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161 posts on "Banks"
June 23, 2025

Reserves and Where to Find Them

Decorative Photo: Stacks of Hundred Dollar Bills Securely Stored in a Steel Safe for Bank Reserves Concept

Banks use central bank reserves for a multitude of purposes including making payments, managing intraday liquidity outflows, and meeting regulatory and internal liquidity requirements. Data on aggregate reserves for the U.S. banking system are readily accessible, but information on the holdings of individual banks is confidential. This makes it difficult to investigate important questions like: “Which types of banks hold reserves?” “How concentrated are they?” and “Does the distribution change over time or in response to significant events?” In this post, we summarize how non-confidential data can be used to answer these questions by providing publicly available proxies for bank-level reserves.  

Posted at 7:00 am in Banks, Monetary Policy | Permalink | Comments (0)
May 28, 2025

Who’s Paying Those Overdraft Fees?

Personal social credit score. Machine Learning analytics identify person technology,Artificial intelligence no privacy security camera technology concept. Software ui analytics and recognition people.

One criticism of overdraft credit is that the fees seem borne disproportionately by low-income, Black, and Hispanic households. To investigate this concern, we surveyed around 1,000 households about their overdraft activity. Like critics, we find that these groups do tend to overdraft more often. However, when we control for respondents’ credit scores along with their socioeconomic characteristics, we discover that only their credit score predicts overdraft activity. While it’s not altogether surprising that credit constrained households overdrew more often, it’s noteworthy that socioeconomic characteristics did not help in predicting overdrafts. This more textured picture of overdraft activity helps inform the ongoing debate about overdraft credit and its users.

May 21, 2025

Nonbanks and Banks: Alone or Together?

Photo: Picture of a bank building.

Nonbank financial institutions (NBFIs) constitute a variety of entities—fintech companies, mutual funds, hedge funds, insurance companies, private debt providers, special purpose vehicles, among others—that have become important providers of financial intermediation services worldwide. But what is the essence of nonbank financial intermediation? Does it have any inherent advantages, and how does it interact with that performed by banks? In this Liberty Street Economics post, which is based on our recent staff report, we provide a model-based survey of recent literature on nonbank intermediation, with an emphasis on how it competes, or cooperates, with traditional banks.

Posted at 7:00 am in Banks, Nonbank (NBFI) | Permalink
May 12, 2025

Who Finances Real Sector Lenders?

Decorative Image: Internet Banking Technology concept

The modern financial system is complex, with funding flowing not just from the financial sector to the real sector but within the financial sector through an intricate network of financial claims. While much of our work focuses on understanding the end result of these flows—credit provided to the real sector—we explore in this post how accounting for interlinkages across the financial sector changes our perception of who finances credit to the real sector.

Posted at 7:00 am in Banks, Credit, Nonbank (NBFI) | Permalink
March 31, 2025

Why Are Credit Card Rates So High?

Decorative image: Close up of a card payment being made between a man and a waiter in a cafe.

Credit cards play a crucial role in U.S. consumer finance, with 74 percent of adults having at least one. They serve as the main method of payment for most individuals, accounting for 70 percent of retail spending. They are also the primary source of unsecured borrowing, with 60 percent of accounts carrying a balance from one month to the next. Surprisingly, credit card interest rates are very high, averaging 23 percent annually in 2023. Indeed, their rates are far higher than the rates on any other major type of loan or bond. Why are credit card rates so high? In our recent research paper, we address this question using granular account-level data on 330 million monthly credit card accounts. 

Posted at 7:00 am in Banks, Credit, Household Finance | Permalink
January 8, 2025

Do Payout Restrictions Reduce Bank Risk?

Photo: image of a large dark blue-green modern building with a gold BANK sign on the entrance.

In June 2020, the Federal Reserve issued stringent payout restrictions for the largest banks in the United States as part of its policy response to the COVID-19 crisis. Similar curbs on share buybacks and dividend payments were adopted in other jurisdictions, including in the eurozone, the U.K., and Canada. Payout restrictions were aimed at enhancing banks’ resiliency amid heightened economic uncertainty and concerns about the risk of large losses. But besides being a tool to build capital buffers and preserve bank equity, payout restrictions may also prevent risk-shifting. This post, which is based on our recent research paper, attempts to answer whether and how payout restrictions reduce bank risk using the U.S. experience during the pandemic as a case study.

Posted at 7:00 am in Banks | Permalink
December 20, 2024

Anatomy of the Bank Runs in March 2023

Photo of a group of depositors in front of the closed American Union Bank, New York City, April 26, 1932.

Runs have plagued the banking system for centuries and returned to prominence with the bank failures in early 2023. In a traditional run—such as depicted in classic photos from the Great Depression—depositors line up in front of a bank to withdraw their cash. This is not how modern bank runs occur: today, depositors move money from a risky to a safe bank through electronic payment systems. In a recently published staff report, we use data on wholesale and retail payments to understand the bank run of March 2023. Which banks were run on? How were they different from other banks? And how did they respond to the run?

December 3, 2024

Documenting Lender Specialization

Photo: Online banking technology concept with illustration of bank on electric circuit lines background.

Robust banks are a cornerstone of a healthy financial system. To ensure their stability, it is desirable for banks to hold a diverse portfolio of loans originating from various borrowers and sectors so that idiosyncratic shocks to any one borrower or fluctuations in a particular sector would be unlikely to cause the entire bank to go under. With this long-held wisdom in mind, how diversified are banks in reality?

Posted at 7:00 am in Banks, Financial Institutions | Permalink
November 25, 2024

Why Do Banks Fail? Bank Runs Versus Solvency

Photo: generic image of the word Bank on an old building facade.

Evidence from a 160-year-long panel of U.S. banks suggests that the ultimate cause of bank failures and banking crises is almost always a deterioration of bank fundamentals that leads to insolvency. As described in our previous post, bank failures—including those that involve bank runs—are typically preceded by a slow deterioration of bank fundamentals and are hence remarkably predictable. In this final post of our three-part series, we relate the findings discussed previously to theories of bank failures, and we discuss the policy implications of our findings.

November 22, 2024

Why Do Banks Fail? The Predictability of Bank Failures

Photo of old bank building with columns.

Can bank failures be predicted before they happen? In a previous post, we established three facts about failing banks that indicated that failing banks experience deteriorating fundamentals many years ahead of their failure and across a broad range of institutional settings. In this post, we document that bank failures are remarkably predictable based on simple accounting metrics from publicly available financial statements that measure a bank’s insolvency risk and funding vulnerabilities.

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