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Working Paper
Interpreting the significance of lagged interest rate in estimated monetary policy rules
Many researchers have found that the lagged interest rate enters estimated monetary policy rules with overwhelming significance. However, a recent paper by Rudebusch (2002) argues that the lagged interest rate is not a fundamental component of the U.S. policy rule, and that its significance arises from the omission of serially correlated variables from the policy rule. This paper demonstrates that, contrary to Rudebusch's claims, these two hypotheses can be directly distinguished in the estimation of the policy rule. Our findings indicate that while serially correlated omitted variables may ...
Working Paper
Why Do We Need Both Liquidity Regulations and a Lender of Last Resort? A Perspective from Federal Reserve Lending during the 2007-09 U.S. Financial Crisis
During the 2007-09 financial crisis, there were severe reductions in the liquidity of financial markets, runs on the shadow banking system, and destabilizing defaults and near-defaults of major financial institutions. In response, the Federal Reserve, in its role as lender of last resort (LOLR), injected extraordinary amounts of liquidity. In the aftermath, lawmakers and regulators have taken steps to reduce the likelihood that such lending would be required in the future, including the introduction of liquidity regulations. These changes were motivated in part by the argument that central ...
Journal Article
Profits and balance sheet developments at U.S. commercial banks in 1996
U.S. commercial banks had another very good year in 1996. Profits posted strong growth, preserving the high levels of return on equity and return on assets that have prevailed over the past four years. Helping to boost profits were continued strong growth of interest-earning assets, a slight widening of the net interest margin, significant gains in noninterest income, and continued containment of noninterest expenses. Return on assets edged up despite a slight increase in provisioning for loan and lease losses relative to assets. Delinquency and charge-off rates stayed low for business loans ...
Working Paper
Securitization markets and central banking: an evaluation of the term asset-backed securities loan facility
In response to the near collapse of US securitization markets in 2008, the Federal Reserve created the Term Asset-Backed Securities Loan Facility, which offered non-recourse loans to finance investors' purchases of certain highly rated asset-backed securities. We study the effects of this program and find that it lowered interest rate spreads for some categories of asset-backed securities but had little impact on the pricing of individual securities. These findings suggest that the program improved conditions in securitization markets but did not subsidize individual securities. We also find ...
Journal Article
Profits and balance sheet developments at U.S. commercial banks in 1995
Continued profitability and rapid growth of assets combined to lift net income of U.S. commercial banks almost 10 percent in 1995 to a record $49 billion. Profitability, as measured by either return on assets or return on equity, edged up near the peak level posted in 1993. Although net interest income as a share of average assets fell slightly, the decline was more than offset by a decline in net noninterest expense. Provisioning for loan and lease losses edged up, as did charge-offs, but both remained quite low. With delinquency rates for real estate and business loans declining, overall ...
Working Paper
Evidence of excess returns on firms that issue or repurchase equity
Between 1927 and 1992, portfolios of the stock of the 5 percent of firms with the lowest annual growth in shares outstanding (generally a reduction in shares outstanding) posted returns over the subsequent five years that averaged 12 percentage points more per year than the returns to portfolios of the 5 percent of firms with the highest annual growth in shares. The difference in returns is greater in more recent years and was positive for all of the final 33 years of the sample. The difference is apparent for portfolios of firms of all sizes and industries. The market beta of the returns to ...
Journal Article
Proposed Revision to the Federal Reserve's Discount Window Lending Programs
The Board of Governors' Regulation A currently authorizes the Federal Reserve Banks to operate three main discount window programs: adjustment credit, extended credit, and seasonal credit. On May 17, 2002, the Board published for public comment a proposed amendment to Regulation A that would establish two new discount window programs called primary credit and secondary credit as replacements for adjustment and extended credit. Primary credit would be available for very short terms, ordinarily overnight, to depository institutions that are in generally sound financial condition. Secondary ...