Much of the work on climate risk has focused on the physical effects of climate change, with less attention devoted to “transition risks” related to negative economic effects of enacting climate-related policies and phasing out high-emitting technologies. Further, most of the work in this area has measured transition risks using backward-looking metrics, such as carbon emissions, which does not allow us to compare how different policy options will affect the economy. In a recent Staff Report, we capitalize on a new measure to study the extent to which banks’ loan portfolios are exposed to specific climate transition policies. The results show that while banks’ exposures are meaningful, they are manageable.
The U.S. dollar plays a central role in the global economy. In addition to being the most widely used currency in foreign exchange transactions, it represents the largest share in official reserves, international debt securities and loans, cross-border payments, and trade invoicing. The ubiquity of the U.S. dollar in global transactions reflects several key factors, including the depth and liquidity of U.S. capital markets, the size of the U.S. economy, the relatively low cost of converting dollars into other currencies, and an enduring confidence in the U.S. legal system and its institutions.
The Federal Reserve Bank of New York and Columbia University’s School of International and Public Affairs (SIPA) co-organized the fourth annual State-of-the-Field Conferences on Cyber Risk to Financial Stability, on April 14, 2023. The conference builds on joint activity by the New York Fed and SIPA since 2017. Each year, the conference convenes panels to confront the same three questions: What are we learning about cyber risk to financial stability? What are we doing to improve resilience and stability? And what’s next? This blog post reviews some of these conversations from the 2023 conference.
Daily investment at the Federal Reserve’s Overnight Reverse Repo (ON RRP) facility increased from a few billion dollars in March 2021 to more than $2.3 trillion in June 2022 and has stayed above $2 trillion since then. In this post, which is based on a recent staff report, we discuss two channels—a deposit channel and a wholesale short-term debt channel—through which banks’ balance-sheet costs have increased investment by money market mutual funds (MMFs) in the ON RRP facility.
The collapse of Silicon Valley Bank (SVB) and Signature Bank (SB) has raised questions about the fragility of the banking system. One striking aspect of these bank failures is how the runs that preceded them reflect risks and trade-offs that bankers and regulators have grappled with for many years. In this post, we highlight how these banks, with their concentrated and uninsured deposit bases, look quite similar to the small rural banks of the 1930s, before the creation of deposit insurance. We argue that, as with those small banks in the early 1930s, managing the information around SVB and SB’s balance sheets is of first-order importance.
Recent events have highlighted the importance of understanding the distribution and composition of funding across banks. Market participants have been paying particular attention to the overall decline of deposit funding in the U.S. banking system as well as the reallocation of deposits within the banking sector. In this post, we describe changes in bank funding structure since the onset of monetary policy tightening, with a particular focus on developments through March 2023.
A growing number of climate-related policies have been adopted globally in the past thirty years (see chart below). The risk to economic activity from changes in policies in response to climate risks, such as carbon taxes and green subsidies, is often referred to as transition risk. Transition risk can adversely affect the real economy through […]
Non-bank financial institutions (NBFIs) have grown steadily over the last two decades, becoming important providers of financial intermediation services. As NBFIs naturally interact with banking institutions in many markets and provide a wide range of services, banks may develop significant direct exposures stemming from these counterparty relationships. However, banks may be also exposed to NBFIs indirectly, simply by virtue of commonality in asset holdings. This post and its companion piece focus on this indirect form of exposure and propose ways to identify and quantify such vulnerabilities.
The rapid rise in interest rates across the yield curve has increased the broader public’s interest in the exposure embedded in bank balance sheets and in depositor behavior more generally. In this post, we consider a simple illustration of the potential impact of higher interest rates on measures of bank franchise value.
Call reports—regulatory filings in which commercial banks report their assets, liabilities, income, and other information—are one of the most-used data sources in banking and finance. Though call reports were collected as far back as 1867, the underlying data are only easily accessible for the recent past: the mid-1980s onward in the case of the FDIC’s FFIEC call reports. To help researchers look farther back in time, we’ve begun creating a complete digital record of this “missing” call report data; this data release covers 1867 through 1904, the bulk of the National Banking Era. Here, we describe the digitization process and highlight some of the interesting features of that era from a research perspective.