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213 posts on "Financial Institutions"

March 01, 2021

Will Capital Flows through Global Banks Support Economic Recovery?



While policymakers around the world have aggressively and swiftly reacted to the common negative economic shock from COVID-19, the timing and forms of policy responses in the economic recovery stage may be more geographically differentiated. The range in policy responses, along with variations in the financial health of banks, likely will affect the flow of international credit through global banks. In this post, we ask whether, based on historical precedent, global banks are likely to provide additional support to the economic recovery in the locations they serve.

Continue reading "Will Capital Flows through Global Banks Support Economic Recovery? " »

Posted by Blog Author at 7:00 AM in Bank Capital, Banks, Credit, Financial Institutions, Pandemic | Permalink | Comments (1)

February 24, 2021

State-of-the-Field Conference on Cyber Risk to Financial Stability



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The Federal Reserve Bank of New York partnered with Columbia University’s School of International and Public Affairs (SIPA) for the second annual State-of-the-Field Conference on Cyber Risk to Financial Stability on December 14-15, 2020. Hosted virtually due to the COVID-19 pandemic, the conference took place amidst the unfolding news of a cyberattack against a major cybersecurity vendor and software vendor, underscoring vulnerabilities from cyber risk.

Continue reading "State-of-the-Field Conference on Cyber Risk to Financial Stability" »

February 18, 2021

How Competitive are U.S. Treasury Repo Markets?



The Treasury repo market is at the center of the U.S. financial system, serving as a source of secured funding as well as providing liquidity for Treasuries in the secondary market. Recently, results published by the Bank for International Settlements (BIS) raised concerns that the repo market may be dominated by as few as four banks. In this post, we show that the secured funding portion of the repo market is competitive by demonstrating that trading is not concentrated overall and explaining how the pricing of inter-dealer repo trades is available to a wide range of market participants. By extension, rate-indexes based on repo trades, such as SOFR, reflect a deep market with a broad set of participants.

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February 11, 2021

Did Subsidies to Too-Big-To-Fail Banks Increase during the COVID-19 Pandemic?



LSE_2021_TBTF-COVID_sarkar_460

Once a bank grows beyond a certain size or becomes too complex and interconnected, investors often perceive that it is “too big to fail” (TBTF), meaning that if the bank were to become distressed, the government would likely bail it out. In a recent post, I showed that the implicit funding subsidies to systemically important banks (SIBs) declined, on average, after a set of reforms for eliminating TBTF perceptions was implemented. In this post, I discuss whether these subsidies increased again during the COVID-19 pandemic and, if so, whether the increase accrued to large firms in all sectors of the economy.

Continue reading "Did Subsidies to Too-Big-To-Fail Banks Increase during the COVID-19 Pandemic?" »

Posted by Blog Author at 7:00 AM in Banks, Financial Institutions, Pandemic, Systemic Risk | Permalink | Comments (2)

February 05, 2021

Up on Main Street



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The Main Street Lending Program was the last of the facilities launched by the Fed and Treasury to support the flow of credit during the COVID-19 pandemic. The others primarily targeted Wall Street borrowers; Main Street was for smaller firms that rely more on banks for credit. It was a complicated program that worked by purchasing loans and sharing risk with lenders. Despite its delayed launch, Main Street purchased more debt than any other facility and was accelerating when it closed in January 2021. This post first locates Main Street in the constellation of COVID-19 credit programs, then looks in detail at its design and usage with an eye toward any future programs.

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November 16, 2020

How Has COVID-19 Affected Banking System Vulnerability?



The COVID-19 pandemic has led to significant changes in banks’ balance sheets. To understand how these changes have affected the stability of the U.S. banking system, we provide an update of four analytical models that aim to capture different aspects of banking system vulnerability.

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

October 19, 2020

How Has Post-Crisis Banking Regulation Affected Hedge Funds and Prime Brokers?



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“Arbitrageurs” such as hedge funds play a key role in the efficiency of financial markets. They compare closely related assets, then buy the relatively cheap one and sell the relatively expensive one, thereby driving the prices of the assets closer together. For executing trades and other services, hedge funds rely on prime brokers and broker-dealers. In a previous Liberty Street Economics blog post, we argued that post-crisis changes to regulation and market structure have increased the costs of arbitrage activity, potentially contributing to the persistent deviations in the prices of closely related assets since the 2007–09 financial crisis. In this post, we document how post-crisis changes to bank regulations have affected the relationship between hedge funds and broker-dealers.

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October 13, 2020

Weathering the Storm: Who Can Access Credit in a Pandemic?



LSE_Weathering the Storm: Who Can Access Credit in a Pandemic?

Credit enables firms to weather temporary disruptions in their business that may impair their cash flow and limit their ability to meet commitments to suppliers and employees. The onset of the COVID recession sparked a massive increase in bank credit, largely driven by firms drawing on pre-committed credit lines. In this post, which is based on a recent Staff Report, we investigate which firms were able to tap into bank credit to help sustain their business over the ensuing downturn.

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

October 01, 2020

The Impact of the Corporate Credit Facilities



The Impact of the Corporate Credit Facilities

American companies have raised almost $1 trillion in the U.S. corporate bond market since March. If companies had been unable to refinance those bonds, their inability to repay may have led to an immediate default on all of their obligations, creating a cascade of defaults and layoffs. Based on Compustat data, an inability to access public bond markets could have affected companies employing more than 16 million people. In this post, we document the impact of the Primary Market and Secondary Market Corporate Credit Facilities (PMCCF and SMCCF) on bond market functioning, summarizing a detailed evaluation described in a new working paper. We also describe the impact that a collapse of corporate bond markets could have had on employment and investment.

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Posted by Blog Author at 7:00 AM in Financial Institutions, Financial Markets, Pandemic | Permalink | Comments (2)

July 17, 2020

MBS Market Dysfunctions in the Time of COVID-19



MBS Market Dysfunctions in the Time of COVID-19

The COVID-19 pandemic elevated financial market illiquidity and volatility, especially in March 2020. The mortgage-backed securities (MBS) market, which plays a critical role in the housing market by funding the vast majority of U.S. residential mortgages, also suffered a period of dysfunction. In this post, we 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 MBS dealers increasing the provision of liquidity. (See our related staff report for greater detail.) We also highlight an innovative response by the Federal Reserve that seemed to have helped to normalize market functioning.

Continue reading "MBS Market Dysfunctions in the Time of COVID-19" »

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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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