8 posts from "July 2026"
July 17, 2026
Nonbank Subsidiaries and the Hidden Fragility of Internal Capital Markets Reallocation
This post concludes a three-part series on how bank regulation interacts with the organizational structure of banking firms. The first post documented the equity-rich nonbank subsidiaries inside bank holding companies (BHCs); the second post showed that BHCs met Basel III by reallocating capital internally, moving equity from nonbank affiliates to bank subsidiaries rather than raising new external capital. Here we ask what that reallocation meant for financial stability. The series draws on the authors’ recent Staff Report, “Regulatory Arbitrage Within the Firm.”
July 16, 2026
How Basel III Changes Where Capital Sits: Nonbank Subsidiaries as Equity Reservoirs
This post is the second in a three-part series on how bank regulation interacts with the organizational structure of banking firms. The first post documented that nonbank subsidiaries inside bank holding companies (BHCs) are large, equity-rich “reservoirs,” and that bank-level capital diverged sharply from consolidated capital after Basel III took effect in 2015. This post asks why, and traces the answer through the internal plumbing of the holding company. The series draws on the authors’ recent Staff Report, “Regulatory Arbitrage Within the Firm.”
July 15, 2026
Capitalizing on Nonbanks: Regulatory Arbitrage Within Bank Holding Companies
This post is the first in a three-part series on how bank regulation interacts with the organizational structure of banking firms. The series draws on the authors’ recent Staff Report, “Regulatory Arbitrage Within the Firm.”
July 9, 2026
Effect of Tariffs on U.S. Small Businesses
How has the recent implementation of tariffs affected small businesses? Due to lack of data, little is known about this issue. In this Liberty Street Economics post, we use data from the 2025 edition of the Small Business Credit Survey (SBCS) to explore this question for businesses nationally and in the Second District (defined, for the purpose of this study, as New York, New Jersey, and Connecticut). We find that the majority of national firms in the goods and retail sectors reported experiencing financial challenges due to tariffs in 2025, with even larger shares of regional firms doing so. In response, about 80 percent of national and regional firms passed on at least some of the higher costs of imported inputs to customers, while about 60 percent absorbed some of the costs, as many firms did some of both. Firms that faced greater tariff challenges in 2025 were more pessimistic about employment and revenues in 2026.
July 8, 2026
More Tariff Pass‑Through Is in the Pipeline
The past year brought dramatic changes to U.S. trade policy, including sweeping new tariffs, as well as a Supreme Court decision that further reshaped the tariff landscape. Many businesses saw their costs increase significantly and faced complex decisions about whether to absorb the tariffs through lower profit margins, raise their prices to recover the higher costs, or some combination of the two. Last year, we found that most businesses had passed on at least some of these higher costs to their customers through higher prices. Now, over a year later, have businesses finished adjusting prices, or do further tariff-induced price increases lie ahead? Our latest regional business surveys reveal that nearly half of firms that have paid tariffs still plan additional price increases to offset these costs, with some expecting to raise prices six months or more in the future.
July 7, 2026
What Do Over 3,000 Bank Runs Teach Us About Banking Crises?
Runs on financial institutions are one of the salient markers of financial crises. But the role of runs in crises is a topic of longstanding debate. Runs can be seen as the key turning point, whereby even small shocks can generate severe crises with widespread bank failures. Another view is that runs are mainly a symptom of deeper rot in the financial system, exacerbating crises rather than being their primary cause. Understanding this debate has first order implications for how to think about financial crises and the appropriate policy responses. In this post, we use a new database of more than 3,000 bank runs (introduced in our companion post) to show that poor fundamentals are central to explaining both when runs occur and when they have severe economic effects. We argue that this evidence tempers the view that small shocks can have outsized real effects through self-fulfilling run dynamics.
Posted at 10:01 am in Artificial Intelligence (AI), Banks, Crisis, Liquidity | Permalink | Comments (1)
Using AI to Let History Speak About Bank Runs
Banking crises are commonly associated with bank runs and banking panics, yet our empirical understanding of bank runs is constrained by a lack of bank-level data. In a new paper, we use large language models (LLMs) to extract information on bank runs from millions of digitized historical newspaper pages, creating the most comprehensive database of bank runs in U.S. history. Every bank run episode that we identify is documented on a companion website where users can browse and examine individual episodes, and read the original newspaper articles. In this post, we describe how we built this dataset and discuss what its basic features reveal.
Posted at 10:00 am in Artificial Intelligence (AI), Banks, Crisis, Liquidity | Permalink | Comments (0)
July 1, 2026
The Disappearing Overnight Drift
In a 2021 Liberty Street Economics post, we documented the “overnight drift”—a large, persistent return to holding U.S. equity futures in the narrow window between 2:00 and 3:00 a.m. Eastern time, when European equity markets open. Five additional years of data later, that pattern appears to have faded: the 2:00–3:00 window that previously generated roughly 3.7 percent per annum has averaged close to zero since 2021. In this post, we revisit the overnight drift in light of the post-publication sample and use our inventory-risk framework to ask which of three observable channels—the dispersion of closing order imbalances, the level of return variance, or the risk-bearing capacity of liquidity providers—accounts for the change.
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