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Liberty Street Economics
12 posts from February 2015February 25, 2015
The 2005 Bankruptcy Reform and the Foreclosure Crisis
Second in a two-part series
Our previous post showed that the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) was associated with a sizable rise in foreclosure, in addition to a decline in bankruptcy filings and a rise in insolvency. In this post, we examine one possible explanation for the rise in foreclosure: the substitution hypothesis. Prior to the 2005 reform, individuals facing insolvency could discharge their unsecured debt via bankruptcy, thus retaining the ability to remain current on their home debts. After the reform, since bankruptcy became too expensive for many, default on home loans was the most effective way for these individuals to reduce outstanding debt. The idea that BAPCPA caused a shift from bankruptcy to foreclosure is not new; see Morgan et al. (2012) and Li, White, and Zhu (2011). In this post, we use the Federal Reserve Bank of New York’s Consumer Credit Panel (based on Equifax data, described here) to provide evidence on the mechanism through which this substitution occurred, and to precisely quantify the magnitude of its impact on foreclosures.
Continue reading "The 2005 Bankruptcy Reform and the Foreclosure Crisis" »
February 23, 2015
Insolvency after the 2005 Bankruptcy Reform
Correction: The source notes for the charts in this post were incomplete and have been corrected. We regret the error.
First in a two-part seriesPersonal bankruptcy was introduced in the United States through the Bankruptcy Act of 1978. After passage of the act, bankruptcy rates rose steadily until 2005, when Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). BAPCPA was signed by President George W. Bush on April 20, 2005, and applied to bankruptcy cases filed on or after October 17, 2005. The reform caused a large and permanent reduction in bankruptcy filings. In this post, we study the mechanism behind this drop and the consequences for households.
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February 20, 2015
Payback Time? Measuring Progress on Student Debt Repayment
Correction: We changed the adjective describing borrowers owing less than $5,000 from “high-balance” to “small-balance” in the first line of the seventh paragraph. We regret the error.
Third in a three-part seriesStudent debt continues to make headlines because of its high balances and high rates of delinquency and default—troubling issues that we discussed in our previous posts this week. A less prominent, but still important, issue is the pace at which former students are—or are not—paying off their debts. This issue is important to borrowers because the longer they take to repay their debts, the more interest they accrue, the longer they have to worry about making payments, and the longer they have to deal with the consequences of unpaid debts. It’s also important to the macroeconomy because longer repayment periods mean that a large number of young adults may have their spending and housing purchase decisions constrained by student debt (and widespread delinquency) for many years, even if they eventually qualify for some debt forgiveness. For these reasons, in this third and final post of our student loan series, we use our Consumer Credit Panel (based on Equifax data) to examine how fast (or slow) student borrowers are able to pay off their loans.
Continue reading "Payback Time? Measuring Progress on Student Debt Repayment" »
February 19, 2015
Looking at Student Loan Defaults through a Larger Window
Second in a three-part seriesMost of our previous discussion about high levels of student loan delinquency and default has used static measures of payment status. But it is also instructive to consider the experience of borrowers over the lifetime of their student loans rather than at a point in time. In this second post in our three-part series on student loans, we use the Consumer Credit Panel (CCP), which is itself based on Equifax credit data, to create cohort default rates (CDRs) that are analogous to those produced by the Department of Education but go beyond theirthree-year window. We find that default rates continue to grow after three years and that performance by cohort worsened in the years leading up to the Great Recession.
Continue reading "Looking at Student Loan Defaults through a Larger Window " »
February 18, 2015
The Student Loan Landscape
First in a three-part seriesStudent loans have recently attracted a huge amount of attention from the press and policymakers. In this post, the first in our three-part series this week, we’ll use our Consumer Credit Panel dataset, a representative sample drawn from anonymized Equifax credit data, to describe the landscape of the outstanding U.S. student loan portfolio. Much of our discussion will address updates to several graphs that we’ve presented before, most recently in a 2014 staff report, “Measuring Student Debt and Its Performance”; readers can find more detail there. We’ll also update some earlier analysis of the broader effects that student debt may be having on the economy, including data through 2014 on the relationship between student loans and mortgages that we discussed in a blog post last spring.
February 17, 2015
Just Released: Student Loan Delinquency Rate Defies Overall Downward Trend in Household Debt and Credit Report for Fourth Quarter 2014
Today, the New York Fed released the Quarterly Report on Household Debt and Credit for the fourth quarter of 2014. The report is based on data from the New York Fed’s Consumer Credit Panel, a nationally representative sample drawn from anonymized Equifax credit data. Overall, aggregate balances increased by $117 billion, or 1.0 percent, boosted by increases in all credit types except home equity lines of credit.
February 13, 2015
Historical Echoes: No Valentines Please, We’re British
It’s almost Valentine’s Day, and we’re not asking you questions or dispensing advice about it—that’s not (yet) our business. However, we can offer two attempts at humor regarding the Bank of England and amorous activity. The first touches upon a central bank’s fear for its reputation and the second its fear of being “manhandled” by the government.
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February 11, 2015
Available for Sale? Understanding Bank Securities Portfolios
It’s natural to think of banks as intermediaries that take in deposits and use them to make loans to businesses and individuals. But in fact, loans make up only 45 percent of the assets of U.S. banking organizations. What’s the rest? A large chunk, representing 24 percent of total assets, is accounted for by securities, such as U.S. Treasury and foreign government bonds, mortgage-backed securities (MBS), municipal and corporate bonds, and equities. In this post, we take a tour of bank securities portfolios, making use of charts and statistics from the Federal Reserve Bank of New York’s report on Quarterly Trends for Consolidated U.S. Banking Organizations. We also discuss reasons why securities represent such a significant part of U.S. banking firm balance sheets.
Continue reading "Available for Sale? Understanding Bank Securities Portfolios" »
Posted by Blog Author at 7:00 AM in Banks, Financial Institutions, Treasury | Permalink | Comments (0)February 09, 2015
Counterparty Risk in Material Supply Contracts
Forming long-term partnerships with customers and suppliers often creates a competitive advantage for firms because it permits resource sharing, eases financial constraints, and encourages investment in relationship-specific capital. While these relationships can be beneficial, they also increase firms’ exposure to their counterparties’ risk. In a recent Staff Report, Anna Costello of MIT and I study two important and unanswered questions about supply relationships. First, what specific characteristics of the trade relationship make a firm more vulnerable to adverse spillovers from their supply chain partners? Second, if managers understand these vulnerabilities, can they design contracts or diversify their partners in order to mitigate exposures to negative events along their supply chain?
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February 06, 2015
Highlights from the Global Research Forum on International Macroeconomics and Finance
International financial flows are a key feature of the global landscape and are relevant in many ways for central banks. With these themes as a backdrop and with swings in some capital flows across countries in response to global economic and financial conditions, the second biannual Global Research Forum on International Macroeconomics and Finance was held at the Federal Reserve Board in Washington, D.C., in November. The purpose of the forum, which is organized by the European Central Bank, the Federal Reserve Board, and the Federal Reserve Bank of New York, is to promote the discussion of topics at the frontier of research in international finance, banking and macroeconomics, with a special focus on their relevance for monetary policy.
Posted by Blog Author at 7:00 AM in Euro Area, Exchange Rates, Exports, International Economics, Regulation | Permalink | Comments (2)About the BlogLiberty 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.
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.
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