255 posts on "Financial Institutions"
April 20, 2023
CRISK: Measuring the Climate Risk Exposure of the Financial System
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 […]
Posted at 7:00 am in Climate Change, Financial Institutions, Financial Markets, Systemic Risk | Permalink
April 18, 2023
Enhancing Monitoring of NBFI Exposure: The Case of Open‑End Funds
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.
April 7, 2023
How Do Interest Rates (and Depositors) Impact Measures of Bank Value?
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.
Posted at 10:00 am in Bank Capital, Banks, Financial Institutions, Financial Intermediation | Permalink | Comments (1)
March 6, 2023
Insights from Newly Digitized Banking Data, 1867‑1904
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.
February 3, 2023
How the LIBOR Transition Affects the Supply of Revolving Credit
In the United States, most commercial and industrial (C&I) lending takes the form of revolving lines of credit, known as revolvers or credit lines. For decades, like other U.S. C&I loans, credit lines were typically indexed to the London Interbank Offered Rate (LIBOR). However, since 2022, the U.S. and other developed-market economies have transitioned from credit-sensitive reference rates such as LIBOR to new risk-free rates, including the Secured Overnight Financing Rate (SOFR). This post, based on a recent New York Fed Staff Report, explores how the provision of revolving credit is likely to change as a result of the transition to a new reference rate.
Posted at 7:00 am in Banks, Credit, Financial Institutions, Financial Intermediation, Regulation | Permalink | Comments (2)
January 9, 2023
Bank Profits and Shareholder Payouts: The Repurchases Cycle
During the height of the COVID-19 pandemic, the Federal Reserve placed restrictions on large banks’ dividends and share repurchases. These restrictions were intended to enhance banks’ resiliency by bolstering their capital in light of the very uncertain economic environment and concerns that banks might face very large losses should bad-case scenarios come to pass. When it became clear that the outlook had improved and that the losses banks experienced were unlikely to threaten their stability, the Federal Reserve removed these restrictions. In this post, we look at what happened to large banks’ dividends and share repurchases during and after the pandemic-era restrictions, tracking these shareholder payouts relative to bank profits to understand how these payments impacted large banks’ capital during this period.
December 21, 2022
Can Decentralized Finance Provide More Protection for Crypto Investors?
Several centralized crypto entities failed in 2022, resulting in the cascading failure of other crypto firms and raising questions about the protection of crypto investors. While the total amount invested in the crypto sector remains small in the United States, more than 10 percent of all Americans are invested in cryptocurrencies. In this post, we examine whether migrating crypto activities from centralized platforms to decentralized finance (DeFi) protocols might afford investors better protection, especially in the absence of regulatory changes. We argue that while DeFi provides some benefits for investors, it also introduces new risks and so more work is needed to make it a viable option for mainstream investors.
December 2, 2022
Does Bank Monitoring Affect Loan Repayment?
Banks monitor borrowers after originating loans to reduce moral hazard and prevent loan losses. While monitoring represents an important activity of bank business, evidence on its effect on loan repayment is scant. In this post, which is based on our recent paper, we shed light on whether bank monitoring fosters loan repayment and to what extent it does so.
November 14, 2022
Banking System Vulnerability: 2022 Update
To assess the vulnerability of the U.S. financial system, it is important to monitor leverage and funding risks—both individually and in tandem. In this post, we provide an update of four analytical models aimed at capturing different aspects of banking system vulnerability with data through 2022:Q2, assessing how these vulnerabilities have changed since last year. The four models were introduced in a Liberty Street Economics post in 2018 and have been updated annually since then.
October 5, 2022
Measuring the Ampleness of Reserves
Over the past fifteen years, reserves in the banking system have grown from tens of billions of dollars to several trillion dollars. This extraordinary rise poses a natural question: Are the rates paid in the market for reserves still sensitive to changes in the quantity of reserves when aggregate reserve holdings are so large? In today’s post, we answer this question by estimating the slope of the reserve demand curve from 2010 to 2022, when reserves ranged from $1 trillion to $4 trillion.
Posted at 7:00 am in Banks, Central Bank, Federal Reserve, Financial Institutions, Financial Markets, Monetary Policy | Permalink
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