Liberty Street Economics

« | Main | »

September 18, 2014

At the N.Y. Fed: Workshop on the Risks of Wholesale Funding

Risk of Wholesale Funding Conference
The Federal Reserve Banks of Boston and New York recently cosponsored a workshop on the risks of wholesale funding. Wholesale funding refers to firm financing via deposits and other liabilities from pension funds, money market mutual funds, and other financial intermediaries. Compared with stable retail funding, the supply of wholesale funding is volatile, especially during financial crises. For instance, when a firm relies on short-term wholesale funds to support long-term illiquid assets, it becomes vulnerable to runs by its wholesale creditors, as seen during the recent financial crisis. The workshop was organized to promote a better understanding of the risks posed by wholesale funding and to explore policy options for minimizing these risks.

Presidents Dudley and Rosengren Set the Stage

The day’s agenda started with welcoming remarks from William Dudley, President of the Federal Reserve Bank of New York. President Dudley set the stage by reviewing the risks associated with short-term wholesale funding and explaining how the significance of those risks became clear as the recent crisis unfolded. Eric Rosengren, President of the Federal Reserve Bank of Boston, then gave the workshop’s keynote remarks, in which he focused on the role of broker-dealers and how their vulnerabilities to wholesale funding have not yet been adequately addressed.

Sessions Explore Behavior of Wholesale Funding Markets

The presidents’ remarks were followed by various presentations from researchers in the Federal Reserve System, other central banks, and academia. Some presentations explored what happened in certain funding markets during the crisis, others sought to explain why the crisis unfolded the way it did, and still others attempted to clarify market participant behavior at a theoretical level. All of the presentations were followed by questions from the audience, which included market participants as well as policymakers and academics.

Last Session Focuses on Specific Policy Proposals

The day’s last session considered concrete policy changes to address fragilities in a particular area of wholesale funding, the market for repurchase agreements. Both presentations focused on the “safe harbor” that allows lenders to liquidate certain classes of collateral immediately rather than enter the normal bankruptcy process if the borrower defaults. The first presentation was based on a paper recommending that the safe harbor be limited only to securities backed by the full faith and credit of the U.S. government. The second presentation discussed the costs and benefits of the safe harbor, and proposed that it be limited to only the most liquid securities. An active and spirited debate followed, with some participants advocating their own solutions to the risks arising from this short-term funding instrument. In the conference overall, however, there was little debate that further steps were needed to improve the resilience of wholesale funding markets.


The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

Dong Beom Choi is an economist in the Federal Reserve Bank of New York’s Research and Statistics Group.

Patrick de Fontnouvelle is a vice president in the Federal Reserve Bank of Boston’s Supervision and Regulation Department.

Thomas M. Eisenbach is an economist in the Federal Reserve Bank of New York’s Research and Statistics Group.

Michael J.Fleming is a vice president in the Federal Reserve Bank of New York’s Research and Statistics Group.


Feed You can follow this conversation by subscribing to the comment feed for this post.

The comments to this entry are closed.

About the Blog

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.

The editors are Michael Fleming, Andrew Haughwout, Thomas Klitgaard, and Asani Sarkar, all economists in the Bank’s Research Group.

Liberty Street Economics does not publish new posts during the blackout periods surrounding Federal Open Market Committee meetings.

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

Image of NYFED Economic Research Tracker Icon Liberty Street Economics is available on the iPhone® and iPad® and can be customized by economic research topic or economist.

Economic Inequality

image of inequality icons for the Economic Inequality: A Research Series

This ongoing Liberty Street Economics series analyzes disparities in economic and policy outcomes by race, gender, age, region, income, and other factors.

Most Read this Year

Comment Guidelines


We encourage your comments and queries on our posts and will publish them (below the post) subject to the following guidelines:

Please be brief: Comments are limited to 1,500 characters.

Please be aware: Comments submitted shortly before or during the FOMC blackout may not be published until after the blackout.

Please be relevant: 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.

Please be respectful: We reserve the right not to post any comment, and will not post comments that are abusive, harassing, obscene, or commercial in nature. No notice will be given regarding whether a submission will or will
not be posted.‎

Comments with links: Please do not include any links in your comment, even if you feel the links will contribute to the discussion. Comments with links will not be posted.

Send Us Feedback

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.