One way to reduce the likelihood of bank failures is to require banks to hold more and better capital. But how much capital is enough? An international committee of regulators recently reached a new agreement (called Basel 3) to impose new, higher standards for capital on globally active banks. The Basel 3 common equity minimum capital requirement will be 4.5 percent plus an additional buffer of at least 2.5 percent of risk-weighted assets (RWA). Are these numbers big or small—and where did they come from? In this post, I describe how the new Basel capital standards were calibrated.
March 28, 2011
March 25, 2011
Historical Echoes: A Timeline of American Finance—1861‑1938
Most people know that financial crises are nothing new. But many of us may not know that attempts to represent them graphically have also been around. L. Merle Hostetler, former director of research of the Cleveland Fed, created a graphic presentation of American financial history from 1861 through 1938.
Posted at 10:00 am in Historical Echoes | Permalink
March 23, 2011
How Much Will the Rise in Commodity Prices Reduce Discretionary Income?
Commodity prices have risen considerably since August 2010, raising concerns that higher commodity prices could reduce households’ discretionary income and slow the recovery. For example, as former Federal Reserve Board Vice Chairman Donald Kohn said in the Wall Street Journal last fall:
“… the surge in international commodity prices. If that persists it could hurt Americans’ disposable income, especially as it is reflected in higher gas and energy prices.”
March 21, 2011
Have Consumers Been Deleveraging?
Since its peak in summer 2008, U.S. consumers’ indebtedness has fallen by more than a trillion dollars. Over roughly the same period, charge-offs—the removal of obligations from consumers’ credit reports because of defaults—have risen sharply, especially on loans secured by houses, which make up about 80 percent of consumer liabilities. An important question for gauging the behavior of U.S. consumers is how to interpret these two trends. Is the reduction in debts entirely attributable to defaults, or are consumers actively reducing their debts? In this post, we demonstrate that a significant part of the debt reduction was produced by consumers borrowing less and paying off debt more quickly—a process often called deleveraging.
Welcome to Liberty Street Economics
On behalf of the Research and Statistics Group of the Federal Reserve Bank of New York, we welcome you to our new blog, Liberty Street Economics, named after the street where the New York Fed is located.
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