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Liberty Street Economics
41 posts on "Central Bank"October 19, 2020
How Has Post-Crisis Banking Regulation Affected Hedge Funds and Prime Brokers?
“Arbitrageurs” such as hedge funds play a key role in the efficiency of financial markets. They compare closely related assets, then buy the relatively cheap one and sell the relatively expensive one, thereby driving the prices of the assets closer together. For executing trades and other services, hedge funds rely on prime brokers and broker-dealers. In a previous Liberty Street Economics blog post, we argued that post-crisis changes to regulation and market structure have increased the costs of arbitrage activity, potentially contributing to the persistent deviations in the prices of closely related assets since the 2007–09 financial crisis. In this post, we document how post-crisis changes to bank regulations have affected the relationship between hedge funds and broker-dealers.
Continue reading "How Has Post-Crisis Banking Regulation Affected Hedge Funds and Prime Brokers?" »
Posted by Blog Author at 7:00 AM in Bank Capital, Banks, Central Bank, Corporate Finance, Financial Institutions, Financial Markets, Regulation | Permalink | Comments (0)October 02, 2020
Should Emerging Economies Embrace Quantitative Easing during the Pandemic?
Emerging economies are fighting COVID-19 and the economic sudden stop imposed by lockdown policies. Even before COVID-19 took root in emerging economies, however, investors had already started to flee these markets–to a much greater extent than they had at the onset of the 2008 global financial crisis (IMF, 2020; World Bank, 2020). Such sudden stops in capital flows can cause significant drops in economic activity, with recoveries that can take several years to complete (Benigno et al., 2020). Unfortunately, austerity and currency depreciations as enacted during the global financial crisis will not mitigate this double whammy of capital outflows and policies to cope with the pandemic. We argue that purchases of local currency government bonds could be a viable option for credible emerging market central banks to support macroeconomic policy goals in these circumstances.
Continue reading "Should Emerging Economies Embrace Quantitative Easing during the Pandemic?" »
Posted by Blog Author at 7:00 AM in Central Bank, Exchange Rates, Monetary Policy | Permalink | Comments (0)September 28, 2020
COVID-19 and the Search for Digital Alternatives to Cash
Today, the majority of retail payments in the United States are digital. Practically all digital payments are tracked, collected, and aggregated by financial institutions, payment providers, and vendors. This trend has accelerated during the COVID-19 pandemic as payments that require physical contact, such as cash, have been discouraged. As cash gradually becomes obsolete, consumers are left with fewer alternatives for making private transactions. In this post, we outline some evidence on the impact of COVID-19 on consumer payment behavior and follow up in the second post in this Liberty Street Economics series with a look at the implications of cash obsolescence for privacy.
Continue reading "COVID-19 and the Search for Digital Alternatives to Cash" »
Posted by Blog Author at 7:00 AM in Central Bank, Currency, Financial Intermediation, Household Finance, Pandemic | Permalink | Comments (0)September 22, 2020
Expanding the Toolkit: Facilities Established to Respond to the COVID-19 Pandemic
First of three posts
The Federal Reserve’s response to the coronavirus pandemic has been unprecedented in its size and scope. In a matter of months, the Fed has, among other things, cut the federal funds rate to the zero lower bound, purchased a large amount of Treasury securities and agency mortgage‑backed securities (MBS) and, together with the U.S. Treasury, introduced several lending facilities. Some of these facilities are very similar to ones introduced during the 2007-09 financial crisis while others are completely new. In this post, we argue that the new facilities, while unprecedented, are a natural extension of the Fed’s toolkit, as they operate through similar economic mechanisms to prevent self-reinforcing bad outcomes. We also explain why these new facilities are particularly useful as part of the response to the pandemic, which is an economic shock very different from a financial crisis.
Posted by Blog Author at 7:00 AM in Central Bank, Crisis, Federal Reserve, Liquidity, Monetary Policy, Pandemic | Permalink | Comments (0)August 03, 2020
The Federal Reserve’s Large-Scale Repo Program
The repo market faced extraordinary liquidity strains in March amid broader financial market volatility related to the coronavirus pandemic and uncertainty regarding the path of policy. The strains were particularly severe in the term repo market, in which borrowing and lending arrangements are for longer than one business day. In this post, we discuss the causes of the liquidity disruptions that arose in the repo market as well as the Federal Reserve’s actions to address those disruptions.
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Posted by Blog Author at 7:00 AM in Central Bank, Financial Markets, Pandemic | Permalink | Comments (1)June 25, 2020
Insider Networks
Modern-day financial systems are highly complex, with billions of exchanges in information, assets, and funds between individuals and institutions. Though daunting to operationalize, regulating these transmissions may be desirable in some instances. For example, securities regulators aim to protect investors by tracking and punishing insider trading. Recent evidence shows that insiders have formed sophisticated networks that enable them to pursue activities outside the purview of regulatory oversight. In understanding the cat-and-mouse game between regulators and insiders, a key consideration is the networks that insiders might form in order to circumvent regulation, and how regulators might cope with insiders’ tactics. In this post, we introduce a theoretical framework that considers network formation in response to regulation and review the key insights.
Posted by Blog Author at 7:00 AM in Bank Capital, Banks, Central Bank, Financial Institutions, Financial Intermediation, Financial Markets, Regulation | Permalink | Comments (0)June 18, 2020
Bitcoin Is Not a New Type of Money
Bitcoin, and more generally, cryptocurrencies, are often described as a new type of money. In this post, we argue that this is a misconception. Bitcoin may be money, but it is not a new type of money. To see what is truly new about Bitcoin, it is useful to make a distinction between “money,” the asset that is being exchanged, and the “exchange mechanism,” that is, the method or process through which the asset is transferred. Doing so reveals that monies with properties similar to Bitcoin have existed for centuries. However, the ability to make electronic exchanges without a trusted party—a defining characteristic of Bitcoin—is radically new. Bitcoin is not a new class of money, it is a new type of exchange mechanism, and this type of exchange mechanism can support a variety of forms of money as well as other types of assets.
Posted by Blog Author at 7:00 AM in Banks, Central Bank, Cryptocurrencies | Permalink | Comments (4)May 22, 2020
Have the Fed Swap Lines Reduced Dollar Funding Strains during the COVID-19 Outbreak?
In March 2020, the Federal Open Market Committee (FOMC) made changes to its swap line facilities with foreign central banks to enhance the provision of dollars to global funding markets. Because the dollar has important roles in international trade and financial markets, reducing these strains helps facilitate the supply of credit to households and businesses, both domestically and abroad. This post summarizes the changes made to central bank swap lines and shows when these changes were effective at bringing down dollar funding strains abroad.
Posted by Blog Author at 7:00 AM in Central Bank, Crisis, Currency, Pandemic | Permalink | Comments (1)May 19, 2020
The Primary Dealer Credit Facility
This post is part of an ongoing series on the credit and liquidity facilities established by the Federal Reserve to support households and businesses during the COVID-19 outbreak.
On March 17, 2020, the Federal Reserve announced that it would re-establish the Primary Dealer Credit Facility (PDCF) to allow primary dealers to support smooth market functioning and facilitate the availability of credit to businesses and households. The PDCF started offering overnight and term funding with maturities of up to ninety days on March 20. It will be in place for at least six months and may be extended as conditions warrant. In this post, we provide an overview of the PDCF and its usage to date.
Posted by Blog Author at 7:00 AM in Bank Capital, Banks, Central Bank, Credit, Federal Reserve, Liquidity, Monetary Policy, Pandemic, Systemic Risk | Permalink | Comments (0)May 15, 2020
The Commercial Paper Funding Facility
This post is part of an ongoing series on the credit and liquidity facilities established by the Federal Reserve to support households and businesses during the COVID-19 outbreak.
In mid-March, the Federal Reserve announced a slew of credit and liquidity facilities aimed at supporting credit provision to U.S. households and businesses. Among the initiatives is the Commercial Paper Funding Facility (CPFF) which aims to support market functioning and provide a liquidity backstop for the commercial paper market. The domestic commercial paper market provides a venue for short-term financing for companies which employ more than 6 million Americans. Securities in the commercial paper market represent a key asset class for money market mutual funds. This post documents the dislocations in the commercial paper market that motivated the creation of this facility, and tracks the subsequent improvement in market conditions.
Posted by Blog Author at 7:00 AM in Central Bank, Corporate Finance, Federal Reserve, Financial Markets, Liquidity, Pandemic | Permalink | Comments (0)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.
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.
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