Search Results
Showing results 1 to 10 of approximately 43.
(refine search)
Journal Article
Trouble ahead for student loans?
The market for student loans may differ in some respects from other financial markets, but private lenders are the primary source of funds. As in other markets, the incentive to lend those funds comes from the ability to make a profit. But recent turmoil in financial markets is affecting all of the factors that contribute to the profitability of student loans, leading to speculation that the availability of such loans will fall.
Journal Article
Theories of loan commitments: a literature review
A loan commitment is an agreement by which a bank promises to lend to a customer at prespecified terms while retaining the right to renege on its promise if the borrower's creditworthiness deteriorates. The contract also specifies the various fees that must be paid over the life of the commitment. Loan commitments are widely used in the economy. As their use has spread, a rich literature has evolved to explain why they exist, how they are priced, and how they affect the risk of the bank and the deposit insurer. This article summarizes what we have learned on these issues. Its main insight is ...
Journal Article
Prepayment penalties on subprime mortgages
As a result of the subprime mortgage mess, prepayment penalties are under close scrutiny. While these, like other kinds of contract terms, can be abused, there are good reasons for why they exist. In principle, they serve to extend credit to a greater number of borrowers.
Working Paper
Bank branch presence and access to credit in low-to-moderate income neighborhoods
Banks specialize in lending to informationally opaque borrowers by collecting soft information about them. Some researchers claim that this process requires a physical presence in the market to lower information collection costs. The author provides evidence in support of this argument in the mortgage market for low-income borrowers. Mortgage originations increase and interest spreads decline when there is a bank branch located in a low-to-moderate income neighborhood.
Journal Article
Exchange-traded funds
ETFs are one of the most successful financial innovations of the last few decades. As a new, rapidly growing, and increasingly complex financial instrument, ETFs might raise concerns about the risk they pose to financial stability. While they do not seem to pose a threat at this time, ETFs exposed a weakness in U.S. stock markets during the Flash Crash of 2010: the fragmented nature of trading, which can leave some markets very shallow.
Discussion Paper
On the resolution of financial crises: the Swedish experience
Sweden was one of the Scandinavian countries experiencing a severe financial crisis In the late 1980s and early 1990s. I review the policy choices and external factors that pushed the countrys financial system over the edge and then examine the steps the government took to make its resolution of the crisis one of the most successful in the past 30 years.
Journal Article
Buy a home or rent? A better way to choose
Knowing whether buying a home is a better financial move for a family than renting requires a consideration of costs and options that people often neglect to factor in. One aspect of the calculation that is almost always overlooked is uncertainty--the fact that no matter how good one's estimates of the future are, the future can turn out differently than projected. Incorporating uncertainty into the rent-or-buy calculation gives potential homebuyers information that can improve their decisions. While incorporating uncertainty is complicated, it's made easier with the Cleveland Fed's online ...
Journal Article
Covered bonds: a new way to fund residential mortgages
Like the now government-owned Fannie Mae and Freddie Mac, large investment banks helped create funds to finance new mortgages by issuing securities backed by pools of existing mortgages. But private firms have abandoned these instruments, and with them a large source of mortgage funds has disappeared. Four large investment banks plan to create a new U.S. market for an old instrument, hoping to bring liquidity back to the mortgage market.
Working Paper
Where the Wild Things Are: Measuring Systemic Risk through Investor Sentiment
In this paper, I develop a systemic risk measure derived from investor sentiment that has predictive power over future economic activity and market returns. Unlike existing measures, it is not focused on flagging investors? heightened awareness of risk at the end of a boom episode but rather on capturing shifts in their trading behavior at the beginning of the episode. The method allows investors and regulators to observe industries in which risks could be building and provides regulators some lead time in deploying their macroprudential tools.
Working Paper
Beyond the transaction: depository institutions and reduced mortgage default for low-income homebuyers
We evaluate the effects of the lending institution and soft information on mortgage loan performance for low-income homebuyers. We find that even after controlling for bank selection, those who receive a loan from a local bank are significantly less likely to become delinquent or default than other bank or nonbank borrowers, suggesting an information effect. These effects are most pronounced for higher-risk borrowers, who likely benefit more from informational advantages of local banks. These findings support previous research on small business lending and provide additional explanation for ...