255 posts on "Financial Institutions"
July 17, 2020
MBS Market Dysfunctions in the Time of COVID‑19
Haoyang Liu, Asani Sarkar, and coauthors study a particular aspect of MBS market disruptions by showing how a long-standing relationship between cash and forward markets broke down, in spite of dealers increasing the provision of liquidity. The analysis also highlights an innovative response by the Federal Reserve that seemed to have helped to normalize market functioning.
Posted at 7:00 am in Financial Institutions, Financial Markets, Liquidity, Pandemic | Permalink | Comments (2)
June 25, 2020
Insider Networks
Erol and Lee consider the cat-and-mouse game played between financial regulators and those attempting to trade on inside information, including how insiders might form networks in order to circumvent restrictions, and how regulators might cope with insiders’ tactics.
Posted at 7:00 am in Bank Capital, Banks, Central Bank, Financial Institutions, Financial Intermediation, Financial Markets, Regulation | Permalink
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 26, 2020
The Primary and Secondary Market Corporate Credit Facilities
On April 9, 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 coronavirus pandemic. Among the initiatives are the Primary Market and Secondary Market Corporate Credit Facilities (PMCCF and SMCCF), whose intent is to provide support for large U.S. businesses that typically finance themselves by issuing debt in capital markets. Corporate bonds support the operations of companies with more than 17 million employees based in the United States and these bonds are key assets for retirees and pension funds. If companies are unable to issue corporate bonds, they may be unable to invest in inventory and equipment, meet current liabilities, or pay employees. Maintaining access to credit is thus crucially important during the COVID-19 pandemic, both for issuing companies and for their employees. This post documents the dislocations in the corporate bond market that have motivated the creation of these facilities and explains how we expect these facilities to support U.S. businesses and their employees both through the COVID-related disruptions and beyond, when the economy recovers.
Posted at 7:00 am in COVID-19 Facilities, Financial Institutions, Financial Markets, Pandemic | Permalink
May 8, 2020
The Money Market Mutual Fund Liquidity Facility
To prevent outflows from prime and muni funds from turning into an industry-wide run after the COVID-19 outbreak, the Federal Reserve established Money Market Mutual Fund Liquidity Facility. This post looks at the Fed’s intervention, its goals, and the direct and indirect market effects.
Posted at 7:00 am in Central Bank, COVID-19 Facilities, Credit, Federal Reserve, Financial Institutions, Financial Intermediation, Financial Markets, Liquidity, Monetary Policy, Pandemic | Permalink
April 8, 2020
How Does Supervision Affect Bank Performance during Downturns?
New research finds that there is a cyclical nature to the benefits of bank supervisory attention: in normal times, the benefits are smaller, but during downturns the more closely supervised banks exhibit better loan performance and lower earnings volatility.
Posted at 7:00 am in Bank Capital, Banks, Crisis, Federal Reserve, Financial Institutions, Recession, Systemic Risk | Permalink
April 2, 2020
The Value of Opacity in a Banking Crisis
During crisis periods, we often observe regulators limiting access to bank‑level information with the goal of restoring the public’s confidence in banks. Thus, information management often plays a central role in ending financial crises. Despite the perceived importance of managing information about individual banks during a financial crisis, we are not aware of any empirical work that quantifies the effect of such policies. In this blog post, we highlight results from our recent working paper, demonstrating that in a crisis, a policy of suppressing information about banks’ balance sheets has a significant and positive effect on deposits.
Posted at 7:00 am in Economic History, Financial Institutions, Financial Markets, Pandemic | Permalink
February 24, 2020
Understanding Heterogeneous Agent New Keynesian Models: Insights from a PRANK
To shed light on the macroeconomic consequences of heterogeneity, Acharya and Dogra develop a stylized HANK model that contains key features present in more complicated HANK models.
Posted at 7:00 am in Central Bank, Credit, Federal Reserve, Financial Institutions, Fiscal Policy, Inequality, Macroeconomics, Monetary Policy, Recession, Systemic Risk | Permalink
February 3, 2020
Have the Risk Profiles of Large U.S. Bank Holding Companies Changed?
After the global financial crisis, regulatory changes were implemented to support financial stability, with some changes directly addressing capital and liquidity in bank holding companies (BHCs) and others targeting BHC size and complexity. Although the overall size of the largest U.S. BHCs has not decreased since the crisis, the organizational complexity of these same organizations has declined, with less notable changes being observed in their range of businesses and geographic scope (Goldberg and Meehl forthcoming). In this post, we explore how different types of BHC risks—risks that can influence the probability that a BHC is stressed, as well as the chance of systemic implications—have changed over time. The results are mixed: Levels of most BHC risks currently tend to be higher than in the years immediately preceding the crisis, but are markedly lower than the levels seen during and immediately following the crisis.
Posted at 7:00 am in Banks, Financial Institutions, Financial Intermediation, Regulation, Systemic Risk | Permalink
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