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November 14, 2018

Just Released: New York State’s Community Colleges are Successfully Partnering with Employers

Jaison R. Abel, Tony Davis, Richard Deitz, and Edison Reyes

LSE_2018_New York State’s Community Colleges are Successfully Partnering with Employers

Community colleges frequently work with local employers to help shape the training of students and incumbent workers. This type of engagement has become an increasingly important strategy for community colleges to help students acquire the right skills for available jobs, and also helps local employers find and retain workers with the training they need. The Federal Reserve Bank of New York conducted a survey of community colleges in New York State with the goal of documenting the amount and types of these kinds of activities taking place. Our report, Employer Engagement by Community Colleges in New York State, summarizes the findings of our survey.

Posted by Blog Author at 12:00 PM in Education , Employment , Human Capital , Labor Economics , Labor Market , New York , Regional Analysis , Unemployment , Wages | Permalink | Comments ( 0 )

Ten Years after the Crisis, Is the Banking System Safer?

Dong Beom Choi, Fernando Duarte, Thomas M. Eisenbach, and James Vickery

In the wake of the 2007-09 financial crisis, a wide range of new regulations have been introduced to improve the stability of the banking system. But has the banking system become safer since the crisis? In this post, we provide a new perspective on this question by employing four analytical models, each measuring a different aspect of banking system vulnerability, to evaluate how system stability has evolved over the past decade.

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

October 26, 2018

U.S. Treasury Market Action on Election Night 2016

Michael Fleming

As the midterm elections approach, it’s worth revisiting the striking financial market response to the last federal elections in 2016. U.S. equity market futures and Treasury yields first plunged on election night 2016, as the presidential election results turned out closer than expected, but quickly rebounded after President Trump’s victory became clear, ultimately ending the day higher. In this post, I take a close look at the unusual U.S. Treasury market behavior that night, focusing on the market conditions and trading flows amid which the sharp yield changes took place.

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

October 24, 2018

The New York Fed DSGE Model Forecast—October 2018

Michael Cai, Marco Del Negro, Ethan Matlin, Reca Sarfati, and Argia Sbordone

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 July 2018. 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.

Posted by Blog Author at 7:00 AM in Forecasting , Macroecon | Permalink | Comments ( 0 )

October 22, 2018

Tax Reform and U.S. Effective Profit Taxes: From Low to Lower

Matthew Higgins

The Tax Cuts and Jobs Act (TCJA) reduced the federal corporate profit tax rate from 35 percent to 21 percent. Adding in state profit taxes, the overall U.S. tax rate went from 39 percent, one of the highest rates in the world, to 26 percent, about the average rate abroad. The implications of the new law for U.S. competitiveness depend on how these statutory tax rates compare with the actual rates faced by U.S. and foreign companies. To address this question, this post presents new evidence on tax payments as a share of profits, as well as analytical measures of tax impacts on profitability. We find that the U.S. effective tax rate was already below the average rate abroad prior to enactment of the TCJA, and that it is now well below the rate in most countries.

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

October 18, 2018

Bank-Intermediated Arbitrage

Nina Boyarchenko, Thomas M. Eisenbach, Pooja Gupta, Or Shachar, and Peter Van Tassel

Since the 2007-09 financial crisis, the prices of closely related assets have shown persistent deviations—so-called basis spreads. Because such disparities create apparent profit opportunities, the question arises of why they are not arbitraged away. In a recent Staff Report, we argue that post-crisis changes to regulation and market structure have increased the costs to banks of participating in spread-narrowing trades, creating limits to arbitrage. In addition, although one might expect hedge funds to act as arbitrageurs, we find evidence that post-crisis regulation affects not only the targeted banks but also spills over to less regulated firms that rely on bank intermediation for their arbitrage strategies.

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

October 17, 2018

Credit Market Choice

Nina Boyarchenko, Anna M. Costello, and Or Shachar

Credit default swaps (CDS) are frequently credited with being the cause of AIG’s collapse during the financial crisis. A Reuters article from September 2008, for example, notes “[w]hen you hear that the collapse of AIG […] might lead to a systemic collapse of the global financial system, the feared culprit is, largely, that once-obscure […] instrument known as a credit default swap.” Yet, despite the prominent role that CDS played during the financial crisis, little is known about how individual financial institutions utilize CDS contracts on individual companies. In a recent New York Fed staff report, we assess the choice banks face when trading the idiosyncratic credit risk of a firm, and argue that banks’ participation decisions have been affected in the post-regulation period, either by direct changes in market structure or by changes in the relative cost of pursuing different strategies.

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

October 16, 2018

Liquidity Effects of Post-Crisis Regulatory Reform

Nina Boyarchenko and Or Shachar

The post-crisis regulatory reform efforts to improve capital and liquidity positions of regulated institutions provide incentives for banks to change not only the structure of their own balance sheets but also how they interact with their customers and other market participants more generally. A 2015 PwC study on global financial market liquidity, for example, noted that “[a]s banks respond to the new regulatory environment, they have sought to make more efficient use of capital and liquidity resources, by reducing the markets they serve and streamlining their operations.” In this blog post, we provide an overview of three recent New York Fed staff reports that study the impact that post-crisis regulation has had on the willingness and ability of regulated firms to participate in U.S. over-the-counter (OTC) markets.

Posted by Blog Author at 7:00 AM in Crisis , Dodd-Frank , Financial Institutions , Financial Intermediation , Financial Markets , Regulation | Permalink | Comments ( 0 )

October 15, 2018

Did Banks Subject to LCR Reduce Liquidity Creation?

Daniel Roberts, Asani Sarkar, and Or Shachar

Banks traditionally provide loans that are funded mostly by deposits and thereby create liquidity, which benefits the economy. However, since the loans are typically long-term and illiquid, whereas the deposits are short-term and liquid, this creation of liquidity entails risk for the bank because of the possibility that depositors may “run” (that is, withdraw their deposits on short notice). To mitigate this risk, regulators implemented the liquidity coverage ratio (LCR) following the financial crisis of 2007-08, mandating banks to hold a buffer of liquid assets. A side effect of the regulation, however, is a reduction in liquidity creation by banks subject to LCR, as we find in our recent paper.

Posted by Blog Author at 7:00 AM in Banks , Federal Reserve , Financial Institutions , Financial Intermediation , Liquidity , Regulation | Permalink | Comments ( 1 )

October 12, 2018

Leverage Rule Arbitrage

Dong Beom Choi, Michael Holcomb, and Donald P. Morgan

Classic arbitrage involves the same asset selling at different prices; the leverage rule arbitrage we study here involves assets of different risk levels requiring the same amount of capital. The supplementary leverage ratio (SLR) rule, finalized by U.S. regulators in September 2014, requires a minimum ratio of capital to assets at the largest U.S. banks. The floor is higher for more systemically important banks, but not for banks with riskier assets. That non-risk-based aspect of SLR was intentional, since the leverage limit was meant to backstop (“supplement”) risk-based capital rules in case banks underestimate their asset risk and overstate their capital strength. As policymakers have noted and bankers have warned, if the leverage rule is the binding capital requirement, banks can “arbitrage” the rule by selling safer assets and replacing them with riskier, higher-yielding ones. The findings of our recent staff report are consistent with those concerns.

Posted by Blog Author at 11:05 AM in Banks , Financial Institutions , Financial Intermediation | Permalink | Comments ( 0 )

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.

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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