Liberty Street Economics

Liberty Street Economics

June 20, 2024

The Growing Risk of Spillovers and Spillbacks in the Bank‑NBFI Nexus

Viral V. Acharya, Nicola Cetorelli, and Bruce Tuckman

Decorative image: View of high rise glass building and dark steel in London

Nonbank financial institutions (NBFIs) are growing, but banks support that growth via funding and liquidity insurance. The transformation of activities and risks from banks to a bank-NBFI nexus may have benefits in normal states of the world, as it may result in overall growth in (especially, credit) markets and widen access to a wide range of financial services, but the system may be disproportionately exposed to financial and economic instability when aggregate tail risk materializes. In this post, we consider the systemic implications of the observed build-up of bank-NBFI connections associated with the growth of NBFIs.

Continue reading »
Posted at 7:00 am in Banks, Financial Intermediation, Nonbank (NBFI), Systemic Risk | Permalink
June 18, 2024

Banks and Nonbanks Are Not Separate, but Interwoven

Viral V. Acharya, Nicola Cetorelli, and Bruce Tuckman

Decorative image: View of high rise glass building and dark steel in London

In our previous post, we documented the significant growth of nonbank financial institutions (NBFIs) over the past decade, but also argued for and showed evidence of NBFIs’ dependence on banks for funding and liquidity support. In this post, we explain that the observed growth of NBFIs reflects banks optimally changing their business models in response to factors such as regulation, rather than banks stepping away from lending and risky activities and being substituted by NBFIs. The enduring bank-NBFI nexus is best understood as an ever-evolving transformation of risks that were hitherto with banks but are now being repackaged between banks and NBFIs.

Continue reading »
Posted at 7:00 am in Banks, Nonbank (NBFI) | Permalink
June 17, 2024

Nonbanks Are Growing but Their Growth Is Heavily Supported by Banks

Viral V. Acharya, Nicola Cetorelli, and Bruce Tuckman

Decorative image: View of high rise glass building and dark steel in London

Traditional approaches to financial sector regulation view banks and nonbank financial institutions (NBFIs) as substitutes, one inside and the other outside the perimeter of prudential regulation, with the growth of one implying the shrinking of the other. In this post, we argue instead that banks and NBFIs are better described as intimately interconnected, with NBFIs being especially dependent on banks both for term loans and lines of credit.

Continue reading »
Posted at 7:00 am in Credit, Nonbank (NBFI) | Permalink
June 14, 2024

The New York Fed DSGE Model Forecast—June 2024

Marco Del Negro, Pranay Gundam, Donggyu Lee, Ramya Nallamotu, and Brian Pacula

decorative illustration: chart and stock prices background.

This post presents an update of the economic forecasts generated by the Federal Reserve Bank of New York’s dynamic stochastic general equilibrium (DSGE) model. We describe very briefly our forecast and its change since March 2024. As usual, we wish to remind our readers that the DSGE model forecast is not an official New York Fed forecast, but only an input to the Research staff’s overall forecasting process. For more information about the model and variables discussed here, see our DSGE model Q & A.

Continue reading »
Posted at 9:00 am in DSGE | Permalink
May 31, 2024

Can Discount Window Stigma Be Cured? 

Olivier Armantier

close up photo of the federal reserve building

One of the core responsibilities of central banks is to act as “lender of last resort” to the financial system. In the U.S., the Federal Reserve has been operating as a lender of last resort through its “discount window” (DW) for more than a century. Historically, however, the DW has been plagued by stigma—banks’ reluctance to use the DW, even for benign reasons, out of concerns that it could be interpreted as a sign of financial weakness. In this post, we report on new research showing that once a DW facility is stigmatized, removing that stigma is difficult.

Continue reading »
Posted at 9:00 am in Central Bank, Monetary Policy | Permalink

Thinking of Pursuing a PhD in Economics? Info on Graduate School and Beyond

Kasey Chatterji-Len and Anna Kovner

Photo of three young students writing a formula on a green blackboard with white chalk.

Becoming a PhD economist can provide a fulfilling and financially secure career path. However, getting started in the field can be daunting if you don’t know much about the preparation you’ll need and the available job opportunities. If you’re wondering what it means to be an economics researcher or how to become one, please read on. We’ll review how to prepare for a career in economics research, what an economics PhD program entails, and what types of opportunities it might bring. Economic education is a core component of the Federal Reserve Bank of New York’s mission to serve the community. To empower would-be economists, this post provides information for students who seek a career in economics research. We hope this information will be helpful to students interested in economics, regardless of their background and economic situation.  This information is most applicable to students applying to programs in the United States.  

Continue reading »
Posted at 7:00 am in Education | Permalink
May 29, 2024

Taking Stock: Dollar Assets, Gold, and Official Foreign Exchange Reserves

Patrick Douglass, Linda S. Goldberg, and Oliver Z. Hannaoui

Editor's note: Since this post was first published the note on the final chart has been corrected to reflect that as depicted gold shares are calculated based on national valuation. (June 3, 2024, 9:00 am)
Close-up of a 20-dollar banknote (figuring president Jackson) and a gold bullion

Global central banks and finance ministries held nearly $12 trillion of foreign exchange reserves as of the end of 2023, with nearly $7 trillion composed of U.S. dollar assets. Nevertheless, a narrative has emerged that an observed decline in the share of dollar assets in official reserve portfolios represents the leading edge of the dollar’s loss of status in the international monetary system. Some market participants have similarly linked the apparent increase in official demand for gold in recent years to a desire to diversify away from the U.S. dollar. Drawing on recent research and analytics, this post questions these narratives, arguing that these observed aggregate trends largely reflect the behavior of a small number of countries and do not represent a widespread effort by central banks to diversify away from dollars.

Continue reading »
Posted at 7:00 am in Central Bank, International Economics | Permalink | Comments (1)
May 28, 2024

Do Exchange‑Traded Products Improve Bitcoin Trading? 

Ken Armstrong, Asani Sarkar, and Leslie Conner Warren

Decorative photo: Close-up financial trading chart on digital LCD display of BTC bitcoin.

Spot bitcoin exchange-traded products (ETPs) began trading in the U.S. on January 11, 2024. For investors, these ETPs purport improved liquidity and price efficiency, and more convenient access to bitcoin trading compared to other means of trading bitcoin in spot markets. Proponents also cite bitcoin holdings as a portfolio diversification opportunity due to historically low correlation with traditional financial securities. Others argue that bitcoin remains a speculative asset and that ETPs increase its interconnections with the traditional financial system. In this post, we examine the initial performance, trading costs, and price efficiency of spot bitcoin ETPs in the U.S. 

Continue reading »
Posted at 7:00 am in Cryptocurrencies, Nonbank (NBFI) | Permalink
May 22, 2024

Veterans in the Labor Market: 2024 Update

Rajashri Chakrabarti, Dan Garcia, and Maxim Pinkovskiy

Photo: people in army fatigues lined up single file looking at their backs with the hands clasped behind them.

Veterans constitute a significant segment of the male labor force, and understanding labor market disparities between veterans and non‑veterans is an important component of studying disparities in the economy as a whole. In a previous Liberty Street Economics post, we have shown that even relative to a group of comparable non-veterans, veterans have lower employment and labor force participation rates. One year later, we see that veterans continue to experience lower labor market attachment and the employment gap has widened, though the earnings gap has closed.

Continue reading »
Posted at 9:30 am in Labor Market | Permalink | Comments (2)
May 21, 2024

The Changing Landscape of Corporate Credit

Nina Boyarchenko and Leonardo Elias

Photo: upward looking at tall glass skyscrapers that are corporate offices against a blue sky.

Firms’ access to credit is a crucial determinant of their investment, employment, and overall growth decisions. While we usually think of their ability to borrow as determined by aggregate credit conditions, in reality firms have a number of markets where they can borrow, and conditions can vary across those markets. In this post, we investigate how the composition of debt instruments on U.S. firms’ balance sheets has evolved over the last twenty years. 

Continue reading »
Posted at 7:00 am in Banks, Corporate Finance, Credit, Financial Intermediation | Permalink
« Back | More Posts »

RSS RSS Feed

Twitter Follow Liberty Street Economics

About the Blog

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.

Liberty Street Economics does not publish new posts during the blackout periods surrounding Federal Open Market Committee meetings.

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.

Economic Research Tracker

Image of NYFED Economic Research Tracker Icon Liberty Street Economics is available on the iPhone® and iPad® and can be customized by economic research topic or economist.

View by Topic

Most Read this Year

  1. Are Businesses Absorbing the Tariffs or Passing Them On to Their Customers?
  2. Credit Score Impacts from Past Due Student Loan Payments
  3. Why Does the U.S. Always Run a Trade Deficit?
  4. Student Loan Delinquencies Are Back, and Credit Scores Take a Tumble 
  5. U.S. Imports from China Have Fallen by Less Than U.S. Data Indicate
Useful Links
Comment Guidelines

 

We encourage your comments and queries on our posts and will publish them (below the post) subject to the following guidelines:

Please be brief: Comments are limited to 1,500 characters.

Please be aware: Comments submitted shortly before or during the FOMC blackout may not be published until after the blackout.

Please be relevant: Comments are moderated and will not appear until they have been reviewed to ensure that they are substantive and clearly related to the topic of the post.

Please be respectful: We reserve the right not to post any comment, and will not post comments that are abusive, harassing, obscene, or commercial in nature. No notice will be given regarding whether a submission will or will
not be posted.‎

Comments with links: Please do not include any links in your comment, even if you feel the links will contribute to the discussion. Comments with links will not be posted.

Send Us Feedback

Disclosure Policy

The LSE editors ask authors submitting a post to the blog to confirm that they have no conflicts of interest as defined by the American Economic Association in its Disclosure Policy. If an author has sources of financial support or other interests that could be perceived as influencing the research presented in the post, we disclose that fact in a statement prepared by the author and appended to the author information at the end of the post. If the author has no such interests to disclose, no statement is provided. Note, however, that we do indicate in all cases if a data vendor or other party has a right to review a post.

Archives