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Liberty Street Economics
19 posts on "Dodd-Frank"November 30, 2015
U.S. Banks’ Changing Footprint at Home and Abroad
Some banks are quite simple, while others are part of complex multi-layered organizations with affiliates in many industries scattered all around the world. The latter organizations are formally called bank holding companies (BHCs). In this post, we investigate changes in BHC geography, especially the rising share of BHC affiliates in tax havens and financial secrecy jurisdictions. We examine what has happened since 2000, including the period after the 2010 Dodd-Frank Act, which focused attention on the size and complexity of large BHCs. Our analysis complements a growing body of work on large and complex BHCs and their global affiliates, including this blog series based on papers from the Economic Policy Review.
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Posted by Blog Author at 7:00 AM in Banks, Dodd-Frank, Financial Institutions, International Economics, Regulation | Permalink | Comments (0)July 01, 2015
What Do Bond Markets Think about “Too-Big-to-Fail” Since Dodd-Frank?
Second in a two-part seriesIn our previous post, we concluded that, in rating agencies’ views, there is no clear consensus on whether the Dodd-Frank Act has eliminated “too-big-to-fail” in the United States. Today, we discuss whether bond market participants share these views.
As we discussed in our post on Monday, the Dodd-Frank Act includes provisions to address whether banks remain “too big to fail.” Title II of the Act creates an orderly liquidation mechanism for the Federal Deposit Insurance Corporation (FDIC) to resolve failed systemically important financial institutions (SIFIs). In December 2013, the FDIC outlined a “single point of entry” (SPOE) strategy for resolving failing SIFIs that, in principle, should obviate bailouts. Under the SPOE, the FDIC will be appointed receiver of the top-tier parent holding company, and losses of a subsidiary bank will be assigned to shareholders and unsecured creditors of the holding company (in a “bail-in” arrangement). The company may be restructured by shrinking businesses, breaking it into smaller entities, liquidating assets, or closing operations to ensure that the resulting entities can be resolved in bankruptcy. Crucially, during this process, the healthy subsidiaries of the company, including any banks, will maintain normal operation, thus avoiding the need for bailouts to prevent systemic instability.
Continue reading "What Do Bond Markets Think about “Too-Big-to-Fail” Since Dodd-Frank?" »
Posted by Blog Author at 7:00 AM in Dodd-Frank, Financial Institutions, Financial Markets | Permalink | Comments (0)June 29, 2015
What Do Rating Agencies Think about “Too-Big-to-Fail” Since Dodd-Frank?
First in a two-part series
Did the Dodd-Frank Act end ‘‘too-big-to-fail’’ (TBTF)? In this series of two posts, we look at this question through the lens of rating agencies and financial markets. Today we begin by discussing rating agencies’ views on this topic.
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March 30, 2015
The Effects of Entering and Exiting a Credit Default Swap Index
Correction: In the last line of the third paragraph, we mischaracterized a reference to the chart. The difference between the blue and gold bars represents the maturity differential, not the credit quality differential. We regret the error.
Since their inception in 2002, credit default swap (CDS) indexes have gained tremendous popularity and become leading barometers of the credit market. Today, investors who want to hedge credit risk or to speculate can choose from a broad menu of indexes that offer protection against the default of a firm, a European sovereign, or a U.S. municipality, among others. The major CDS indexes in the U.S. are the CDX.NA.IG and the CDX.NA.HY, composed of North American investment-grade (IG) and high-yield (HY) issuers, respectively. In this post, we focus on the CDX.NA.IG index. We discuss the interplay between the index and its constituents, specifically the “roll” process of the index, when irrelevant constituents are replaced by new ones. Analyzing the relation between the CDX.NA.IG index and its constituents in the context of the roll process allows us to gain a better understanding of how the exit of dealers from the single-name CDS market might affect pricing dynamics in the CDS market as a whole.
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May 29, 2013
Piggy Banks
Donald P. Morgan and Katherine A. Samolyk
What do banks do? Ask an economist and you’ll get a variety of answers. Banks play a vital role in allocating capital by linking savers and borrowers; they produce information by screening and monitoring borrowers; they create liquidity; they share and distribute risk; they engage in maturity transformation by borrowing short and lending long. What you won’t usually hear is that banks may help people stick to an optimal savings plan that they might not be able to stick to if they invested their money themselves. In other words, banks may serve as piggy banks by preventing people from consuming assets when the return to investing is high, even when the temptation to consume is strong.
Posted by Blog Author at 7:00 AM in Banks, Dodd-Frank, Financial Institutions, Household Finance | Permalink | Comments (0)January 04, 2013
Historical Echoes: The Origins of the Piggy Bank
Megan Cohen
Looking far back, all the way to the Middle Ages, people were in many ways very similar to those living today. Households acquired items of value, including currency. In those times, when the question of where to keep money arose, people didn’t typically have the option of a local bank. Instead, the answer oftentimes involved keeping their valuables in a vessel made of pygg.
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April 30, 2012
The Impact of Trade Reporting on the Interest Rate Derivatives Market
Michael J. Fleming, John Jackson*, Ada Li*, Asani Sarkar, and Patricia Zobel*
In recent years, regulators in the United States and abroad have begun to strengthen regulations governing over-the-counter (OTC) derivatives trading, driven by concerns over the decentralized and opaque nature of current trading practices. For example, the Dodd-Frank Act will require U.S.-based market participants to publicly report details of their interest rate derivatives (IRD) trades shortly after those transactions have been executed. Based on an analysis of new and detailed data on the trading activity of major dealers, this post discusses the possible costs and benefits of reporting requirements on the IRD market. In a previous post, we examined the same question for the credit default swap (CDS) market.
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Posted by Blog Author at 7:00 AM in Dodd-Frank, Exchange Rates, Financial Markets, Regulation | Permalink | Comments (2)February 15, 2012
The Dodd-Frank Act’s Potential Effects on the Credit Rating Industry
James Vickery
Credit rating agencies have been widely criticized in recent years for the poor performance of their ratings on mortgage-backed securities (MBS) and other structured-finance bonds. In response to the concerns of investors and other market participants, the 2010 Dodd-Frank Act incorporates a range of reforms likely to significantly reshape the rating industry. In this post, we discuss these reforms and their implications for investors, regulators, and the rating agencies themselves.
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Posted by Blog Author at 7:00 AM in Credit, Dodd-Frank, Exchange Rates, Financial Institutions, Financial Markets, Inflation, Regulation | Permalink | Comments (2)November 23, 2011
How Might Increased Transparency Affect the CDS Market?
Kathryn Chen*, Michael J. Fleming, John Jackson*, Ada Li* and Asani Sarkar
The credit default swap (CDS) market has grown rapidly since the asset class was developed in the 1990s. In recent years, and especially since the onset of the financial crisis, policymakers both in the United States and abroad have begun to strengthen regulations governing derivatives trading, with a particular focus on the decentralized and opaque nature of current trading arrangements. For example, the Dodd-Frank Act will require U.S.-based market participants to publicly report details of their CDS trades. In this post, we discuss the possible impact of increased transparency in the CDS market, based on our recent analysis of new and detailed data on the trading activity of major dealers. (See also new video coverage of our findings.)
Continue reading "How Might Increased Transparency Affect the CDS Market?" »
Posted by Blog Author at 7:00 AM in Dodd-Frank, Financial Markets, Regulation | Permalink | Comments (4)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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