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Journal Article
Recent Changes to the Federal Reserve's Survey of Terms of Business Lending
The Federal Reserve's quarterly Survey of Terms of Business Lending, which has been conducted for more than twenty years, collects information on interest rates and other characteristics of commercial bank business loans. The survey has been changed from time to time to recognize innovations in bank lending practices and to improve the measurement of the desired information. The most recent changes took effect with the May 1997 survey. The major improvement was the addition of an item measuring loan risk. In addition, the reporting panel, which had been limited to domestically chartered ...
Working Paper
Why does the change in shares predict stock returns?
The stock of firms that issue equity has, on average, performed poorly in subsequent years, while the stock of firms that repurchase has typically done well. One explanation for this pattern is that firms are exploiting their superior knowledge about the value of their stock by buying it when it is undervalued and selling it when it is overvalued. This paper presents supporting evidence for this explanation of the excess returns: The change in shares outstanding is positively correlated with proxies for the deviation of current stock prices from fundamental value; the excess returns following ...
Journal Article
Criteria for central bank assets: lessons from pre-ECB Germany
The Deutsche Bundesbank was formed in July 1957, when the two-tier central bank system set up following World War II was consolidated. That previous system had been established by the Allies in imitation of the Federal Reserve System and consisted of independent regional banks (the Land Central Banks) and a governing body. Under the new system, the Land Central Banks became offices of the Bundesbank. As was true under the previous system, the Bundesbank was made independent of the federal cabinet by law and was particularly proscribed from lending to the public sector except for short terms. ...
Working Paper
The Demand for Short-Term, Safe Assets and Financial Stability: Some Evidence and Implications for Central Bank Policies
A number of researchers have recently argued that the growth of the shadow banking system in the years preceding the recent U.S. financial crisis was driven by rising demand for "money-like" claims--short-term, safe instruments (STSI)--from institutional investors and nonfinancial firms. These instruments carry a money premium that lowers their yields. While government securities are an important part of the supply of STSI, financial intermediaries also take advantage of this money premium when they issue certain types of low-risk, short-term debt, such as asset-backed commercial paper or ...
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 ...
Working Paper
Central banks as lender of last resort: experiences during the 2007-2010 crisis and lessons for the future
During the 2007-2010 financial crisis, central banks accumulated a vast amount of experience in acting as lender of last resort. This paper reviews the various ways that central banks provided emergency liquidity assistance (ELA) during the crisis, and discusses issues for the design of ELA arising from that experience. In a number of ways, the emergency liquidity assistance since 2007 has largely adhered to Bagehot's dictums of lending freely against good collateral to solvent institutions at a penalty rate. But there were many exceptions to these rules. Those exceptions illuminate the ...
Journal Article
Profits and balance sheet developments at U.S. commercial banks in 1997
U.S. commercial banks had another excellent year in 1997. Their return on equity remained in the elevated range that it has occupied for five consecutive years, and their return on assets reached a new high. Banks maintained their profitability while also adding significantly to assets. The year's strong economic growth increased the demand for credit; banks more than met that demand, gaining market share. In addition, banks departed from the pattern of recent years by sharply increasing their holdings of securities. Compared with 1996, banks earned a somewhat lower average rate on their ...
Working Paper
Using policy intervention to identify financial stress
This paper describes the construction of a financial stress index. This stress index differs from other indexes in that it incorporates the co-movement and volatility of financial series as well as the levels of the series. Our index also uses past experience more than others to guide the assessment about which characteristics of the data suggest financial stress exists. In addition to describing the construction of our financial stress index, we spend some time discussing issues relevant to the general construction of stress indexes.