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7 posts on "financial institutions"
November 15, 2021

Banking System Vulnerability through the COVID-19 Pandemic

More than a year into the COVID-19 pandemic, the U.S. banking system has remained stable and seems to have weathered the crisis well, in part because of effects of the policy actions undertaken during the early stages of the pandemic. In this post, we provide an update of four analytical models that aim to capture different aspects of banking system vulnerability and discuss their perspective on the COVID pandemic. The four models, introduced in a Liberty Street Economics post in November 2018 and updated annually since then, monitor vulnerabilities of U.S. banking firms and the way in which these vulnerabilities interact to amplify negative shocks.

Posted at 7:00 am in Financial Institutions, Pandemic | Permalink
October 19, 2020

How Has Post-Crisis Banking Regulation Affected Hedge Funds and Prime Brokers?

“Arbitrageurs” such as hedge funds play a key role in the efficiency of financial markets. They compare closely related assets, then buy the relatively cheap one and sell the relatively expensive one, thereby driving the prices of the assets closer together. For executing trades and other services, hedge funds rely on prime brokers and broker-dealers. In a previous Liberty Street Economics blog post, we argued that post-crisis changes to regulation and market structure have increased the costs of arbitrage activity, potentially contributing to the persistent deviations in the prices of closely related assets since the 2007–09 financial crisis. In this post, we document how post-crisis changes to bank regulations have affected the relationship between hedge funds and broker-dealers.

May 8, 2020

The Money Market Mutual Fund Liquidity Facility

To prevent outflows from prime and muni funds from turning into an industry-wide run after the COVID-19 outbreak, the Federal Reserve established Money Market Mutual Fund Liquidity Facility. This post looks at the Fed’s intervention, its goals, and the direct and indirect market effects.

February 27, 2017

China’s Continuing Credit Boom

Debt in China has increased dramatically in recent years, accounting for roughly one-half of all new credit created globally since 2005.

October 12, 2016

Let the Light In: How Financial Reporting and Transparency Improve Corporate Governance

Financial reporting is valuable because corporate governance—which we view as the set of contracts that help align managers’ interests with those of shareholders—can be more efficient when the parties commit themselves to a more transparent information environment. This is a key theme in our article The Role of Financial Reporting and Transparency in Corporate Governance, which reviews recent literature on the part played by financial reporting in resolving agency conflicts among managers, directors, and shareholders. In this post, we highlight some of the governance issues and recommendations discussed in the article, and we focus on how information asymmetries can create agency conflicts.

January 8, 2014

Comparing Bank and Supervisory Stress Testing Projections

Stress tests are important tools for assessing whether financial institutions have enough capital to operate in bad economic conditions.

Posted at 7:00 am in Financial Institutions | Permalink
June 11, 2012

Money Market Funds and Systemic Risk

On September 16, 2008, Reserve Primary Fund, a money market fund (MMF) with $65 billion in assets under management, announced that losses in its portfolio had caused the value of shares in the fund to drop from $1.00 to $0.97.

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