How Censorship Resistant Are Decentralized Systems?

Public permissionless blockchains are designed to be censorship resistant, meaning access to the blockchain is unhampered. In practice, different blockchain ecosystem actors (such as users, builders, or proposers) can influence the degree to which a blockchain is resistant to censorship. In a recent Staff Report, we examine how sanctions imposed by the Office of Foreign Assets Control (OFAC) on Tornado Cash, a set of noncustodial cryptocurrency smart contracts on Ethereum, affected Tornado Cash and the broader Ethereum network. In this post, we summarize findings regarding sanction cooperation at the settlement layer by “block proposers”—a set of settlement actors specifically responsible for selecting new blocks to add to the blockchain.
Learning by Bouncing: Overdraft Experience and Salience

Overdraft credit, when banks and credit unions allow customers to spend more than their checking account holds, has many critics. One fundamental concern is whether overdrafts are salient—whether account holders know how often they overdraw and how much it costs them. To shed light on this question, we asked participants in the New York Fed’s Survey of Consumer Expectations about their experience with and knowledge of their banks’ overdraft programs. The large majority knew how often they overdrew their account and by how much. Their overdraft experience, we find, begets knowledge; of respondents who overdrew their account in the previous year, 84 percent knew the fee they were charged, roughly twice the share for other respondents. However, even experienced overdrafters were relatively unaware of other overdraft terms and practices, such as the maximum overdraft allowed or whether their financial institution processed larger transactions first.
How the LIBOR Transition Affects the Supply of Revolving Credit

In the United States, most commercial and industrial (C&I) lending takes the form of revolving lines of credit, known as revolvers or credit lines. For decades, like other U.S. C&I loans, credit lines were typically indexed to the London Interbank Offered Rate (LIBOR). However, since 2022, the U.S. and other developed-market economies have transitioned from credit-sensitive reference rates such as LIBOR to new risk-free rates, including the Secured Overnight Financing Rate (SOFR). This post, based on a recent New York Fed Staff Report, explores how the provision of revolving credit is likely to change as a result of the transition to a new reference rate.
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.
Are New Repo Participants Gaining Ground?

Following the 2007-09 financial crisis, regulations were introduced that increased the cost of entering into repurchase agreements (repo) for bank holding companies (BHC). As a consequence, banks and securities dealers associated with BHCs, a set of firms which dominates the repo market, were predicted to pull back from the market. In this blog post, we examine whether this changed environment allowed new participants, particularly those not subject to the new regulations, to emerge. We find that although new participants have come on the scene and made gains, they remain a small part of the overall repo market.
Post‑Crisis Financial Regulation: Experiences from Both Sides of the Atlantic

To celebrate 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 on such topics as market liquidity, funding, and capital requirements. In this post, we present some of the findings and discussions from the workshop.
What Happens When Regulatory Capital Is Marked to Market?

Minimum equity capital requirements are a key part of bank regulation. But there is little agreement about the right way to measure regulatory capital. One of the key debates is the extent to which capital ratios should be based on current market values rather than historical “accrual” values of assets and liabilities. In a new research paper, we investigate the effects of a recent regulatory change that ties regulatory capital directly to the market value of the securities portfolio for some banks.
Analyzing the Effects of CFPB Oversight

The Consumer Financial Protection Bureau (CFPB), created in 2011, is a key element of post-crisis U.S. financial regulation, as well as the subject of intense debate. While some have praised the agency, citing the benefits of consumer financial protection, others argue that its activities involve high compliance costs, increase uncertainty and legal risk, and ultimately reduce the availability of financial services for consumers. We contribute to this debate by investigating empirically whether the CFPB’s supervisory and enforcement activities have significantly affected the supply of mortgage credit, or had other effects on bank risk-taking and profitability
The Transatlantic Economy Ten Years after the Crisis: Macro‑Financial Scenarios and Policy Responses

“The Transatlantic Economy Ten Years after the Crisis: Macro-Financial Scenarios and Policy Response,” was the focus of a conference, jointly organized by the New York Fed, the European Commission, and the Centre for Economic Policy Research in April 2018. These three institutions had previously collaborated on a series of events related to transatlantic economic relations, including a workshop in April 2014 and a conference in April 2016. Ten years after the global financial crisis, this conference came at a crucial time in the history of the relationship between the United States and the European Union, and provided an opportunity to revisit and assess recent policy responses. A number of questions were addressed by the panelists: Is the world economy back on a sustainable growth path or have we entered a secular stagnation era with persistently low interest rates and inflation? How large are the spillovers of monetary and fiscal policies? Have we done enough to maintain financial stability and deal with cross border resolution issues, which have been one of the most vexing topics in the regulatory space?