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Discussion Paper
How Has COVID-19 Affected Banking System Vulnerability?
Fringuellotti, Fulvia; Eisenbach, Thomas M.; Duarte, Fernando M.; Kovner, Anna; Blickle, Kristian S.; Crosignani, Matteo (2020-11-16)
The COVID-19 pandemic has led to significant changes in banks’ balance sheets. To understand how these changes have affected the stability of the U.S. banking system, we provide an update of four analytical models that aim to capture different aspects of banking system vulnerability.
Liberty Street Economics , Paper 20201116

Discussion Paper
What Is Corporate Bond Market Distress?
Boyarchenko, Nina; Crump, Richard K.; Kovner, Anna; Shachar, Or (2022-06-29)
Corporate bonds are a key source of funding for U.S. non-financial corporations and a key investment security for insurance companies, pension funds, and mutual funds. Distress in the corporate bond market can thus both impair access to credit for corporate borrowers and reduce investment opportunities for key financial sub-sectors. In a February 2021 Liberty Street Economics post, we introduced a unified measure of corporate bond market distress, the Corporate Bond Market Distress Index (CMDI), then followed up in early June 2022 with a look at how corporate bond market functioning evolved ...
Liberty Street Economics , Paper 20220629

Discussion Paper
Are Stress Tests Still Informative?
Hirtle, Beverly; Kovner, Anna; Zeller, Samantha (2016-04-04)
Since the height of the financial crisis, each year the Federal Reserve has disclosed the results of its stress tests, and stress testing has become ?business as usual? in the U.S. banking industry. In this post, we assess whether market participants find supervisory stress test disclosures informative. After half a decade, do the disclosures still contain information that the market finds valuable?
Liberty Street Economics , Paper 20160404

Journal Article
The Market Events of Mid-September 2019
Afonso, Gara; Cipriani, Marco; Copeland, Adam; Kovner, Anna; La Spada, Gabriele; Martin, Antoine (2021-08-01)
This article studies the mid-September 2019 stress in U.S. money markets: On September 16 and 17, unsecured and secured funding rates spiked, and on September 17, the effective federal funds rate broke the ceiling of the Federal Open Market Committee (FOMC) target range. We highlight two factors that may have contributed to these events. First, reserves may have become scarce for at least some depository institutions, in the sense that these institutions’ reserve holdings may have been close to, or lower than, their desired level. Moreover, frictions in the interbank market may have ...
Economic Policy Review , Volume 27 , Issue 2 , Pages 26

Discussion Paper
Are BHC and Federal Reserve Stress Test Results Converging? What Do We Learn from 2015?
Kovner, Anna; Hirtle, Beverly; McKay, Eric (2015-04-06)
In March, the Federal Reserve and thirty-one large U.S. bank holding companies (BHCs) announced results of the latest Dodd-Frank Act-mandated stress tests. Some commentators have argued that BHCs, in designing their stress test models, have strong incentives to mimic the Fed’s stress test results, since the Fed’s results are an integral part of the Federal Reserve’s supervisory assessment of capital adequacy for these firms. In this post, we look at the 2015 stress test projections by the eighteen largest U.S. BHCs and by the Fed and compare them to similar numbers from 2013 and 2014. ...
Liberty Street Economics , Paper 20150406

Discussion Paper
Tax Reform's Impact on Bank and Corporate Cyclicality
Van Tassel, Peter; Sanchez, Vanesa; Kovner, Anna; Aragon, Diego (2018-07-16)
The Tax Cuts and Jobs Act (TCJA) is expected to increase after-tax profits for most companies, primarily by lowering the top corporate statutory tax rate from 35 percent to 21 percent. At the same time, the TCJA provides less favorable treatment of net operating losses and limits the deductibility of net interest expense. We explain how the latter set of changes may heighten bank and corporate borrower cyclicality by making bank capital and default risk for highly levered corporations more sensitive to economic downturns.
Liberty Street Economics , Paper 20180716

Briefing
To Whom It May Concern: Demographic Differences in Letters of Recommendation
Hirtle, Beverly; Kovner, Anna (2024-11)
Letters of recommendation from faculty advisors play a critical role in the job market for Ph.D. economists. At their best, they can convey important qualitative information about a candidate, including the candidate's potential to generate impactful research. But at their worst, these letters offer a subjective view of the candidate that can be susceptible to conscious or unconscious bias. There may also be similarity or affinity bias, a particularly difficult issue for the economics profession, where most faculty members are White men. In this post, we draw on our recent working paper to ...
Richmond Fed Economic Brief , Volume 24 , Issue 35

Report
The impact of supervision on bank performance
Hirtle, Beverly; Plosser, Matthew; Kovner, Anna (2016-03-01)
We explore the impact of supervision on the riskiness, profitability, and growth of U.S. banks. Using data on supervisors? time use, we demonstrate that the top-ranked banks by size within a supervisory district receive more attention from supervisors, even after controlling for size, complexity, risk, and other characteristics. Using a matched sample approach, we find that these top-ranked banks that receive more supervisory attention hold less risky loan portfolios and are less volatile and less sensitive to industry downturns, but do not have slower growth or profitability. Our results ...
Staff Reports , Paper 768

Briefing
Anatomy of the Bank Runs in March 2023
Cipriani, Marco; Eisenbach, Thomas M.; Kovner, Anna (2024-12)
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 2023.1 Which banks were run on? How were they different from other banks? And ...
Richmond Fed Economic Brief , Volume 24 , Issue 39

Discussion Paper
The Official Sector’s Response to the Coronavirus Pandemic and Moral Hazard
Kovner, Anna; Martin, Antoine (2020-09-24)
Any time the Federal Reserve or the official sector more broadly provides support to the economy during a crisis, the intervention raises concerns related to moral hazard. Moral hazard can occur when market participants do not bear the negative consequences of the risks they take. This lack of consequences can encourage even greater risks, due to the expectation of future government help. In this post, we consider the potential for moral hazard stemming from the official sector’s response to the coronavirus pandemic and explain why moral hazard concerns were likely more severe in 2008.
Liberty Street Economics , Paper 20200924

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