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Liberty Street Economics
37 posts on "Financial Intermediation"November 20, 2019
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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Posted by Blog Author at 7:00 AM in Federal Reserve, Financial Institutions, Financial Intermediation, Monetary Policy | Permalink | Comments (4)September 23, 2019
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.
Posted by Blog Author at 7:00 AM in Banks, Crisis, Economic History, Financial Institutions, Financial Intermediation | Permalink | Comments (0)September 04, 2019
The Transmission of Monetary Policy and the Sophistication of Money Market Fund Investors
In December 2015, the Federal Reserve tightened monetary policy for the first time in almost ten years and, over the following three years, it raised interest rates eight more times, increasing the target range for the federal funds rate from 0-25 basis points (bps) to 225-250 bps. To what extent are changes in the fed funds rate transmitted to cash investors, and are there differences in the pass-through between retail and institutional investors? In this post, we describe the impact of recent rate increases on the yield paid by money market funds (MMFs) to their investors and show that the impact varies depending on investors’ sophistication.
Posted by Blog Author at 7:00 AM in Federal Reserve, Financial Institutions, Financial Intermediation, Monetary Policy | Permalink | Comments (3)July 19, 2019
At the New York Fed: Research Conference on FinTech
Financial technology (“FinTech”) refers to the evolving intersection of financial services and technology. In March, the New York Fed hosted "The First New York Fed Research Conference on FinTech” to understand the implications of FinTech developments on issues that are relevant to the Fed’s mandates such as lending, payments, and regulation. In this post, we summarize the principal themes and findings of the conference.
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Posted by Blog Author at 7:00 AM in Financial Institutions, Financial Intermediation, Regulation | Permalink | Comments (0)June 26, 2019
How Large Are Default Spillovers in the U.S. Financial System?
Second of two posts
When a financial firm suffers sufficiently high losses, it might default on its counterparties, who may in turn become unable to pay their own creditors, and so on. This “domino” or “cascade” effect can quickly propagate through the financial system, creating undesirable spillovers and unnecessary defaults. In this post, we use the framework that we discussed in “Assessing Contagion Risk in a Financial Network,” the first part of this two-part series, to answer the question: How vulnerable is the U.S. financial system to default spillovers?
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Posted by Blog Author at 7:00 AM in Banks, Crisis, Dealers, Financial Institutions, Financial Intermediation, Systemic Risk | Permalink | Comments (1)June 24, 2019
Assessing Contagion Risk in a Financial Network
First of two posts
In compiling a list of key takeaways of the 2008 financial crisis, surely the dangers of counterparty risk would be near the top. During the crisis, speculation on which financial institution would be next to default on its obligations to creditors, and which one would come after that, dominated news cycles. Since then, there has been an explosion in research trying to understand and quantify the default spillovers that can arise through counterparty risk. This is the first of two posts delving into the analysis of financial network contagion through this spillover channel. Here we introduce a framework that is useful for thinking about default cascades, originally developed by Eisenberg and Noe.
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Posted by Blog Author at 7:00 AM in Banks, Crisis, Financial Institutions, Financial Intermediation, Financial Markets, Fire Sale, Systemic Risk | Permalink | Comments (1)May 29, 2019
Is There Too Much Business Debt?
By many measures nonfinancial corporate debt has been increasing as a share of GDP and assets since 2010. As the May Federal Reserve Financial Stability Report explained, high business debt can be a financial stability risk because heavily indebted corporations may need to cut back spending more sharply when shocks occur. Further, when businesses cannot repay their loans, financial institutions and investors incur losses. In this post, we review measures of corporate leverage in the United States. Although corporate debt has soared, concerns about debt growth are mitigated in part by higher corporate cash flows.
Posted by Blog Author at 7:00 AM in Banks, Corporate Finance, Credit, Financial Intermediation | Permalink | Comments (10)January 18, 2019
Post-Crisis Financial Regulation: Experiences from Both Sides of the Atlantic
To mark the 100-year anniversary of the Banca d’Italia’s New York office, the Federal Reserve Bank of New York and the Banca d’Italia hosted a workshop on post-crisis financial regulation in November 2018. The goal of the workshop was to discuss differences in regulation between the United States and Europe (and around the globe more broadly), examine gaps in current regulations, identify challenges to be addressed, and raise awareness about the unintended consequences of regulation. The workshop included presentations by researchers from the U.S. and Europe on such topics as market liquidity, funding, and capital requirements. In this post, we present some of the findings and discussions from the workshop.
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Posted by Blog Author at 7:00 AM in Banks, Central Bank, Crisis, Financial Intermediation | Permalink | Comments (0)January 16, 2019
Customer and Employee Losses in Lehman’s Bankruptcy
Fourth of five posts
In our second post on the Lehman bankruptcy, we discussed the cost to Lehman’s creditors from having their funds tied up in bankruptcy proceedings. In this post, we focus on losses to Lehman’s customers and employees from the destruction of firm-specific assets that could not be deployed as productively with other firms. Our conclusions are based in part on what happened after bankruptcy—whether, for example, customer accounts moved to other firms or employees found jobs elsewhere. While these costs are difficult to pin down, the analysis suggests that the most notable losses were borne by mutual funds that relied on Lehman’s specialized brokerage advice and firms that employed Lehman for its equity underwriting services.
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Posted by Blog Author at 7:00 AM in Banks, Crisis, Dealers, Employment, Financial Intermediation | Permalink | Comments (0)January 15, 2019
Lehman’s Bankruptcy Expenses
Third of five posts
In bankruptcy, firms incur expenses for services provided by lawyers, accountants, and other professionals. Such expenses can be quite high, especially for complex resolutions. These direct costs of bankruptcy proceedings reduce a firm’s value below its fundamental level, thus constituting a “deadweight loss.” Bankruptcy also carries indirect costs, such as the loss in value of assets trapped in bankruptcy—a subject discussed in our previous post. In this post, we provide the first comprehensive estimates of the direct costs of resolving Lehman Brothers’ holding company (LBHI) and its affiliates under Chapter 11 of the U.S. Bankruptcy Code, and of Lehman’s broker-dealer (LBI) under the Securities Investor Protection Act (SIPA).
Posted by Blog Author at 7:00 AM in Crisis, Dealers, Financial Intermediation | Permalink | Comments (0)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.
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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