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January 18, 2019

Post-Crisis Financial Regulation: Experiences from Both Sides of the Atlantic

Nicola Cetorelli, Stephanie Clampitt, Giovanni Majnoni d’Intignano, and Valerio Vacca

To mark the 100-year anniversary of the Banca d’Italia’s New York office, the Federal Reserve Bank of New York and the Banca d’Italia hosted a workshop on post-crisis financial regulation in November 2018. The goal of the workshop was to discuss differences in regulation between the United States and Europe (and around the globe more broadly), examine gaps in current regulations, identify challenges to be addressed, and raise awareness about the unintended consequences of regulation. The workshop included presentations by researchers from the U.S. and Europe on such topics as market liquidity, funding, and capital requirements. In this post, we present some of the findings and discussions from the workshop.

Posted by Blog Author at 7:00 AM in Banks , Central Bank , Crisis , Financial Intermediation | Permalink | Comments ( 0 )

January 17, 2019

The Indirect Costs of Lehman’s Bankruptcy

Erin Denison, Michael Fleming, and Asani Sarkar

Fifth of five posts

LSE_The Indirect Costs of Lehman’s Bankruptcy

In our previous post, we assessed losses to customers and clients from foregone opportunities after Lehman Brothers filed for bankruptcy in September 2008. In this post, we examine losses to Lehman and its investors in anticipation of bankruptcy. For example, if bankruptcy is expected, Lehman’s earnings may decline as customers close their accounts or certain securities (such as derivatives) to which Lehman is a counterparty may lose value. We estimate these losses by analyzing Lehman’s earnings and stock, bond, and credit default swap (CDS) prices.

Posted by Blog Author at 7:00 AM in Banks , Crisis , Stocks | Permalink | Comments ( 0 )

January 16, 2019

Customer and Employee Losses in Lehman’s Bankruptcy

Erin Denison, Michael Fleming, and Asani Sarkar

Fourth of five posts

In our second post on the Lehman bankruptcy, we discussed the cost to Lehman’s creditors from having their funds tied up in bankruptcy proceedings. In this post, we focus on losses to Lehman’s customers and employees from the destruction of firm-specific assets that could not be deployed as productively with other firms. Our conclusions are based in part on what happened after bankruptcy—whether, for example, customer accounts moved to other firms or employees found jobs elsewhere. While these costs are difficult to pin down, the analysis suggests that the most notable losses were borne by mutual funds that relied on Lehman’s specialized brokerage advice and firms that employed Lehman for its equity underwriting services.

Posted by Blog Author at 7:00 AM in Banks , Crisis , Dealers , Employment , Financial Intermediation | Permalink | Comments ( 0 )

January 15, 2019

Lehman’s Bankruptcy Expenses

Erin Denison, Michael Fleming, and Asani Sarkar

Third of five posts

In bankruptcy, firms incur expenses for services provided by lawyers, accountants, and other professionals. Such expenses can be quite high, especially for complex resolutions. These direct costs of bankruptcy proceedings reduce a firm’s value below its fundamental level, thus constituting a “deadweight loss.” Bankruptcy also carries indirect costs, such as the loss in value of assets trapped in bankruptcy—a subject discussed in our previous post. In this post, we provide the first comprehensive estimates of the direct costs of resolving Lehman Brothers’ holding company (LBHI) and its affiliates under Chapter 11 of the U.S. Bankruptcy Code, and of Lehman’s broker-dealer (LBI) under the Securities Investor Protection Act (SIPA).

Posted by Blog Author at 7:00 AM in Crisis , Dealers , Financial Intermediation | Permalink | Comments ( 0 )

January 14, 2019

Creditor Recovery in Lehman’s Bankruptcy

Erin Denison, Michael Fleming, and Asani Sarkar

Second of five posts

LSE_Creditor Recovery in Lehman’s Bankruptcy

Expectations of creditor recovery were low when the Lehman Brothers bankruptcy process started. On the day the firm filed for bankruptcy in September 2008, the average price of Lehman’s senior bonds implied a recovery rate of about 30 percent for senior creditors. A month later the bond price was implying a recovery rate of 9 percent, consistent with results from Lehman’s CDS auction. Two and a half years later, Lehman’s estate estimated that the recovery rate for holding company creditors would be just 16 percent. So, ten years after the filing, how much did creditors actually recover?

Posted by Blog Author at 7:02 AM in Banks , Crisis , Fire Sale , Liquidity | Permalink | Comments ( 0 )

How Much Value Was Destroyed by the Lehman Bankruptcy?

Erin Denison, Michael Fleming, and Asani Sarkar

First of five posts

LSE_How Much Value Was Destroyed by the Lehman Bankruptcy?

Lehman Brothers Holdings Inc. (LBHI) filed for Chapter 11 bankruptcy protection on September 15, 2008, initiating one of the largest and most complex bankruptcy proceedings in history. Recovery prospects for creditors, who submitted about $1.2 trillion of claims against the Lehman estate, were quite bleak. This week, we will publish a series of four posts that provide an assessment of the value lost to Lehman, its creditors, and other stakeholders now that the bankruptcy proceedings are winding down. Where appropriate, we also consider the liquidation of Lehman’s investment banking affiliate, which occurred in separate proceedings under the Securities Investor Protection Act (SIPA).

Posted by Blog Author at 7:00 AM in Banks , Crisis , Dealers , Financial Intermediation | Permalink | Comments ( 2 )

January 11, 2019

Highlights from the Fourth Bi-annual Global Research Forum on International Macroeconomics and Finance

Ozge Akinci, Roland Beck, Paola Donati, Linda Goldberg, and Livio Stracca

Achieving and maintaining global financial stability has been at the forefront of policy discussions in the decade after the eruption of the global financial crisis. With the purpose of exploring key issues in international finance and macroeconomics from the perspective of what has changed ten years after the crisis, the fourth bi-annual Global Research Forum on International Macroeconomics and Finance, organized by the European Central Bank (ECB), the Federal Reserve Board, and the Federal Reserve Bank of New York, was held at the ECB in Frankfurt am Main on November 29-30, 2018. Participants included a diverse group from academia, international policy institutions, national central banks, and financial markets. Among the topics of discussion: the international roles of the U.S. dollar, the evolution of global financial markets, and the safety of the global financial system.

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

January 09, 2019

The Perplexing Co-Movement of the Dollar and Oil Prices

Thomas Klitgaard, Paolo Pesenti, and Linda Wang

Oil prices and the exchange rate of the U.S. dollar against the euro have often moved together over the past decade or so, but it is not at all clear why they should. The standard interpretation of oil price movements as a response to global oil supply and demand shifts makes it unlikely that the correlation stems from the dollar’s effect on oil prices. In addition, the notorious difficulty in predicting currency moves makes it hard to believe that oil prices dictate the dollar’s value. Improbability aside, however, in this blog post we document the tendency for the value of the dollar to rise relative to European currencies when oil prices fall, and we consider a possible explanation for the correlation.

Posted by Blog Author at 7:00 AM in Exchange Rates , International Economics | Permalink | Comments ( 6 )

January 07, 2019

Coming to Terms with Operational Risk

Gara Afonso, Filippo Curti, and Atanas Mihov

The term “operational risk” often evokes images of catastrophic events like hurricanes and earthquakes. For financial institutions, however, operational risk has a broader scope, encompassing losses related to fraud, rogue trading, product misrepresentation, computer and system failures, and cyberattacks, among other things. In this blog post, we discuss how operational risk has come into greater focus over the past two decades—to the point that it now accounts for more than a quarter of financial institutions’ regulatory capital.

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

January 04, 2019

The Impact of Import Tariffs on U.S. Domestic Prices

Mary Amiti, Sebastian Heise, and Noah Kwicklis

The United States imposed new import tariffs on about $283 billion of U.S. imports in 2018, with rates ranging between 10 percent and 50 percent. In this post, we estimate the effect of these tariffs on the prices paid by U.S. producers and consumers. We find that the higher import tariffs had immediate impacts on U.S. domestic prices. Our results suggest that the aggregate consumer price index (CPI) is 0.3 percent higher than it would have been without the tariffs.

Posted by Blog Author at 7:00 AM in Household Finance , International Economics | Permalink | Comments ( 5 )

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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