Historical Echoes: Maiden Lane, Where Now Such Waves of Commerce Flow

Mary Tao and Vernon Lovejoy

In the 1600s, a stream flowed near the land now occupied by the Federal Reserve Bank of New York, running all the way to the East River. At that time, maidens followed a footpath to the stream’s banks to wash laundry in its fresh water, earning the path the name Maidens’ Path (or in Dutch—Maagde Paatje). When the English arrived in 1664, the name of the street changed to Maiden Lane. As New York City expanded beyond its downtown origins over the years, city planners covered over the stream—but the street’s name stuck.

Just Released: Introducing the Business Leaders Survey

Jason Bram and Richard Deitz

Today, the Federal Reserve Bank of New York begins releasing its monthly survey of regional business activity, called the Business Leaders Survey. This survey is a close cousin of our Empire State Manufacturing Survey, with some differences. The Business Leaders Survey covers the service sector rather than the manufacturing sector, and its respondents come from New York, northern New Jersey, and southwestern Connecticut, instead of just New York State. This new monthly release will provide another timely regional indicator to help gauge both local and national business cycles, and it will be available well before hard economic data on the region from other sources become available. In this post, we show that data from the survey, which have been collected monthly since 2004, provided some early signals about the most recent recession and recovery, at both the national and regional levels. The January 2014 survey points to continued modest growth in service-sector activity in the region, coupled with increasingly widespread optimism about future conditions.

Why Do Banks Feel Discount Window Stigma?

Olivier Armantier

Even when banks face acute liquidity shortages, they often appear reluctant to borrow at the New York Fed’s discount window (DW) out of concern that such borrowing may be interpreted as a sign of financial weakness. This phenomenon is often called “DW stigma.” In this post, we explore possible reasons why banks may feel such stigma.

Discount Window Stigma

Olivier Armantier

One of the main missions of central banks is to act as a lender of last resort to the banking system. In the United States, the Federal Reserve has relied on the discount window (DW) for nearly a century to fulfill this task. Historically, however, the DW has been little used even when banks may have faced acute liquidity shortages, a phenomenon commonly attributed to stigma. In this post, we show that during the last financial crisis banks were willing to pay large premia to avoid borrowing from the DW, suggesting that DW stigma is an economically important phenomenon.

Crisis Chronicles: The Mississippi Bubble of 1720 and the European Debt Crisis

James Narron and David Skeie

Convicted murderer and millionaire gambler John Law spotted an opportunity to leverage paper money and credit to finance trade. He first proposed the concept in Scotland in 1705, where it was rejected. But by 1716, Law had found a new audience for his ideas in France, where he proposed to the Duke of Orleans his plan to establish a state bank, at his own expense, that would issue paper money redeemable at face value in gold and silver. At the time, Law’s Banque Generale was one of only six such banks to have issued paper money, joining Sweden, England, Holland, Venice, and Genoa. Things didn’t turn out exactly as Law had hoped, and in this edition of Crisis Chronicles we meet the South Sea’s lesser-known cousin, the Mississippi Bubble.

Comparing Bank and Supervisory Stress Testing Projections

Beverly Hirtle and Anna Kovner

Stress tests are important tools for assessing whether financial institutions have enough capital to operate in bad economic conditions. In addition to being useful for understanding capital weaknesses at individual firms, coordinated stress tests can also provide insight into the vulnerabilities facing the banking industry as a whole. In this post, we look at 2013 stress test projections made by eighteen large U.S. bank holding companies under the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act and compare them with supervisory projections made by the Federal Reserve to see if the two sets of projections identify similar vulnerabilities and risks for the banking system.

Are Economic Values Transmitted from Parents to Children?

Marco Cipriani, Paola Giuliano, and Olivier Jeanne

Economic research shows that differences in cultural traits and values—for example, trust, or the propensity to cooperate and not free-ride on others—are important determinants of economic outcomes, such as growth, economic and financial development, and international trade. It’s much less clear, however, where these differences in economic-relevant values come from. While economists generally assume that they’re transmitted from parents to children, the empirical evidence to this effect is almost nonexistent.