Breaking Down Auto Loan Performance

Debt balances continued to rise at a moderate pace in the fourth quarter of 2024, and delinquencies, particularly for auto loans and credit cards, remained elevated, according to the latest Quarterly Report on Household Debt and Credit from the New York Fed’s Center for Microeconomic Data. Auto loan balances have grown steadily since 2011, expanding by $48 billion in 2024. This increase reflects a steady inflow of newly originated auto loan balances, which in 2024 were boosted primarily by originations to very prime borrowers (those with credit scores over 760) while originations to borrowers with midprime and subprime scores held roughly steady. In this post, we take a closer look at auto loan performance and find that delinquencies have been rising across credit score bands and area income levels. We also break down auto loan performance by lender type and find that delinquencies are primarily concentrated in loans from non-captive auto finance companies.
Are First‑Time Home Buyers Facing Desperate Times?

Based on recent proposals and policy dialogue, it would appear that first-time home buyers (FTB) are indeed facing desperate times. For example, in a recent Urban Institute study, Michael Stegman, Ted Tozer, and Richard Green advocate for a zero-downpayment Federal Housing Administration (FHA) mortgage. They argue that this would be a more efficient way to deliver much needed support to help households transition to homeownership given the challenges of high house prices and mortgage rates.
Every Dollar Counts: The Top 5 Liberty Street Economics Posts of 2024

High prices and rising debt put pressure on household budgets this year, so it’s little wonder that the most-read Liberty Street Economics posts of 2024 dealt with issues of financial stress: rising delinquency rates on credit cards and auto loans, the surge in grocery prices, and the spread of “buy now, pay later” plans. Another top-five post echoed this theme in an international context: Could the U.S. dollar itself be under stress as central banks seemingly turn to other reserve currencies? Read on for details on the year’s most popular posts.
Anatomy of the Bank Runs in March 2023

Runs have plagued the banking system for centuries and returned to prominence with the bank failures in early 2023. In a traditional run—such as depicted in classic photos from the Great Depression—depositors line up in front of a bank to withdraw their cash. This is not how modern bank runs occur: today, depositors move money from a risky to a safe bank through electronic payment systems. In a recently published staff report, we use data on wholesale and retail payments to understand the bank run of March 2023. Which banks were run on? How were they different from other banks? And how did they respond to the run?
Using Stock Returns to Assess the Aggregate Effect of the U.S.‑China Trade War

During 2018-19, the U.S. levied import tariffs of 10 to 50 percent on more than $300 billion of imports from China, and in response China retaliated with high tariffs of its own on U.S. exports. Estimating the aggregate impact of the trade war on the U.S. economy is challenging because tariffs can affect the economy through many different channels. In addition to changing relative prices, tariffs can impact productivity and economic uncertainty. Moreover, these effects can take years to become apparent in the data, and it is difficult to know what the future implications of a tariff are likely to be. In a recent paper, we argue that financial market data can be very useful in this context because market participants have strong incentives to carefully analyze the implications of a tariff announcement on firm profitability through various channels. We show that researchers can use movements in asset prices on days in which tariffs are announced to obtain estimates of market expectations of the present discounted value of firm cash flows, which then can be used to assess the welfare impact of tariffs. These estimates suggest that the trade war between the U.S. and China between 2018 and 2019 had a negative effect on the U.S. economy that is substantially larger than past estimates.
Documenting Lender Specialization

Robust banks are a cornerstone of a healthy financial system. To ensure their stability, it is desirable for banks to hold a diverse portfolio of loans originating from various borrowers and sectors so that idiosyncratic shocks to any one borrower or fluctuations in a particular sector would be unlikely to cause the entire bank to go under. With this long-held wisdom in mind, how diversified are banks in reality?
Why Do Banks Fail? Bank Runs Versus Solvency

Evidence from a 160-year-long panel of U.S. banks suggests that the ultimate cause of bank failures and banking crises is almost always a deterioration of bank fundamentals that leads to insolvency. As described in our previous post, bank failures—including those that involve bank runs—are typically preceded by a slow deterioration of bank fundamentals and are hence remarkably predictable. In this final post of our three-part series, we relate the findings discussed previously to theories of bank failures, and we discuss the policy implications of our findings.
Why Do Banks Fail? The Predictability of Bank Failures

Can bank failures be predicted before they happen? In a previous post, we established three facts about failing banks that indicated that failing banks experience deteriorating fundamentals many years ahead of their failure and across a broad range of institutional settings. In this post, we document that bank failures are remarkably predictable based on simple accounting metrics from publicly available financial statements that measure a bank’s insolvency risk and funding vulnerabilities.
Why Do Banks Fail? Three Facts About Failing Banks

Why do banks fail? In a new working paper, we study more than 5,000 bank failures in the U.S. from 1865 to the present to understand whether failures are primarily caused by bank runs or by deteriorating solvency. In this first of three posts, we document that failing banks are characterized by rising asset losses, deteriorating solvency, and an increasing reliance on expensive noncore funding. Further, we find that problems in failing banks are often the consequence of rapid asset growth in the preceding decade.
Why Investment‑Led Growth Lowers Chinese Living Standards

Rapid GDP growth, due in part to high rates of investment and capital accumulation, has raised China out of poverty and into middle-income status. But progress in raising living standards has lagged, as a side-effect of policies favoring investment over consumption. At present, consumption per capita stands some 40 percent below what might be expected given China’s income level. We quantify China’s consumption prospects via the lens of the neoclassical growth model. We find that shifting the country’s production mix toward consumption would raise both current and future living standards, with the latter result owing to diminishing returns to capital accumulation. Chinese policy, however, appears to be moving in the opposite direction, to reemphasize investment-led growth.