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45 posts on "Financial Intermediation"

July 16, 2020

Federal Reserve Agency CMBS Purchases



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.

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June 25, 2020

Insider Networks



Insider Networks

Modern-day financial systems are highly complex, with billions of exchanges in information, assets, and funds between individuals and institutions. Though daunting to operationalize, regulating these transmissions may be desirable in some instances. For example, securities regulators aim to protect investors by tracking and punishing insider trading. Recent evidence shows that insiders have formed sophisticated networks that enable them to pursue activities outside the purview of regulatory oversight. In understanding the cat-and-mouse game between regulators and insiders, a key consideration is the networks that insiders might form in order to circumvent regulation, and how regulators might cope with insiders’ tactics. In this post, we introduce a theoretical framework that considers network formation in response to regulation and review the key insights.

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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.

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May 08, 2020

The Money Market Mutual Fund Liquidity Facility



LSE_2020_facilities-mmlf_laspada_art_460

This post is part of an ongoing series on the credit and liquidity facilities established by the Federal Reserve to support households and businesses during the COVID-19 outbreak.

Over the first three weeks of March, as uncertainty surrounding the COVID-19 pandemic increased, prime and municipal (muni) money market funds (MMFs) faced large redemption pressures. Similarly to past episodes of industry dislocation, such as the 2008 financial crisis and the 2011 European bank crisis, outflows from prime and muni MMFs were mirrored by large inflows into government MMFs, which have historically been seen by investors as a safe haven in times of crisis. In this post, we describe a liquidity facility established by the Federal Reserve in response to these outflows.

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February 19, 2020

At the New York Fed: Fourteenth Annual Joint Conference with NYU-Stern on Financial Intermediation



At the New York Fed: Fourteenth Annual Joint Conference with NYU-Stern on Financial Intermediation

An understanding of the developments in financial intermediation is critical to the efforts of the New York Fed to promote financial stability and economic growth. In line with this mission, the Bank recently hosted the fourteenth annual Federal Reserve Bank of New York-New York University Stern School of Business Conference on Financial Intermediation. As in years past, the conference attracted a large number of academics and policymakers from around the world who engaged in discussions of their most recent research. In this post, we discuss highlights of the conference.

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Posted by Blog Author at 7:00 AM in Financial Intermediation | Permalink | Comments (0)

February 03, 2020

Have the Risk Profiles of Large U.S. Bank Holding Companies Changed?



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 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.

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December 18, 2019

Banking System Vulnerability: Annual Update



Banking System Vulnerability: Annual Update

A key part of understanding the stability of the U.S. financial system is to monitor leverage and funding risks in the financial sector and the way in which these vulnerabilities interact to amplify negative shocks. In this post, we provide an update of four analytical models, introduced in a Liberty Street Economics post last year, that aim to capture different aspects of banking system vulnerability. Since their introduction, vulnerabilities as indicated by these models have increased moderately, continuing the slow but steady upward trend that started around 2016. Despite the recent increase, the overall level of vulnerabilities according to this analysis remains subdued and is still significantly smaller than before the financial crisis of 2008-09.

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December 16, 2019

Selection in Banking



LSE_Selection in Banking

Over the past thirty years, more than 2,900 U.S. banks have transformed from pure depository institutions into conglomerates involved in a broad range of business activities. What type of banks choose to become conglomerate organizations? In this post, we document that, from 1986 to 2018, such institutions had, on average, a higher return on equity in the three years prior to their decision to expand, as well as a lower level of risk overall. However, this superior pre-expansion performance diminishes over time, and all but disappears by the end of the 1990s.

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Posted by Blog Author at 7:00 AM in Banks, Financial Institutions, Financial Intermediation | Permalink | Comments (0)

November 20, 2019

Monetary Policy Transmission and the Size of the Money Market Fund Industry



Monetary Policy Transmission and the Size of the Money Market Fund Industry

In a recent post, we documented the transmission of monetary policy through money market funds (MMFs). In this post, we complement that analysis by comparing the transmission of monetary policy via MMFs to the transmission via bank deposits and studying the impact of the differential pass-through on the size of the MMF industry. To this purpose, we focus on rates on certificates of deposit (CDs) offered to banks’ retail customers and compare their response to monetary policy with that of retail MMF yields.

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September 23, 2019

Once Upon a Time in the Banking Sector: Historical Insights into Banking Competition



Once Upon a Time in the Banking Sector: Historical Insights into Banking Competition


How does competition among banks affect credit growth and real economic growth? In addition, how does it affect financial stability? In this blog post, we derive insights into this important set of questions from novel data on the U.S. banking system during the nineteenth century.

Continue reading "Once Upon a Time in the Banking Sector: Historical Insights into Banking Competition" »

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Liberty 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.

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