Liberty Street Economics

October 8, 2025

The Rise of Sponsored Service for Clearing Repo

Adam Copeland and R. Jay Kahn

Recently instituted rule amendments have initiated a large migration of dealer-to-client Treasury repurchase trades to central clearing. To date, the main avenue used to access central clearing is Sponsored Service, a clearing product that has, until now, received little attention. This post highlights the results from a recent Staff Report which presents a deep dive into Sponsored Service. Here, we summarize the description of the institutional details of this service and its costs and benefits. We then document some basic facts on how market participants use this service, based on confidential data.

Posted at 7:00 am in Financial Markets, Repo, Treasury | Permalink

October 7, 2025

Dutch Treat: The Netherlands’ Exorbitant Privilege in the Eighteenth Century

Stein Berre and Asani Sarkar

Photo: Old Dutch coins from the province of Holland with ancient Dutch banknotes.

The term “exorbitant privilege” emerged in the 1960s to describe the advantages derived by the U.S. economy from the dollar’s status as the de facto global reserve currency. In this post, we examine the exorbitant privilege that accrued to the Netherlands in the eighteenth century, when the Dutch guilder enjoyed global reserve currency status. We show how the private actions of financial institutions created and maintained this privilege, even in the absence of a central bank. While privilege benefited the Dutch financial system in many ways, it also laid the seeds of later financial crisis.

Posted at 7:00 am in Economic History, International Economics, Nonbank (NBFI) | Permalink

October 6, 2025

A Country‑Specific View of Tariffs

Matthew Higgins and Thomas Klitgaard

Photo: AI and global logistics concept with world map, supply chain net

U.S. trade policy remains in flux. Nevertheless, important elements of the new policy regime are apparent in data through July. What stands out are the large differences in realized tariff rates by trading partner, ranging from less than 5 percent for Canada and Mexico to 15 percent for Japan and to 40 percent for China. This post shows that the bulk of cross-country differences in tariff rates is explained by two factors: the U.S.-Canada-Mexico free trade agreement and differing sales shares in tariff-exempt categories.

Posted at 7:00 am in International Economics, Tariffs | Permalink | Comments (1)

October 2, 2025

Do Employers Comply with Pay Transparency Requirements in Job Postings?

Richard Audoly and Roshie Xing

Photo: Hands, person and tablet screen for job search on website, vacancy listings and contact us of recruitment process. Digital, resume app and online for hiring service, application post and opportunity.

Over the past few months, New Jersey and Vermont have joined a growing number of U.S. states in requiring employers to include an estimated salary range in their online job listings. Has this push for greater pay transparency been effective? In this post, we use granular data on U.S. job postings from Lightcast to assess employers’ compliance with these new regulations. Focusing on the jurisdictions that adopted pay transparency laws early on, we find that many employers ignore pay transparency requirements; roughly a quarter of job listings covered by these laws fail to include salary information.

Posted at 7:00 am in Labor Market | Permalink

October 1, 2025

A Historical Perspective on Stablecoins

Stephan Luck

The first issue of National Bank Notes. Original and series 1875. Rendered in decorative design for different values from $1 to $1000. Black and white on the front and green on the back side.

Digital currencies have grown rapidly in recent years. In July 2025, Congress passed the “Guiding and Establishing National Innovation for U.S. Stablecoins Act” (GENIUS) Act, establishing the first comprehensive federal framework governing the issuance of stablecoins. In this post, we place stablecoins in a historical perspective by comparing them to national bank notes, a form of privately issued money that circulated in the United States from 1863 through 1935.

Posted at 7:00 am in Banks, Cryptocurrencies | Permalink | Comments (1)

September 30, 2025

Calming the Panic: Investor Risk Perceptions and the Fed’s Emergency Lending During the 2023 Bank Run

Natalia Fischl-Lanzoni, Martin Hiti, and Asani Sarkar

People queuing in front of the bank door - AI Generated

In a companion post, we showed that during the bank run of spring 2023 investors were seemingly not concerned about bank risk broadly but rather became sensitized to the risk of only about a third of all publicly traded banks. In this post, we investigate how the Federal Reserve’s liquidity support affected investor risk perceptions during the run. We find that the announcement of the Fed’s novel Bank Term Funding Program (BTFP), and subsequent borrowings from the program, substantially reduced investor risk perceptions. However, borrowings from the Fed’s traditional discount window (DW) had no such effect.

Posted at 7:01 am in Banks, Central Bank | Permalink

Reading the Panic: How Investors Perceived Bank Risk During the 2023 Bank Run

Natalia Fischl-Lanzoni, Martin Hiti, and Asani Sarkar

The bank run that started in March 2023 in the U.S. occurred at an unusually rapid pace, suggesting that depositors were surprised by these events. Given that public data revealed bank vulnerabilities as early as 2022:Q1, were other market participants also surprised? In this post, based on a recent paper, we develop a new, high-frequency measure of bank balance sheet risk to examine how stock market investors’ risk sensitivity evolved around the run. We find that stock market investors only became attentive to bank risk after the run and only to the risk of a limited number (less than one-third) of publicly traded banks. Surprisingly, investors seem to have mostly focused on media exposure and not fundamentals when evaluating bank risk. In a companion post, we examine how the Federal Reserve’s liquidity support affected investor risk perceptions.

Posted at 7:00 am in Banks | Permalink | Comments (3)

September 24, 2025

The Financial Stability Implications of Tokenized Investment Funds

Pablo Azar, Francesca Carapella, JP Perez-Sangimino, Nathan Swem, and Alexandros P. Vardoulakis

Abstract visuals of blockchain technology in business, featuring

In a previous post, we provided background information about the emergence of tokenized investment funds and their use cases. These use cases are currently limited to the digital asset ecosystem. However, the recent approval of cryptocurrency exchange-traded funds (ETFs) and the passage of the GENIUS Act raise concerns about the impact of these tokenized investment fund to the broader financial system. In this post, we assess this impact by considering three economic mechanisms based in part on market participants’ investment strategies and liquidity needs. They include: liquidity transformation, interconnections between the digital asset and the traditional financial system, and transaction settlement. Through these mechanisms, tokenization of investment funds can bring about financial stability benefits in the form of reduced redemption pressures and additional sources of liquidity for fund issuances, but may also increase interconnectedness between the traditional financial system and digital asset ecosystem, thereby amplifying existing financial stability risks.

Posted at 7:01 am in Cryptocurrencies, Systemic Risk | Permalink | Comments (2)

The Emergence of Tokenized Investment Funds and Their Use Cases

Pablo Azar, Francesca Carapella, JP Perez-Sangimino, Nathan Swem, and Alexandros P. Vardoulakis

A blockchain is a distributed database where independent computers across the world maintain identical copies of a transaction record, updating it only when the network reaches consensus on new transactions—making the history transparent and extraordinarily difficult to alter. Historically, bonds have traded almost entirely in over-the-counter (OTC) markets, while equities and money market fund shares have largely settled through centralized infrastructures such as stock exchanges and central securities depositories. In both settings, each institution maintains its own records, and post-trade steps like confirmation, clearing, and settlement require multiple intermediaries and repeated reconciliation.

Posted at 7:00 am in Cryptocurrencies, Systemic Risk | Permalink

September 22, 2025

Financial Intermediaries and Pressures on International Capital Flows

Linda S. Goldberg and Samantha Hirschhorn

Money transfer. Global Currency. Stock Exchange. Stock vector illustration.

Global factors, like monetary policy rates from advanced economies and risk conditions, drive fluctuations in volumes of international capital flows and put pressure on exchange rates. The components of international capital flows that are described as global liquidity—consisting of cross-border bank lending and financing of issuance of international debt securities—have sensitivities to risk conditions that have evolved considerably over time. This risk sensitivity has been driven, in part, by the composition and business models of the financial institutions involved in funding. In this post, we ask whether these same features have led to changes in the pressures on currency values as risk conditions evolve. Using the Goldberg and Krogstrup (2023) Exchange Market Pressure (EMP) country indices, we show that the features of financial institutions in the source countries for international capital do influence how destination countries experience currency pressures when risk conditions change. Better shock-absorbing capacity in financial institutions moderates the pressures toward depreciation of currencies during adverse global risk events.

Posted at 7:00 am in Bank Capital, Exchange Rates, Financial Institutions, International Economics, Systemic Risk | Permalink

Markets & Policy Implementation

Liberty Street Economics

The Rise of Sponsored Service for Clearing Repo

Dutch Treat: The Netherlands’ Exorbitant Privilege in the Eighteenth Century

A Country‑Specific View of Tariffs

Do Employers Comply with Pay Transparency Requirements in Job Postings?

A Historical Perspective on Stablecoins

Calming the Panic: Investor Risk Perceptions and the Fed’s Emergency Lending During the 2023 Bank Run

Reading the Panic: How Investors Perceived Bank Risk During the 2023 Bank Run

The Financial Stability Implications of Tokenized Investment Funds

The Emergence of Tokenized Investment Funds and Their Use Cases

Financial Intermediaries and Pressures on International Capital Flows

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