107 posts on "Crisis"
September 22, 2020
Expanding the Toolkit: Facilities Established to Respond to the COVID‑19 Pandemic
Anna Kovner and Antoine Martin argue that the “credit” and lending facilities established by the Fed in response to the COVID-19 pandemic, while unprecedented, are a natural extension of the central bank’s existing toolkit.
Posted at 7:00 am in Central Bank, Crisis, Federal Reserve, Liquidity, Monetary Policy, Pandemic | Permalink
September 21, 2020
How Did State Reopenings Affect Small Businesses?
In our previous post, we looked at the effects that the reopening of state economies across the United States has had on consumer spending. We found a significant effect of reopening, especially regarding spending in restaurants and bars as well as in the healthcare sector. In this companion post, we focus specifically on small businesses, using two different sources of high-frequency data, and we employ a methodology similar to that of our previous post to study the effects of reopening on small business activity along various dimensions. Our results indicate that, much like for consumer spending, reopenings had positive and significant effects in the short term on small business revenues, the number of active merchants, and the number of employees working in small businesses. It is important to stress that we are not expressing any views in this post on the normative question of whether, when, or how states should loosen or tighten restrictions aimed at controlling the COVID-19 pandemic.
Posted at 7:00 am in Crisis, Employment, Household Finance, Labor Market, Macroeconomics, Pandemic, Unemployment | Permalink
August 17, 2020
Are Financially Distressed Areas More Affected by COVID‑19?
Building upon our earlier Liberty Street Economics post, we continue to analyze the heterogeneity of COVID-19 incidence. We previously found that majority-minority areas, low-income areas, and areas with higher population density were more affected by COVID-19. The objective of this post is to understand any differences in COVID-19 incidence by areas of financial vulnerability. Are areas that are more financially distressed affected by COVID-19 to a greater extent than other areas? If so, this would not only further adversely affect the financial well-being of the individuals in these areas, but also the local economy. This post is the first in a three part-heterogeneity series looking at heterogeneity in the credit market as it pertains to COVID-19 incidence and CARES Act debt relief.
July 16, 2020
Federal Reserve Agency CMBS Purchases
On March 23, the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York initiated plans to purchase agency commercial mortgage-backed securities (agency CMBS) at the direction of the FOMC in order to support smooth market functioning of the markets for these securities. This post describes the deterioration in market conditions that led to agency CMBS purchases, how the Desk conducts these operations, and how market functioning has improved since the start of the purchase operations.
June 30, 2020
Leverage Ratio Arbitrage All Over Again
Leverage limits as a form of capital regulation have a well-known, potential bug: If banks can’t lever returns as desired, they can boost returns on equity by shifting toward riskier, higher yielding assets. That reach for yield is the leverage rule “arbitrage.” But would banks do that? In a previous post, we discussed evidence from our working paper that banks did do just that in response to the new leverage rule that took effect in 2018. This post discusses new findings in our revised paper on when and how banks arbitraged.
June 17, 2020
Did State Reopenings Increase Social Interactions?
Social distancing—avoiding nonessential movement and largely staying at home—is seen as key to limiting the spread of COVID-19. To promote social distancing, over forty states imposed shelter-in-place or stay-at-home orders, closing nonessential businesses, banning large gatherings, and encouraging citizens to stay home. Over the course of the last month, virtually all of these states have reopened. However, these reopenings were preceded by a spontaneous increase in mobility and decline in social distancing. Did the reopenings decrease social distancing, or did it ratify ex post what was already going to take place? In this post, we will investigate this question using an event study methodology and demonstrate that reopenings probably have caused a large decline in social distancing, even after accounting for the trends already in place at the time of reopening.
June 16, 2020
Outflows from Bank‑Loan Funds during COVID‑19
The COVID-19 pandemic has put significant pressure on debt markets, especially those populated by riskier borrowers. The leveraged loan market, in particular, came under remarkable stress during the month of March. Bank-loan mutual funds, among the main holders of leveraged loans, suffered massive outflows that were reminiscent of the outflows they experienced during the 2008 crisis. In this post, we show that the flow sensitivity of the loan-fund industry to the COVID-19 crisis (and to negative shocks more generally) seems to be even greater than that of high-yield bond funds, which also invest in high-risk debt securities and have received much attention because of their possible exposure to run-like behavior by investors and their implications for financial stability.
Posted at 7:00 am in Crisis, Financial Institutions, Financial Intermediation, Liquidity, Pandemic | Permalink | Comments (2)
June 12, 2020
How Fed Swap Lines Supported the U.S. Corporate Credit Market amid COVID‑19 Strains
The onset of the COVID-19 shock in March 2020 brought large changes to the balance sheets of the U.S. branches of foreign banking organizations (FBOs). Most of these branches saw sizable usage of committed credit lines by U.S.-based clients, resulting in increased funding needs. In this post, we show that branches of FBOs from countries whose central banks used standing swap lines with the Federal Reserve (“standing swap central banks”—SSCBs) met their increased funding needs by accessing dollars that flowed into the United States through their foreign parent banks. This volume of dollar inflows accounted for at least half of the late March aggregate take-up at SSCB dollar operations.
Posted at 9:19 am in Credit, Crisis, Federal Reserve, Financial Institutions, Liquidity, Pandemic | Permalink
May 22, 2020
Have the Fed Swap Lines Reduced Dollar Funding Strains during the COVID‑19 Outbreak?
In March 2020, the Federal Reserve 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 that these changes were effective at bringing down dollar funding strains abroad.
May 20, 2020
The Paycheck Protection Program Liquidity Facility (PPPLF)
On April 9, 2020, the Federal Reserve announced that it would take additional actions to provide up to $2.3 trillion in loans to support the economy in response to the COVID-19 crisis. Among the measures taken was the establishment of a new facility intended to facilitate lending to small businesses via the Small Business Administration’s Paycheck Protection Program (PPP). Under the Paycheck Protection Program Liquidity Facility (PPPLF), Federal Reserve Banks are authorized to supply liquidity to financial institutions participating in the PPP in the form of term financing on a non-recourse basis while taking PPP loans as collateral. The facility was launched April 16, 2020. As of May 7, it had issued over $29 billion in loans (see the H.4.1 Statistical Release). This post lays out the background for the PPPLF and discusses its intended effects.
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