Liberty Street Economics

« | Main | »

August 3, 2018

At the New York Fed: Thirteenth Annual Joint Conference with NYU‑Stern on Financial Intermediation

Better understanding of financial intermediation is critical to the efforts of the New York Fed to promote financial stability and economic growth. In pursuit of this mission, the New York Fed recently hosted the thirteenth annual Federal Reserve Bank of New York–New York University Stern School of Business Conference on Financial Intermediation. At this conference, a range of authors were invited to discuss their research in this area. In this post, we present some of the discussion and findings from the conference.

Intermediary Structure and Economic Activity

The first two papers at the conference explored the question of how financial intermediaries are organized, and how this organization affects their activity. First, Jennifer Dlugosz discussed her work on bank decision-making with Yong Kyu Gam, Radhakrishnan Gopalan, and Janis Skrastins. The authors find that banks that set deposit rates locally increase rates more in the face of natural disaster shocks and experience relatively higher deposit volumes after the shock. These local rate-setting banks also expand mortgage lending in affected counties more than their counterparts. Finally, after shocks, house prices in areas with more bank branches locally setting deposit rates recover faster.

The next paper on this topic focused on how bank structure affects risk. Presenter Anastasia Kartasheva and her coauthors Andrew Ellul, Chotibhak Jotikasthira, Christian Lundblad, and Wolf Wagner explore the relationship between certain business models and systemic risk. They propose and test a model in which an insurer hedges its credit guarantee exposure by investing in illiquid assets. They investigate the effect on markets and insurers if, in the event of a negative asset shock, insurers engage in fire sales to maintain their capital ratios.


The 2008-09 financial crisis revealed that financial intermediary risk-taking can pose severe problems for financial stability. Indeed, since the crisis, there has been a global effort to enhance regulation of financial intermediaries, and researchers have been engaged in exploring the effects of regulatory changes. At the conference, Anton Korinek discussed his theoretical work with coauthor Olivier Jeanne on post-crisis macroprudential regulation. They highlight two key factors for policy design: first, ex-post policy measures mitigate financial crises and reduce the need for macroprudential policy, and next, macroprudential policy should consider moral hazard effects if and only if regulation includes price-based regulatory measures.

How do loan markets react to increased regulation? Ralf Meisenzahl described his paper with coauthors Rajkamal Iyer, Rustom Irani, and José-Luis Peydró that explores the link between capital regulation and shadow banking in the U.S. corporate loan market. Their main result is that tightening bank capital regulation increases nonbank presence, and that, in the face of this regulation, less-capitalized banks reduce loan retention while nonbanks take their place. Banks with less capital are most likely to sell distressed loans, with higher risk-weights and capital requirements. Finally, loans funded by nonbanks experienced greater turnover and secondary market price volatility during the crisis.

Loan Markets

The final session included papers that explore loan market dynamics. Gabriel Chodorow-Reich and Antonio Falato, using information from the Shared National Credit database, document that more than one-third of loans in their data set breached a covenant during the 2008-09 period, which allowed lenders to renegotiate loan terms or accelerate repayment of what otherwise appeared to be long-term credit. Worse-off lenders were less likely to grant a waiver and were also more likely to reduce loan amounts after a violation at this time. Thus, they argue that this loan covenant channel is the primary transmission of bank health to nonfinancial firms.

Shifting focus to the newest innovations in lending markets, Boris Vallee presented his paper with Yao Zeng on marketplace lending, a relatively new kind of online lending where investors directly screen borrowers. They find that more sophisticated investors screen loans differently, and that they systematically outperform less sophisticated investors. Additionally, these lenders outperform less when they are provided less information.

Do FinTech lenders discriminate differently from traditional banks? Adair Morse discussed her work on consumer lending discrimination in the FinTech era with Robert Bartlett, Richard Stanton, and Nancy Wallace. They find that lenders reject African-American and Hispanic applicants 5 percent more often than other applicants. However, such discrimination is especially pronounced among traditional lenders, consistent with loan officers facial biases, and less pronounced for FinTech lenders that instead may never see their borrowers in person. They conclude that since default risk remains with the government-sponsored enterprises, Fintech lenders are effectively leaving money on the table by maintaining too-high rejection rates.

Keynote Speech: Blockchain Economics and Money

Markus Brunnermeier gave the keynote speech on the economics of blockchains, drawing implications for financial intermediation activities. He explained that traditional centralized ledgers are managed by a single intermediary and thereby extract monopoly rents. However, decentralized ledgers (such as blockchain) have the potential to be more competitive by allowing inefficient blockchains to be abandoned by users in favor of new, more popular protocols. When that happens, a new ledger is established while preserving all information from the existing blockchain. This move reduces the monopolist rents of the primary ledger. However, too many competing blockchains may coexist, splitting the community across too many different ledgers and rendering them unable to fully exploit positive network externalities. Brunnermeier observed that enforcement of property rights must be improved in order to ensure the effective application of blockchain technology.


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.

Cetorelli_nicolaNicola Cetorelli is a vice president in the Federal Reserve Bank of New York’s Research and Statistics Group.

Gertler_sarahSarah Gertler is a senior research analyst in the Bank’s Research and Statistics Group.

Kovner_annaAnna Kovner is a vice president in the Bank’s Research and Statistics Group.

How to cite this blog post:

Nicola Cetorelli, Sarah Gertler, and Anna Kovner, “At the New York Fed: Thirteenth Annual Joint Conference with NYU-Stern on Financial Intermediation,” Federal Reserve Bank of New York Liberty Street Economics (blog), August 3, 2018,

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.