Liberty Street Economics

November 13, 2023

How Do Banks Lend in Inaccurate Flood Zones in the Fed’s Second District?

Kristian S. Blickle, Katherine Engelman, Theo Linnemann, and João A. C. Santos

Photo of blue house in pine woods area flooded with muddy water up to its front door.

In our previous post, we identified the degree to which flood maps in the Federal Reserve’s Second District are inaccurate. In this post, we use our data on the accuracy of flood maps to examine how banks lend in “inaccurately mapped” areas, again focusing on the Second District in particular. We find that banks are seemingly aware of poor-quality flood maps and are generally less likely to lend in such regions, thereby demonstrating a degree of flood risk management or risk aversion. This propensity to avoid lending in inaccurately mapped areas can be seen in jumbo as well as non-jumbo loans, once we account for a series of confounding effects. The results for the Second District largely mirror those for the rest of the nation, with inaccuracies leading to similar reductions in lending, especially among non-jumbo loans.

Posted at 7:00 am in Banks, Climate Change, Credit, Housing, Regional Analysis | Permalink

November 10, 2023

Potential Flood Map Inaccuracies in the Fed’s Second District

Kristian Blickle, Katherine Engelman, Theo Linnemann, and João A.C. Santos

The National Flood Insurance Program (NFIP) flood maps, which designate areas at risk of flooding, are updated periodically through the Federal Emergency Management Agency (FEMA) and community efforts. Even so, many maps are several years old. As the previous two posts in the Extreme Weather series show, climate-related risks vary geographically. It is therefore important to produce accurate maps of such risks, like flooding. In this post we use detailed data on the flood risk faced by individual dwellings as well as digitized FEMA flood maps to tease out the degree to which flood maps in the Second District are inaccurate. Since inaccurate maps may leave households or banks exposed to the risk of uninsured flood damage, understanding map inaccuracies is key. We show that, when aggregated to the census tract level, a large number of maps do not fully capture flood risk. However, we are also able to show that updates do in fact improve map quality.

Posted at 7:00 am in Climate Change, New York, Regional Analysis | Permalink

November 9, 2023

Transition Risks in the Fed’s Second District and the Nation

Kristian Blickle, Rajashri Chakrabarti, and Maxim Pinkovskiy

Photo: NY City skyline in background with solar panels in the foreground.

Climate change may pose two types of risk to the economy—from policies and consumer preferences as the energy system transitions to a lower dependence on carbon (in other words, transition risks) or from damages stemming from the direct impacts of climate change (physical risks). In this post, we follow up on our previous post that studied the exposure of the Federal Reserve’s Second District to physical risks by considering how transition risks affect different parts of the District and how they differentially affect the District relative to the nation. We find that, relative to other regions of the U.S., the economy of the Second District has considerably less exposure to fossil fuels. However, the cost of reducing even this relatively low economic dependence on carbon is still likely to be considerable.

Posted at 7:00 am in Climate Change, Employment, Inequality, New Jersey, New York, Regional Analysis | Permalink | Comments (1)

November 8, 2023

Comparing Physical Risk: The Fed’s Second District versus the Nation

Kristian Blickle, Rajashri Chakrabarti, and Maxim Pinkovskiy

Photo: Two New York City police officers standing on a city street with police vehicle behind them. One is wiping his sweating brow, the other is holding a bottle of water.

In this post, we discuss the climate-related risks faced by the Federal Reserve’s Second District and compare these with risks faced by the nation as a whole. The comparison helps contextualize the risks while framing them in the broader context of a changing climate at the national level. We show that the continental Second District—an area consisting of New York State, the twelve northern-most counties of New Jersey, and Fairfield County in Connecticut—faces fewer and less severe climate-related physical risks than the nation as a whole. However, the areas that comprise the Second District still rank somewhat high in key risks that include “heat stress.” This holds true especially for New York City.

Posted at 7:01 am in Climate Change, New Jersey, New York, Regional Analysis | Permalink

Blog Series on the Economic and Financial Impacts of Extreme Weather Events in the Fed’s Second District

Julian di Giovanni

Photo: a New York highway flooded. A highway full of stalled cars with water up to their doors.

The frequency and ferocity of extreme weather events, such as flooding, storms, and deadly heat waves, have been on the rise in recent years. These climate events, along with human adaption to cope with them, may have large effects on the economy and financial markets. It is therefore paramount to provide research about the economy’s vulnerability to climate events for policymakers, households, financial institutions, and other players in the world economy to make informed decisions. In the coming days, we are going to present a series of nine posts that attempt to take a step in this direction while focusing on the Federal Reserve System’s Second District (NY, northern NJ, southwest CT, Puerto Rico, and the U.S. Virgin Islands). The twelve Federal Reserve Districts are depicted in this map.

Posted at 7:00 am in Banks, Financial Markets, New York | Permalink

November 7, 2023

Credit Card Delinquencies Continue to Rise—Who Is Missing Payments?

Andrew Haughwout, Donghoon Lee, Daniel Mangrum, Belicia Rodriguez, Joelle Scally, Wilbert van der Klaauw, and Crystal Wang

Decorative Image: Male at kitchen table with credit card and phone in hands

This morning, the New York Fed’s Center for Microeconomic Data released the 2023:Q3 Quarterly Report on Household Debt and Credit. After only moderate growth in the second quarter, total household debt balances grew $228 billion in the third quarter across all types, especially credit cards and student loans. Credit card balances grew $48 billion this quarter and marked the eighth quarter of consecutive year-over year increases. The $154 billion nominal year-over-year increase in credit card balances marks the largest such increase since the beginning of our time series in 1999. The increase in balances is consistent with strong nominal spending and real GDP growth over the same time frame. But credit card delinquencies continue to rise from their historical lows seen during the pandemic and have now surpassed pre-pandemic levels. In this post, we focus on which groups have fallen behind on debt payments and discuss whether rising delinquencies are narrowly concentrated or broad based.

Posted at 11:00 am in Household Finance | Permalink

November 6, 2023

Banking System Vulnerability: 2023 Update

Matteo Crosignani, Thomas Eisenbach, and Fulvia Fringuellotti

decorative image: first republic bank building photographed from the ground looking up toward the sky with a few tall buildings next to it.

The bank failures that occurred in March 2023 highlighted how unrealized losses on securities can make banks vulnerable to a sudden loss of funding. This risk, which materialized following the rapid rise in interest rates that began in early 2022, underscores the importance of monitoring the vulnerabilities of the banking system. In this post, as in previous years, we provide an update of four analytical models aimed at capturing different aspects of vulnerability of the U.S. banking system, with data through the second quarter of 2023. In addition, we discuss changes made to the methodology based on the lessons from March 2023 and assess how the system-level vulnerability has evolved.

Posted at 7:00 am in Banks, Financial Institutions, Liquidity, Systemic Risk | Permalink | Comments (2)

October 19, 2023

Can China Catch Up with Greece?

Hunter L. Clark and Matthew Higgins

Decorative image: Chinese men and women assembling products in a factory?

China’s leader Xi Jinping recently laid out the goal of reaching the per capita income of “a mid-level developed country by 2035.” Is this goal likely to be achieved? Not in our view. Continued rapid growth faces mounting headwinds from population aging and from diminishing returns to China’s investment-centered growth model. Additional impediments to growth appear to be building, including a turn toward increased state management of the economy, the crystallization of legacy credit issues in real estate and other sectors, and limits on access to key foreign technologies. Even given generous assumptions concerning future growth fundamentals, China appears likely to close only a fraction of the gap with high-income countries in the years ahead.

Posted at 7:00 am in Forecasting, International Economics, Macroeconomics | Permalink

October 18, 2023

Borrower Expectations for the Return of Student Loan Repayment

Raji Chakrabarti, Daniel Mangrum, Sasha Thomas, and Wilbert van der Klaauw

Illustration: Headline Student Loans - Will borrowers continue to spend? Red background with illustration of a student pushing a full shopping cart.

After forty-three months of forbearance, the pause on federal student loan payments has ended. Originally enacted at the onset of the COVID-19 pandemic in March 2020, the administrative forbearance and interest waiver lasted until September 1, 2023, and borrowers’ monthly payments resumed this month. As discussed in an accompanying post, the pause on student loan payments afforded borrowers over $260 billion in waived payments throughout the pandemic, supporting borrowers’ consumption and savings over the last three years. In this post, we analyze responses of student loan borrowers to special questions in the August 2023 SCE Household Spending Survey designed to gauge the expected impact of the payment resumption on future spending growth, the risk of credit delinquency for borrowers, and the economy at large. The findings suggest that the payment resumption will have a relatively small overall effect on consumption, on the order of a 0.1 percentage point reduction in aggregate spending from August levels, and a (delayed) return of student loan delinquency rates back to pre-pandemic levels. Across groups, we see little variation in spending responses but find that low-income borrowers, female borrowers, those with less than a bachelor’s degree, and those who were not in repayment before the pandemic expect the highest likelihood of missed student loan payments.

Posted at 10:01 am in Equitable Growth, Household Finance, Student Loans | Permalink

An Update on the Health of the U.S. Consumer

Andrew Haughwout, Donghoon Lee, Daniel Mangrum, Jonathan McCarthy, Davide Melcangi, Joelle Scally, and Wilbert van der Klaauw

Illustrative photo: Americans shopping inside a store.

The strength of consumer spending so far this year has surprised most private forecasters. In this post, we examine the factors behind this strength and the implications for consumption in the coming quarters. First, we revisit the measurement of “excess savings” that households have accumulated since 2020, finding that the estimates of remaining excess savings are very sensitive to assumptions about measurement, estimation period, and trend type, which renders them less useful. We thus broaden the discussion to other aspects of the household balance sheet. Using data from the New York Fed’s Consumer Credit Panel, we calculate the additional cash flows made available for consumption as a result of households’ adjustments to their debt holdings. To detect signs of stress in household financial positions, we examine recent trends in delinquencies and find the evidence to be mixed, suggesting that certain stresses have emerged for some households. In contrast, we find that the New York Fed’s Survey of Consumer Expectations still points to a solid outlook for consumer spending.

Posted at 10:00 am in Household Finance, Macroeconomics | Permalink

Markets & Policy Implementation

Liberty Street Economics

How Do Banks Lend in Inaccurate Flood Zones in the Fed’s Second District?

Potential Flood Map Inaccuracies in the Fed’s Second District

Transition Risks in the Fed’s Second District and the Nation

Comparing Physical Risk: The Fed’s Second District versus the Nation

Blog Series on the Economic and Financial Impacts of Extreme Weather Events in the Fed’s Second District

Credit Card Delinquencies Continue to Rise—Who Is Missing Payments?

Banking System Vulnerability: 2023 Update

Can China Catch Up with Greece?

Borrower Expectations for the Return of Student Loan Repayment

An Update on the Health of the U.S. Consumer

Economic Inequality

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