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Report
LIBOR: origins, economics, crisis, scandal, and reform
The London Interbank Offered Rate (LIBOR) is a widely used indicator of funding conditions in the interbank market. As of 2013, LIBOR underpins more than $300 trillion of financial contracts, including swaps and futures, in addition to trillions more in variable-rate mortgage and student loans. LIBOR's volatile behavior during the financial crisis provoked questions surrounding its credibility. Ongoing regulatory investigations have uncovered misconduct by a number of financial institutions. Policymakers across the globe now face the task of reforming LIBOR in the aftermath of the scandal and ...
Discussion Paper
The Growth of Murky Finance
Building upon previous posts in this series that discussed individual banks, we examine the historical growth of the entire financial sector, relative to the rest of the economy. This sector’s historically large share of the economy today (see chart below) and its role in disrupting the functioning of the real economy during the recent financial crisis have led to questions about the social value of costly financial services. While new regulations such as the Dodd-Frank Act impose restrictions on financial activities and increase their costs, especially those of large firms, our paper ...
Journal Article
Components of U.S. financial sector growth, 1950-2013
The U.S. financial sector grew steadily as a share of the total business sector from 1959 until the recent financial crisis, when the trend reversed. In this article, the authors develop measures based on firm-level data to estimate the size of the financial sector and its subsectors relative to the total business (financial and nonfinancial) sector over time. The analysis further sheds light on how these size measures are affected by a firm?s choice of financing (whether public or private), firm size, industry type, use of leverage, and regulation. The authors find that the relative size of ...
Discussion Paper
Cyclicality and the Severity of the U.S. Supervisory Stress Test: 2014 to 2018
In this study, we provide a measure of the severity of the 2014-2018 US supervisory stress tests, and examine how that severity measure has evolved.
Discussion Paper
Effects of Fixed Nominal Thresholds for Enhanced Supervision
Following the financial crisis, the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) and the implementation of Basel III significantly changed the regulatory landscape in the U.S. This note discusses how the use of such fixed nominal thresholds impacts the extent of enhanced prudential supervision. Section 1 presents the various thresholds that are in place as of May 15, 2018. Section 2 analyzes the effect of these thresholds on the number and total assets of the affected banks, and examines whether the thresholds have caused any bunching of banks. ...