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Discussion Paper
Assisting Firms during a Crisis: Benefits and Costs
Public and private efforts to reduce COVID-19 infection levels have led to a sharp drop in economic activity around the world. In an attempt to mitigate the damage to businesses, governments around the world have implemented a variety of financial programs to help firms. These programs have been criticized as interfering with markets, providing bailouts, and creating adverse incentives. In this article, I review both the rationale for government-provided assistance and the costs of providing that assistance from the perspective of how that aid effects the likely level and volatility of ...
Discussion Paper
Financial Stability and the Coronavirus Pandemic
The Atlanta Fed recently helped organize a conference titled "Financial Stability and the Coronavirus Pandemic." The conference had three sessions devoted to problems focusing on various aspects of how the markets for corporate credits responded to the COVID-19 shock including corporate bond investment funds, the corporate bond market, and the corporate loan market. This article summarizes some of the important findings of the papers presented at the conference.
Discussion Paper
Bank Supervisory Goals versus Monetary Policy Implementation
The global financial crisis of 2007–09 revealed substantial weaknesses in large banks' capital adequacy and liquidity. Bank regulators responded with a variety of prudential measures intended to strengthen both. However, these prudential measures resulted in conflicts with the implementation of monetary policy that helped alter the way the Federal Reserve conducts monetary policy. I review three such conflicts: regulation inhibiting interest on excess reserves arbitrage starting in 2008, regulation inhibiting banks' operations in the repo market in 2019, and regulation inhibiting their ...
Discussion Paper
Bank Supervisory Goals versus Monetary Policy Implementation
The global financial crisis of 2007–09 revealed substantial weaknesses in large banks' capital adequacy and liquidity. Bank regulators responded with a variety of prudential measures intended to strengthen both. However, these prudential measures resulted in conflicts with the implementation of monetary policy that helped alter the way the Federal Reserve conducts monetary policy. I review three such conflicts: regulation inhibiting interest on excess reserves arbitrage starting in 2008, regulation inhibiting banks' operations in the repo market in 2019, and regulation inhibiting their ...
Discussion Paper
Bank Supervisory Goals versus Monetary Policy Implementation
The global financial crisis of 2007–09 revealed substantial weaknesses in large banks’capital adequacy and liquidity. Bank regulators responded with a variety of prudentialmeasures intended to strengthen both. However, these prudential measures resultedin conflicts with the implementation of monetary policy that helped alter the way theFederal Reserve conducts monetary policy. I review three such conflicts: regulationinhibiting interest on excess reserves arbitrage starting in 2008, regulation inhibiting banks’operations in the repo market in 2019, and regulation inhibiting their ...
Banks' Accumulated Credit Losses in the First Quarter
The aggregate allowance for credit losses (ACL) at a set of large banks increased by 65 percent in the first quarter of 2020.1 The increase was due in approximately equal parts to two developments. First, the banks increased their ACL on January 1 to conform to a change in the method of estimating credit losses, from the incurred loss model to current expected credit loss (CECL). Second, the banks increased their ACL to cover an increase in expected credit losses. The magnitude of the ACL increase—commonly referred to as a "build"—at each bank depends on a variety of factors, but banks ...
Journal Article
So Far, So Good: Government Insurance of Financial Sector Tail Risk
The US government has intervened to provide extraordinary support 16 times from 1970 to 2020 with the goal of preventing or mitigating (or both) the cost of financial instability to the financial sector and the real economy. This article discusses the motivation for such support, reviewing the instances where support was provided, along with one case where it was expected but not provided. The article then discusses the moral hazard and fiscal risks posed by the government's insurance of the tail risk along with ways to reduce the government's risk exposure.
Journal Article
Financial Stability and the Coronavirus Pandemic
The Atlanta Fed recently helped organize a conference titled “Financial Stability and the Coronavirus Pandemic.” The conference had three sessions devoted to problems focusing on various aspects of how the markets for credits responded to the COVID-19 shock including corporate bond investment funds, the corporate bond market, and the corporate loan market. This article summarizes some of the important findings of the papers presented at the conference.
Journal Article
Assisting Firms during a Crisis: Benefits and Costs
Public and private efforts to reduce COVID-19 infection levels have led to a sharp drop in economic activity around the world. In an attempt to mitigate the damage to businesses, governments around the world have implemented a variety of financial programs to help firms. These programs have been criticized as interfering with markets, providing bailouts, and creating adverse incentives. In this article, I review both the rationale for government-provided assistance and the costs of providing that assistance from the perspective of how that aid effects the likely level and volatility of ...
Journal Article
Bank Supervisory Goals versus Monetary Policy Implementation
The global financial crisis of 2007–09 revealed substantial weaknesses in large banks' capital adequacy and liquidity. Bank regulators responded with a variety of prudential measures intended to strengthen both. However, these prudential measures resulted in conflicts with the implementation of monetary policy that helped alter the way the Federal Reserve conducts monetary policy. I review three such conflicts: regulation inhibiting interest on excess reserves arbitrage starting in 2008, regulation inhibiting banks' operations in the repo market in 2019, and regulation inhibiting their ...