portfolio holdings.

Continue reading "From the Vault: Funds, Flight, and Financial Stability" »

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

October 07, 2016

At the N.Y. Fed: Workshops and New Research on Improving Bank Culture and Governance



LSE_At the N.Y. Fed: Workshops and New Research on Improving Bank Culture and Governance

The New York Fed takes bank culture and governance seriously. As Bank President William Dudley said at a 2014 workshop for policymakers and industry participants, improving the culture and governance of banks is “an imperative,” both to ensure financial stability and to deepen public trust in our financial system. The Bank built on that first workshop with a second in November 2015 and will host a third event later this month, on October 20.

Continue reading "At the N.Y. Fed: Workshops and New Research on Improving Bank Culture and Governance" »

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

July 13, 2016

Could Liquidity Regulation Revive the Bank Lending Channel?

Dong Beom Choi and Ulysses Velasquez

LSE_Could Liquidity Regulation Revive the Bank Lending Channel?

How does monetary policy affect spending in the economy? The economic literature suggests two main channels of monetary transmission: the money or interest rate channel and the bank lending channel. The first view focuses on changes in real interest rates resulting from a shift in monetary policy and corresponding responses in consumption, saving, and investment. The second view focuses on changes in the supply of bank credit resulting from an altered policy stance and concomitant changes in spending.

Continue reading "Could Liquidity Regulation Revive the Bank Lending Channel?" »

Posted by Blog Author at 7:00 AM in Credit, Liquidity, Regulation | Permalink | Comments (2)

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?" »

April 14, 2016

A Peek behind the Curtain of Bank Supervision



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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 Banks, Financial Institutions, Regulation | 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 Banks, Financial Institutions, Regulation | 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, Regulation | 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 Banks, Financial Institutions, Regulation | Permalink | Comments (0)
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Liberty Street Economics features insight and analysis from New York Fed economists working at the intersection of research and policy. Launched in 2011, the blog takes its name from the Bank’s headquarters at 33 Liberty Street in Manhattan’s Financial District.

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